941 & 940 Taxes: The Requirements & Penalties for Unpaid Payroll Tax

Businesses who pay wages to employees are required to withhold federal income taxes as well as Social Security and Medicare contributions from their employee’s wages. The amounts withheld from wages are required to be remitted to the IRS on a defined deposit schedule through the Electronic Federal Tax Payment System (EFTPS). In addition to the withholding from the employee’s wages, employers are also subject to a matching contribution to Social Security and Medicare.

The IRS aggressively collects from businesses who accrue delinquencies in employment taxes. In addition to aggressively collecting employment taxes it is one of the primary focuses of the Criminal Investigations Division.

Employers must apply for an Employer Identification Number and enroll in EFTPS. Employees must be issued a W4 form, from which they select their filing status and the number of allowances that the employer will use to determine the amount of their federal income tax withholding using the tables contained in IRS Publication 15.

Social Security withholding is currently set at 6.2% of wages and Medicare set at 1.45% of wages. In addition to withholding from the employee’s wages at those rates, the employer must make a matching contribution to both Social Security and Medicare.

Depending on the total amount of taxes due in a four-quarter lookback period that begins on July 1st and ends on June 30th, an employer must deposit employment taxes through EFTPS on a quarterly, monthly or semi-weekly basis. Employers whose total tax liability is less than $2500 per quarter may make deposits on a quarterly basis whereas employer’s whose tax was between $2500 and $50000 during the lookback period must make deposits on a monthly basis, on the 15th of the month following the month in which the employment taxes accrued. Employer’s whose tax is greater than $50000 during the look back period must make deposits on a semi-weekly basis. Semi-weekly depositors must make deposits after each time they pay employees, either by the Wednesday or Friday after they pay employees, depending on which day of the week payroll is paid.

Each quarter employer’s must file a 941 return which reports the amount of wages paid, the amount of federal income taxes withheld, the amount of Social Security and Medicare withholding and their own matching contribution to Social Security and Medicare. Employers also must file an annual 940 return to report the amount of Federal Unemployment Taxes accrued.

The quarterly 941 returns are due on last day of the month following each quarter of the year. There is a 5% penalty for late filing of the 941 returns for each month the return is late up to a maximum of 25%. The IRS also charges a late payment penalty of ½ of 1% for each month the taxes are paid late up to a maximum of 25%. In addition to these two penalties an employer may be assessed a federal tax deposit penalty of up to 10% for deposits that are made more than 15 days late based on their deposit schedule.

J David Tax Law Can Help with Unpaid Payroll Tax

If you are being aggressively pursued by the IRS for unpaid payroll taxes, and unfiled 940 and 941 returns, our tax attorneys can work with you and fight for you as we seek a resolution for your business with the IRS. We work with businesses in all 50 states and have achieved thousands of successful outcomes for our clients.

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