Delinquent on Payroll Taxes- Now What?

irs Today is the 15th of the month. If you own a business, your payroll taxes for last month are due today. What I am hearing and seeing now, more than ever, is that not all small business owners will be headed to the bank to make that payment. In fact, some businesses haven’t paid their payroll taxes in many months.

The reason for this is obvious. When money gets tighter and tighter, certain bills are the first to go unpaid. Generally, the bills that go unpaid are those with no immediate consequences. For example, if you failed to pay office rent or a product vendor, serious repercussions would come within days or weeks. With the government, it can take a few months before they start getting aggressive about collections. However, unlike other vendors, the IRS has the power to actually completely shut your business down- the most serious consequence your business will ever face.

Whenever I am in a difficult situation, rather than focusing on how or why it happened or what could/should have been done, I like to say, “here we are.” So, here we are. What can be done?

First, and absolutely foremost- GET TO THE BANK TODAY TO PAY YOUR CURRENT TAXES DUE! You never know when the IRS is going to come knocking to shut your business down rather than let you fall further behind. From here on out, pay your taxes on the 15th of every month and stay current. The past due taxes will stay in the past for now.
Second, reorganize your payroll into something you will be able to afford. This may mean cutting yours or some one else’s pay, letting go of an employee, or reducing other benefits. When you consider payroll, include the taxes in your calculations and give yourself some breathing room for when cash flow hits a bump in the road.
Third, if you have an unreasonably high balance due, you may want to consider consulting with a lawyer and a CPA. They will be able to direct you to see if attempting a settlement is right for your situation. If your balance is not terribly high, simply begin paying it off right away.
Finally, correct the problem so the government is first to get paid, not last. Because they have the power to shut your business down, and also because your employers are counting on you to pay their income tax withholdings, it is necessary to set up a trusted system. This may mean setting up an additional checking account and paying the account on the day payroll is run. The best solution, however, is to simply outsource your payroll to a third party. In the interest of full disclosure, my company offers a payroll service (only $59/month for up to 10 employees!).

Beyond my shameless promotion however, lie some fundemental advantages to using a payroll service:

Payments to the government are guaranteed to be on time- or they pay the penalty.
Less hassle because using a service is typically easier than managing it yourself or having an employee do it.
More privacy for employees because payroll data will no longer be readily available in the office- giving the business owner more flexibility in pay rates for different employees.

The penalties are far too high to continue to be delinquent on payroll taxes. Do something about it today, and you wont regret it.

You can call the local IRS office (South Portland) at (207) 879-4683. Generally, the IRS will assign your case to your local office.