Failure to pay an Employer’s Quarterly Federal Tax Return results in a 941 late payment penalty. Here’s everything you need to know about it.
RELATED: IRS Forms 941 [A Must Read For Employers] Internal Revenue Service
In this article:
- What Is the Employer’s Quarterly Federal Tax Return?
- How Are Employment Taxes Paid?
- When Does a 941 Late Payment Penalty Take Effect?
- Who Are Exempt from 941 Late Payment Penalties?
- Why Should Failure to Deposit Penalties Be Paid Promptly?
- Where Could One Reach Out for Penalty Abatement?
941 Late Payment Penalty: Everything You Need to Know
What Is the Employer’s Quarterly Federal Tax Return?
The Employer’s Quarterly Federal Tax Return, or Form 941, reports the following:
- Wages paid to employees
- Tips received by employees
- Federal income tax withheld from employees
- FICA taxes withheld from employees
- Employer’s FICA taxes share
The IRS requires employers to file Form 941 for each quarter of the year. These quarterly schedules are as follows:
- January-March (1st Quarter)
- April-June (2nd Quarter)
- July-September (3rd Quarter)
- October-November (4th Quarter)
Form 941 returns must be filed a month after the most recently expired quarter. This means that for the 4th quarter, January 31st is the latest date of filing.
If the due date falls on a legal holiday or a weekend, filing may be done on the next business day. Failure to file on a return’s due date results in a penalty (5% of the tax amount that should have been reported), which is separate/different from failure to pay penalties.
The IRS has authorized small businesses that pay less than $1,000 of employment taxes per year to file Form 944, which is the Employer’s Annual Federal Tax Return.
How Are Employment Taxes Paid?
The IRS allows two payment schedules, semiweekly or monthly, for employment taxes covered by Form 941. Employers decide before the start of a calendar year which of these schedules they want to follow.
For semiweekly payors:
- Wednesday is the deposit due date for payments made on Wednesday, Thursday, or Friday.
- Friday is the deposit due date for payments made on Saturday, Sunday, Monday, and Tuesday.
Monthly payors must deposit employment taxes on the 15th day of the following month. Rules pertaining to weekends and legal holidays apply to both payment schedules.
There are three options for depositing employment taxes. The first and safest option is via the U.S. Treasury’s free Electronic Federal Payment System.
The other two options are via payroll software or a third-party payroll service provider. Regardless of which option is followed, timely payment is crucial to penalty avoidance.
When Does a 941 Late Payment Penalty Take Effect?
The IRS is quick to hand out Failure to Deposit (FTD) penalties to employers who have not deposited their employment tax dues on schedule. FTD penalties take effect the day after the deposit is due.
Here are FTD penalty samples:
- 2% of the unpaid amount, within 1-5 days behind schedule
- 5% of the unpaid amount, within 6-15 days behind schedule
- 10% of late deposits more than 15 days behind schedule
- 10% of the amount deposited within 10 days of receipt of an IRS request for payment notice
- 15% of the amount not deposited within 10 days of IRS demand for payment receipt
- 100% of the un-deposited amount for deliberate remittance negligence (Trust Fund Recovery Recovery Penalty)
The IRS expects deposits via electronic funds transfer. Failure to abide by this rule constitutes a 10% penalty.
Partial payments do not exempt any unpaid amount from penalties and interest. Current late payment interest rates fall between 3-4% of un-deposited employment taxes.
Employers must also remember that un-deposited employment taxes must never be used to finance a business. The IRS assigns expensive interests and penalties to such a case.
RELATED: A Guide To Estimated Taxes For Small Business Owners
Who Are Exempt from 941 Late Payment Penalties?
The IRS allows the waiver of certain penalties by way of First-Time Penalty Abatement (FTA). This waiver may be applied to cases pertaining to failure to file, failure to pay, and in case of employment taxes, failure to deposit.
To qualify for FTA, the following qualifications must be met:
- Have a clean penalty-free tax record in the last three years
- Have diligently filed all necessary returns and extensions
- A payment plan has been arranged in relation to an outstanding debt
The IRS does not take into account previous penalties amounting to less than $100. The same goes for penalties resulting from underpaid estimated taxes.
Despite both of the aforementioned scenarios, a taxpayer may still be eligible for FTA. There are three ways to apply: in writing, online, or over the phone.
There’s an unwritten rule on the ceiling amount of penalties that may be removed via FTA. Based on past cases, however, this amount can reach up to $10,000.
Keep in mind that before the IRS grants FTA to a taxpayer, a reasonable cause for FTD must first be established, such as:
- Destroyed records due to force majeure
- Seclusion due to prison or rehab stay
- Seclusion due to kidnapping
- Death of a close family member
- Civil disturbance (i.e. widespread workers strike)
- Faulty advice from an IRS agent or tax professional
Why Should Failure to Deposit Penalties Be Paid Promptly?
The IRS carries out relentless tax collection efforts. This means there’s no getting around FTD penalties.
The agency will pursue collection of accrued interests and penalties, alongside the outstanding debt they are attached to, through all legal means necessary. If worse comes to worst, the IRS can impose a lien on a business.
A lien gives the IRS a sort of payment insurance. If still no payment is made, a lien could lead to an IRS levy, which means legal seizure of any business property attached to a lien.
Where Could One Reach Out for Penalty Abatement?
IRS Form 843 may be accomplished for those who wish to get a refund of penalties that have already been paid. Alternatively, taxpayers can reach out to the toll-free number or address specified on the demand for payment notice they have received to file an over-the-phone or in-writing FTA request.
To avoid having to deal with IRS penalties, it is best to file returns and pay the consequent balance in a timely manner. After all, promptness in accomplishing IRS responsibilities proves more beneficial to taxpayers, both financially and mentally.
Please tell us about your experience with 941 late payment penalties in the comments section below.
If you owe back taxes, visit taxreliefcenter.org for more information on tax relief options.
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