What to Know About Late Payment Payroll Tax Penalties

Paying payroll taxes is just part of running a business. But staying compliant is easier said than done. When you fall behind on payroll taxes, the IRS may charge steep penalties and start trying to collect what you owe. The agency takes these tax obligations very seriously.

Act as quickly as you can after a late payroll tax payment to avoid your balance from growing higher and higher. This page walks through everything you need to know about late payroll tax payments and penalties.

Attorney Tim Hart at the Timothy S. Hart Law Group is here to answer questions about your payroll tax payment responsibilities and what to do when you don’t meet your business’s tax obligations.

Key takeaways:

• The IRS charges a penalty for late payroll tax payments, also known as the failure to deposit penalty, which can range from 2% to 15% of the taxes owed.
• You, as an individual, may also get hit with the Trust Fund Recovery Penalty (TFRP) if you’re found responsible for the mistake and acted willfully.
• On top of penalties, you’ll be charged interest, and the IRS may pursue collection actions like liens and levies.
• Use the IRS’s online payment tools and set up regular calendar reminders to avoid missing payments in the future.

What Are Payroll Tax Late Payment Penalties?

Employers have an important obligation to withhold trust fund taxes from employees’ paychecks and make prompt payments of those taxes to the IRS. If the deadline is missed and payments aren’t deposited, the IRS assesses fees, also known as late payment payroll tax penalties or the failure to deposit penalty.

These penalties are distinct from tax filing penalties. If you fail to file your tax return and fail to pay on time, you could be hit with both types of penalties. Sometimes you may be hit with late payment payroll tax penalties even if you file correctly.

These penalties apply to unpaid trust fund taxes, which include some income taxes and Federal Insurance Contribution Act (FICA) taxes withheld from employees’ paychecks.

Reasons Your Payroll Tax Payments Might be Late

Always remember that you’re not alone if you have tax problems. Failing to make your payroll tax payments on time is pretty common, but you should always try to avoid it to prevent penalty charges from adding up. Here are a few reasons why you may be late on your payment:

• Missed payment deadlines due to error, confusion, or oversight.
• Cash flow issues that prevented you from paying.
• Misclassified contractors as employees and thus underpaid.
• Errors in your payroll processes.
• Mistakes made by bookkeepers or third-party payroll companies.
• Hardships, like a natural disaster or staff shortage.

These scenarios can easily lead to IRS penalties related to late payments. If you’re experiencing these issues or others that are getting in the way of tax compliance, contact the tax attorney at the Timothy S. Hart Law Group to find out what options you have.

Penalties for Late Payroll Tax Deposits

So, if you miss a payroll tax payment, what kinds of penalties should you expect? Here’s a breakdown of the IRS’s failure to deposit penalty rates:

• 1 to 5 days late: 2% of the unpaid tax deposit
• 6 to 15 days late: 5%
• Over 15 days: 10%
• Over 10 days after your first IRS notice or after you get a notice to pay immediately: 15%

These penalties apply to each deposit that’s late. And on top of the penalty rate, remember that the IRS charges interest on the late payment and the penalties. Interest continues to increase until the balance is completely paid.

Consequences of Late Payroll Taxes

It’s never fun to get a notice from the IRS. When you’re late paying your payroll taxes, that’s the first thing that will happen. Once that process starts, you need to be aware of all the consequences and what takes place if you continue to avoid paying.

Increasing Penalties

As the prior section outlines, penalties only continue to increase the longer you wait to make your deposit.

Federal Tax Lien

The IRS may file a federal tax lien against the business when payroll taxes continue to be outstanding. This public record alerts other creditors that the IRS has an interest in the business’s assets.

Levies

When the IRS alerts you of its intent to levy, that means your business’s assets are at risk of being seized to cover the tax debt. You never want the assets of the business or individual stakeholders to be at risk of being seized.

Trust Fund Recovery Penalty

Aside from failure to deposit penalties, you also need to know about the Trust Fund Recovery Penalty. The IRS assesses this penalty against the person(s) responsible for failing to deposit, not the business. If the TFRP is assessed against you personally, the IRS can use liens and levies to collect from your personal assets.

How the Trust Fund Recovery Penalty Works

Let’s dive a bit deeper into the TFRP. When a business doesn’t submit its required payroll tax deposits, the IRS will try to find out who was responsible for the mistake. A “responsible” person is whoever “has the duty to perform and the power to direct the collecting, accounting, and paying of trust fund taxes.” An example would be an employee or officer of the business.

This person also must be found to have willfully failed to collect or pay the required taxes, meaning they were aware of the outstanding taxes (or should have been) and they showed intentional disregard of or were indifferent to tax law.

The TFRP is a big penalty. It’s equal to your unpaid payroll tax balance. So, your balance essentially doubles with this penalty, and that’s on top of any other failure to deposit penalties and interest.

How to Resolve Unpaid Payroll Tax Problems

Anytime you or your business is dealing with a tax problem, the first thing is to make a plan and be proactive. Never disregard an IRS notice or an obligation, as doing so will only make the situation worse.

Here are other steps to take to resolve issues when you don’t pay payroll taxes on time:

Pay in Full

As soon as you can, pay the full balance you owe. This helps avoid increasing penalties and interest and gets the matter resolved with the IRS quickly.

Request a Payment Plan

The IRS knows that taxpayers experience more challenging periods sometimes. If you’re unable to make the full payment, you may be able to set up an installment agreement to pay what you owe in monthly payments.

Apply for an Offer in Compromise

Another relief option is an offer in compromise, which allows you to settle your tax debt for less. To qualify, you have to show that your financial situation doesn’t allow you to pay what you owe, even with a payment plan.

Look into Penalty Relief

You may also qualify for penalty abatement so your penalties will be waived or reduced. This typically only applies if you haven’t had any other tax penalties in the last three years or you have reasonable cause for not paying on time. A reasonable cause is an event like a natural disaster, serious illness, or death.

Contact a Tax Expert

Not all tax problems can be resolved completely on your own. When you haven’t paid payroll taxes and are facing penalties, consider working with a tax expert, like the attorney at Timothy S. Hart Law Group, to get relief from payroll tax problems. Tax attorneys understand all the laws you have to follow and what happens if you miss a deadline.

How to Prevent Payroll Tax Problems

Even if you get your tax issue resolved now, what can you do in the future to avoid it from happening again? Consider these tips to prevent payroll tax payment problems for your business:

Learn Your Required Deposit Frequency

Knowing when you need to make payroll tax deposits is key to compliance. You’ll need to deposit payroll taxes on either a monthly or a semi-weekly schedule, depending on the amount of taxes you report, among other factors.

Automate as much as possible

Payroll software can help you calculate withholding and issue payments to your employees, but it can also automate the payroll return filing and payment process. If possible, consider automating your deposits so that you’re less likely to fall behind.

Keep Accurate Records

It’s crucial to stay organized when it comes to taxes. Make sure someone is paying attention to tax deadlines and reconciling payroll records with required tax deposits. If your staff doesn’t have this bandwidth, consider working with a third party to ensure IRS compliance.

Don’t Underestimate the Consequences

When you’re in a tough situation financially, it’s easy to assume that you can just miss a payment and get on top of it later. However, remember that payroll tax penalties and the TFRP can significantly impact your bottom line. It’s not worth it to miss a payment, as you’ll just end up owing more money to the IRS.

Work with an Experienced Tax Attorney

If you didn’t make your payroll tax deposits on time and received a notice from the IRS, contact a tax professional as soon as possible. The team at Timothy S. Hart Law Group is here to help you understand the notice and how to get your tax issues resolved quickly.

Our attorney can help you apply for tax relief, request penalty abatement, or negotiate with the IRS on your behalf. We act as your business’s partner in all things taxes. Act now before penalties escalate or you have to deal with the expensive TFRP.

Contact IRS Tax Pros today to set up a free consultation so we can start reviewing your case and outlining your options.

FAQs About Late Payroll Tax Payments

What Happens If I’m Late Paying Payroll Taxes?

The IRS will send you a notice about your missed deadline, which will tell you your balance and the penalties you have to pay. If you continue to avoid paying, more serious enforcement actions like the TFRP, liens, and levies could come next.

How Much is the Late Payroll Tax Penalty?

It depends on how late your payment is. Within five days, it’s 2% of the unpaid taxes. From 6 to 15 days, it’s 5%, and for more than 15 days, it’s 10%. It may be 15% of the unpaid taxes after over 10 days from the first notice or from the day you received a notice for immediate payment.

Can I Get Payroll Tax Penalties Removed?

The IRS may waive or reduce penalties if you have otherwise good tax compliance history in the last three years or if you can show reasonable cause for missing the payment.

What If My Payroll Provider Caused a Payroll Tax Payment Delay?

The IRS states that relying on a tax professional, which ultimately leads to a missed payment, usually isn’t a valid reason for reasonable cause. You are responsible for ensuring the provider pays on time. However, sometimes an issue with the payment system that prevented on-time payment could be a reasonable cause.

Can I Face Personal Liability for Unpaid Payroll Taxes?

Yes, the IRS may assess a penalty against you as an individual if you are found to be responsible for the missed payroll tax payment and you acted willfully when being late. This penalty is the Trust Fund Recovery Penalty (TFRP), which isn’t assessed on the business itself.

Can I go to jail for not paying payroll taxes?

Generally, no. The only risk of imprisonment is if you don’t pay or file taxes in an attempt to defraud the government or evade taxes. Then, the IRS can refer your case to Criminal Investigation, and if you’re convicted, you may face fines and imprisonment.

Sources:

https://www.irs.gov/businesses/small-businesses-self-employed/employment-taxes-and-the-trust-fund-recovery-penalty-tfrp

https://www.irs.gov/businesses/small-businesses-self-employed/trust-fund-taxes

https://www.irs.gov/payments/failure-to-deposit-penalty

https://www.irs.gov/payments/penalty-relief-for-reasonable-cause#failure

https://www.irs.gov/publications/p15#en_US_2025_publink1000202439

https://www.irs.gov/businesses/small-businesses-self-employed/employment-tax-due-dates

https://www.irs.gov/payments/administrative-penalty-relief

https://www.adp.com/resources/articles-and-insights/articles/p/payroll-tax-penalties.aspx

https://www.irs.gov/pub/irs-pdf/p3151.pdf