Behind on Payroll Taxes in New York? What You Need to Know

Employees in New York must deal with federal, state, and sometimes, local payroll taxes. Failure to pay or file these taxes can lead to significant penalties and potentially put your business at risk. To get help now, contact us at the Law Offices of Timothy S. Hart today, or read on for more details.

Key Takeaways:

• Employers in New York State must remit payroll taxes to both the IRS and the NY Department of Taxation and Finance.
• A failure to withhold, remit, or deposit your business’s payroll taxes by the deadline will lead to penalties and other consequences.
• Filing returns late will also lead to penalties.
• Payroll taxes are considered to be a trust fund tax for both the federal and state governments, meaning that the government can hold individuals responsible for unpaid withholding tax.
• If you get behind, you may qualify for a payment plan or another resolution option.

What Payroll Taxes Are Owed to New York State?

Many payroll tax issues arise as a result of a business (or a responsible person) not fully understanding their tax obligations. Payroll taxes are complex, and in New York State, employers are responsible for multiple different payroll taxes:

• FICA taxes – Social Security and Medicare taxes should be withheld from employees’ paychecks, plus employers must make a matching payment.
• Federal withholding – Employers should withhold federal income tax and remit it to the government, based on the information supplied on the employees’ W4 form.
• Federal unemployment tax (FUTA) – Employers must pay this tax and file federal unemployment returns.
• New York State withholding – Employers must withhold NYS income tax from their employees’ pay and remit it to the state. They should use the withholding information from the employee’s W-4 or the corresponding NYS form.
• Local income tax withholding – If you have employees who live in Yonkers or New York City, you may also need to withhold local income tax from their paychecks and remit it to the DTF.
• State unemployment insurance tax – Employers should pay this tax and file any required returns with the NY Department of Labor.
• Metropolitan Commuter Transportation Mobility Tax – Employers must pay this tax if they withhold NYS income tax and have payroll expenses over a certain level.

Dealing with these taxes requires employers to make complicated calculations on their employees’ paychecks, make several different deposits, and file four or five different types of returns throughout the year. Here are more details

IRS Withholding and Employer Payroll Taxes

As indicated above, employers must withhold federal income tax and FICA taxes from their employees’ paychecks. Then, they must make a matching employer payment of the Social Security and Medicare taxes. Generally, these taxes must be deposited monthly, but some big employers are on a semi-weekly schedule, while some very small employers are on an annual schedule. Then, employers must file returns quarterly (Form 941) or annually (Form 944) if they only pay once a year.

On top of that, employers must remit a FUTA return (Form 940) and payment to the IRS every year.

New York State Withholding Tax

New York operates on a progressive income tax system, which means that the highest earners also bear the highest portion of the tax burden. Depending on each person’s income level, they may be required to pay anywhere from 4 to 10.9% of their overall income to the state.

Employers have a legal obligation to accurately withhold and remit these taxes to the NY DTF. Employers will need to determine how much to withhold based on the employee’s income, filing status, and any allowances they claim. To ensure you correctly identify the amount you need to remit, businesses should use Form IT-2014 for calculation purposes.

Employers generally need to file Form NYS-45 quarterly. However, if you withhold more than $700 in payroll tax during the quarter, you should file Form NYS-1 and make payments within five days if you withheld less than $15,000 during the previous year or within three days if you withheld more than $15,000 in the previous year.

State Unemployment Insurance (UI) Tax

Another payroll tax that employers are responsible for in New York is the unemployment insurance tax. Unlike income taxes, employers cannot withhold these funds from wages. Instead, employers must pay these annually based on specific factors, such as the company’s payroll size, the number of unemployment claims filed by former employees, and the overall health of the UI trust fund.

First, employers should file Form NYS-45 every quarter. This form is the business’s quarterly combined withholding, wage reporting, and unemployment insurance return. Next, they’ll need to pay the correct amount to the NYS Department of Labor.

Metropolitan Commuter Transportation Mobility Tax (MCTMT)

Another New York payroll tax is the Metropolitan Commuter Transportation Mobility Tax (MCTMT). This type of tax must be paid by employers who are engaged in business within the Metropolitan Commuter Transportation District. This includes areas that fall within Manhattan, the Bronx, Kings, Queens, Richmond, Rockland, Nassau, Suffolk, Orange, Putnam, Westchester, and Dutchess, and have payrolls exceeding $312,500 every quarter.

New York businesses are expected to file and pay these taxes quarterly. This tax is often overlooked by employers, but enforcement is growing. That said, you need to be aware of this tax and uphold your duty to pay it.

What Happens If You Don’t File or Pay?

If you do not file or pay your payroll taxes in New York State, then you will likely face enforcement actions – if you don’t pay federal taxes, the IRS will assess penalties, and if you miss state tax obligations, you’ll have to deal with the NY DTF or another applicable state agency.

The IRS will assess a failure to deposit penalty if you deposit payroll taxes late – that’s 2% to 10% of the unpaid tax, depending on when you make payment. You may also incur late filing and late payment penalties if applicable.

The NY DTF may also apply a 5% late filing penalty and/or a late payment penalty of 0.5%. The total penalty can get up to 25%. You may also incur penalties for not filing forms or for paper filing when you’re required to e-file.

On both the state and federal levels, your overdue payroll tax balance will be subject to daily compounding interest. If you still do not comply or contact the Department of Taxation and Finance or the IRS to resolve the situation, then your business assets could face levies or liens.

Can You Be Held Personally Liable for Payroll Taxes?

Yes, an individual owner, employee, or even a third party can be held personally liable ^[a] for the withholding portion of a business’s unpaid payroll taxes if they are deemed a “responsible person” by the IRS or DTF. Generally, a responsible person is someone who made the decision to withhold the tax and not remit it to the government, for example, because they used the funds to pay other business expenses.

New York State follows similar rules to the IRS for determining who might be considered “responsible” for a business’s payroll taxes. Responsible individuals may include employees, officers, shareholders, payroll service providers, corporate directors, business owners, bookkeepers, and potentially even third-party payers.

If you are determined to be “responsible” for the payroll tax burden, then NYS can go after you for withheld payroll taxes that weren’t paid and even for payroll taxes that were supposed to be withheld and weren’t. The IRS may assess a Trust Fund Recovery Penalty of 100% of the unpaid withheld tax, and that can be personally assessed against responsible individuals.

If either the state or the IRS holds you personally liable and you don’t pay the assessment, then you could face enforcement actions like wage garnishment, bank levies, or even criminal charges if your violation was willful and intentional.

What If Your Business is Struggling or Closed?

Too often, New York State businesses make the mistake of thinking that their financial obligations will cease if their business starts to fall into financial distress or closes entirely ^[b]. That’s not the case!

If your NYS business closes or is struggling and taxes are still owed, then you still must file a final tax return even if you can’t pay off what you owe. Keep all the documentation you can regarding the business’s finances, and be prepared to begin negotiating. Most likely, you’ll need to pay off as much as is reasonably possible.

However, you should be prepared to potentially face a personal assessment even if your business is already closed. If you make a partial payment on your payroll taxes, you should try to mark that the payment is for withholding rather than for the employer’s portion of the tax liability. That may help to reduce your personal exposure for payroll tax liability.

What are Your Options for Resolution?

The good news is that your payroll tax debt situation can be remedied. The NYS Department of Taxation and Finance and the IRS have options to help struggling business owners and businesses that are no longer in operation.

However, it’s always harder to get payment plans on withholding taxes than it is for income taxes, and to protect yourself, you may want to work with a tax professional.

Installment Payment Agreement

One of the top solutions is to file for an installment agreement. This type of agreement is a payment plan between you and the IRS or the NYS Department of Taxation and Finance. You agree to pay off what you owe in monthly installments, and the revenue agency agrees to temporarily stop enforcement actions to give you the chance to pay off what you owe.

Here are the main options:

• In-operation express trust fund installment agreement – This option gives in-operation businesses that owe up to $25,000 in payroll taxes, up to two years to make payments.
• Streamlined installment agreement – Businesses that are no longer operating can make payments on payroll taxes for up to six years. If you’re still in operation, you may be able to get this plan for income taxes (but not payroll taxes for your business).
• NY DTF Installment Agreement – If you owe up to $20,000, you can get up to three years to make monthly payments. Eligibility may vary based on your history of tax compliance.

You can apply for the IRS payment plans on the IRS website. If you don’t meet the criteria to apply online, you can apply by mail, over the phone, or by working with a tax attorney. You can also apply for the NY DTF installment agreement online, but if you owe over that threshold, need more than 36 months to pay, or have other complicating factors, you may need to apply directly with the department and complete Form DTF-5.

If you owe both federal and state payroll tax, consult with a tax attorney. They can help you come up with a repayment strategy that protects your business the most effectively.

Hardship Relief or Temporary Holds

If you genuinely can’t pay off your payroll taxes due to being in a financially distressing situation, then understand that the IRS and the NYS DTF have no interest in penalizing or criminalizing an inability to pay. If you can prove to the taxation agency that you want to pay off what you owe but can’t, then they can place you under ‘currently non-collectible’ status.

This temporary status can help you avoid enforcement actions while still being in good standing with the tax authorities. Take note, though, that the agency will resume collections if your financial status changes. Generally, you can only qualify for this option if your business is no longer operating. Similarly, if you’re no longer operating, you may qualify for a settlement, but there are strict rules about settling payroll taxes.

The Importance of Being Proactive

Both the IRS and New York State are adamant about pursuing businesses with unpaid payroll taxes. Unlike income taxes, payroll withholding taxes are considered to be the property of the government. They are being held in a trust by your business, so using that money in any other way than depositing it with the IRS or the state may be considered theft.

If your business is behind on payroll taxes, then act now to make payment arrangements, minimize penalties, and avoid personal liability. Taking small steps can make a huge difference. Schedule a consultation with our team of tax resolution attorneys now to learn more about payroll tax relief options and how we can help. Get started by filling out our online form or calling our New York office at (917) 382-5142.

FAQs: Payroll Tax Payments and Deadlines

Do you have more questions about your business’s payroll tax situation? While the answers below can provide some general advice and basic guidance, it’s typically your best option to consult directly with a tax resolution attorney. The right lawyer can provide you with personalized advice that takes into account your unique circumstances.

That said, we’ll dive into some of the most frequently asked questions about payroll tax payments and deadlines in New York State below.

Who is responsible for a business’s payroll taxes?

The business is responsible for its payroll taxes, but the IRS and the NY DTF can levy a penalty against individuals who are responsible for this tax not being paid. Responsible parties are individuals who have substantial authority over a business’s finances. This can include employees, business owners, bookkeepers, and other parties.

Can multiple people be held responsible for a business’s payroll tax debt?

Yes, multiple people can be held responsible for a business’s payroll tax debt if multiple parties are deemed “responsible” for the delinquency. The IRS and the NYS DTF can only collect what’s owed, though, and not more.

For example, if the IRS assesses a TFRP against several individuals, they can collect all of the penalty from one person, or a portion of the penalty from multiple people. They will not collect more than the value of the penalty (which is equal to 100% of the withheld taxes that were not paid).

Could I face jail time for a business’s payroll tax problems?

Yes, an individual can face criminal charges that could result in jail time, like tax fraud, if they’re responsible for a business’s payroll tax delinquency.

How does New York State identify businesses with payroll tax issues?

The NYS DTF identifies businesses that are late on their payroll taxes through audits. Audits are conducted on businesses when the tax agency suspects or notices discrepancies between the information provided by the business and that provided by third parties.

What can I do now to minimize the consequences associated with New York payroll tax issues?

One of the best things you can do to minimize the consequences associated with IRS or NYS payroll issues is to act now. If you know you’re behind, consider taking partial steps, such as filing your returns now. You could also get in touch with the NYS DTF to express your intent to pay, but your current inability to do so. This could potentially protect you from harsher consequences later.

Sources

https://www.tax.ny.gov/bus/mctmt/emp.htm

https://www.nyc.gov/site/finance/pay-now/personal-income-tax-and-non-resident-employees.page