Payroll Taxes

Delinquent Payroll Taxes

One of the worst tax violations is the failure of an employer to remit payroll taxes it has withheld from its employees’ pay. Despite its gravity, it is also one of the most frequent tax problems we encounter.

Payroll Tax Delinquencies are Treated Harshly

The IRS is required by law to give employees the benefit of all taxes withheld by their employers whether or not such taxes were remitted to the government. In short, when an employer fails to turn over withheld taxes the IRS loses money.

Withheld Taxes are Held in Trust for the Government

The payroll taxes an employer holds back from an employee (the “Trust Fund”) never belong to the employer, but rather are held in a constructive trust for the federal government. Thus, every employer is a Trustee whose sole beneficiary is the United States. As a Trustee, the employer has a fiduciary duty to properly report and turn over all withheld taxes. If you don’t do it, it is considered by the feds to be theft of government funds.

Installment Payment Plans for In-Business Taxpayers

Employers who are behind in their payroll tax deposits can count on immediate and aggressive collection action by the IRS. There is good reason for this: The IRS is concerned that a delinquent payroll tax employer who is still in business will continue to use the Trust Fund for its own purposes. The IRS calls this “pyramiding” and if you keep doing it you could end up in one.

Fortunately, there is a solution: If the business can show that it has corrected the problem and is now keeping current with its payroll tax deposits and can show that it is profitable enough to allow it to remain current and make payments on the unpaid payroll taxes (plus penalties and interest), the IRS will consider an Installment Payment Agreement.

The Trust Fund Penalty

The IRS is empowered to assess a penalty against individuals who are deemed responsible for the failure of the business to remit payroll taxes. This penalty is called the Trust Fund Penalty because it imposes a fine that is equal to the portion of the payroll taxes that was withheld from employees’ pay and held in trust for the government. The IRS often assesses the Trust Fund Penalty against people within the organization who were neither shareholders or officers.

The Trust Fund Penalty may be assessed against more than one individual.

Additional Note: Payroll taxes (Trust Fund) refer to the Social Security tax and the Medicare tax. Social Security taxes are designed to provide benefits for retired workers, the disabled, and the dependents of both. Medicare taxes are designed to provide medical benefits for certain individuals when they reach age 65.

Again, failing to properly file and pay payroll taxes is a serious matter. Not only can the IRS go after the company’s assets but, in certain circumstances, it can also go after Owners, Officers, and certain employees. This means that if you, or someone else within your business, are found to be willfully responsible for the business’s failure to pay payroll taxes you could be held personally liable for a portion of the tax up to and including very stiff fines and possible incarceration.

The IRS must first make an investigation and, assuming it makes an assessment against you or other employees of your company, it can then begin collection efforts aimed at your personal assets. This would include bank accounts, property, and other items of value. In some cases, the IRS may liquidate the company and sell its assets in order to satisfy the tax debt, meaning they can and will shut down your business to satisfy your tax obligation.

Wage Garnishment

A garnishment and a levy are the same thing. The terms are used interchangeably in respect to the seizure of assets by the IRS.

Assets subject to wage levies garnishment

Both are enforced collections of money owed. A wage garnishment or levy may be against any asset. In the enforcement of tax collections. Most commonly bank accounts and accrued salaries and wages are the targets of garnishments; nevertheless, the term may be applied to the legal seizure of any asset including furniture and fixtures, machinery, autos and boats or any other assets that could be garnished. Tools of the trade are protected from garnishments up to a value of $3,390. (If you own cows or chickens you can keep up to $6,780!)

Your bank account is a prime target for garnishment

When your bank is account is subjected to levy, the I.R.S. may take whatever money it finds, regardless of where it comes from.

Funds in your bank account are said to be fungible; that is, they lose their character once deposited. When your bank is account is subjected to levy, the I.R.S. may take whatever money it finds, regardless of where it comes from. In general, payments received by you from a government agency cannot be garnished at the source. The wages that cannot be garnished include Railroad Retirement benefits, Workers’ Compensation, court ordered payments you may receive for child support and alimony, military disability and some other payments. Nevertheless, there are exceptions and tax agencies may levy garnish at the source.

However, once those funds are deposited in your bank account, they lose their identity and can be seized by the I.R.S. by levy.

A wage garnishment stays in effect until the tax is paid in full or until the I.R.S. agrees to release the levy.

Once a levy has been effected against your bank account, the I.R.S. cannot garnish your bank account again without repeating the notification process. This is not always true for state garnishments. Massachusetts, for one, issues garnishments that are good for any funds deposited into the account over a six month period.

So you should check with Authority Tax Services. of whether you are under garnishment from any state.

Where your accrued salary or wages is the target, the wage garnishment is perpetual. Once the garnishment of wages is in place, it will stay in place until the tax is totally paid or the wage garnishment is released for some other reason.

Wage garnishment is a great tax problem and requires immediate action

Garnishment is a great tax problem and the threat of a garnishment should be taken very seriously immediately. If you have received any document from the I.R.S. that uses the word ‘levy’ or ‘garnishment’ you should be aware that the agency is only days away from seizing your bank account or paycheck or notifying your customers that they should pay the I.R.S. and not you.

If you are a single mother of two children claiming head of household status and being paid every two weeks, you will receive merely $632.69 or $16,500 on an annual basis! That amount is to pay the rent and feed and clothe yourself and your children!

Clearly, the threat of wage garnishment is to be taken very seriously, indeed.

There are several reasons why the I.R.S. or a state would seize your assets through a garnishment.

Either you have not paid an outstanding tax obligation, you have not filed all your tax returns or you have defaulted on child support or some other mandatory obligation.

What can you do if the I.R.S. imposes a garnishment on your bank accounts or your wages?

The first step to take when you receive an I.R.S. Notice of Intent to Levy is to contact us at Authority Tax Services..

We will contact the tax agency to obtain its records of taxes owed and returns required to be filed and income records of W2′s and 1099′s filed in your name. The next thing is to file any delinquent tax returns. But you must file all required returns.

Then you are in a position to determine your tax liability for all years, at which point you have five alternatives for getting a levy released: first, pay the tax immediately; second, pay the tax in installments; third, submit an Offer in Compromise; fourth, get placed in non-collectible status or fifth and last, enter bankruptcy.

Generally, the quickest way to get a garnishment removed is to pay the tax or negotiate an installment plan, which for amounts less than $25,000 is fairly easy for us to arrange. For an amount greater than $25,000, the I.R.S. will require disclosure of your financial condition of Form 433 A, 433 B, or 433 F and that process can be complicated and time consuming. We do not recommend you take this task on yourself, as you are not familiar with the most up-to-date tax codes and regulations to help during a mediation.

We can help get your levy garnishment released.

While we have attempted here to explain clearly and concisely the wage levy or wage garnishment process, we cannot set out all the fine points here. We at Authority Tax Services. specialize in this area of tax administration and we encourage you to email us or call us at our toll free number for a free consultation on your garnishment problem.


Avoid the IRS… and They’ll Seize Your Assets!

The IRS has extensive and impressive powers when it comes to Seizure of Assets.

These powers allow Agents to seize personal and business assets and have them sold in order to pay off outstanding tax liabilities.

This occurs often in situations when taxpayers have been avoiding the IRS.

The IRS attempts to collect amounts owed with a seizure as the ultimate act of their collection efforts.

Clearly, in order to avoid seizure of your assets, you should engage our professional tax representation services so that we may begin controlled communications with the IRS

Tax Penalties and Interest

Filing & Owing is Better Than Not Filing & Owing

If you owe taxes, the Internal Revenue Service will calculate penalties and interest on the amount owed. If you have a refund, the IRS may pay you interest on the delayed refund. (Note the difference between “will” and “may” – the IRS generally pays interest on refunds that have been delayed because of slow processing by the IRS. Since most late tax returns take longer to process, the IRS “may” pay you interest on based on the extra amount of time it takes them to process your return.) If you have a refund, there is no penalty for filing late. Penalties are calculated on the amount due. Since there is no amount due, there is no penalty. If you have a balance due on a late tax return, the IRS will calculate additional penalties and interest.

There are three separate penalties:

  • Failure to File Penalty
  • Failure to Pay Penalty
  • Interest

Each is calculated differently. Let’s take a look at each one.

Failure to File Penalty

The failure-to-file penalty is calculated based on the time from the deadline of your tax return (including extensions) to the date you actually filed your tax return. The penalty is 5% for each month the tax return is late, up to a total maximum penalty of 25%. The percentage is of the tax due as shown on the tax return. If your tax return is more than five months late, simply multiply your balance due by 25% to calculate your failure to file penalty.

Failure to Pay Penalty

The failure-to-pay penalty is calculated based on the amount of tax you owe. The penalty is 0.5% for each month the tax is not paid in full. There is no maximum limit to the failure-to-pay penalty. The penalty is calculated from the original payment deadline (the original April 15th filing deadline) until the balance due is paid in full.


Interest is calculated based on how much tax you owe. Interest rates change every three months. Currently, the IRS interest rate for underpayment of tax is 5% per year. The interest is calculated for each day your balance due is not paid in full. IRS interest rates are variable and are set quarterly.

Action Plan Items

There’s a lesson to be learned by looking at the penalties. If you owe, it is better to file sooner rather than later. Also, if it looks like you are going to be a few months late on your next tax return, file an extension. By filing an extension you may reduce or eliminate the Failure to File Penalty.

Unfiled Tax Returns

What Will Happen If You Don’t File Your Past Due Return(s)

It’s important to understand the ramifications of not filing a past due return and the steps that the IRS will take. There are many reasons why taxpayers fail to file required tax returns, but whatever the reason, not filing can be a very serious matter.

The IRS may construe your failure to file tax returns as tax evasion — a criminal act punishable by a prison sentence for each year a return is not filed.

Needless to say, it’s one thing to owe the IRS money but quite another to potentially lose your freedom for failure to file a tax return.

The IRS can file “SFR” (Substitute For Return) Tax Returns on your behalf but without your approval. A Substitute For Return is the IRS’s version of an unfiled tax return. Because SFR returns are filed in the best interest of the government, the only deductions you’ll see are standard deductions and one personal exemption. You will not get credit for deductions to which you may be entitled such as exemptions for your spouse and children, deductions for interest and taxes on your home, cost of any stock or real estate sales, business expenses, and more.

Notwithstanding any action by the IRS and no matter how late it may be, you have the right to file your original tax return. However, as you can see, such filings can bring great risk unless properly handled by Authority Tax Services’s team of experienced professionals.

What If I Owe More Than I Can Pay?

Even if a taxpayer doesn’t have enough money to pay, returns should be filed to avoid further penalties for failure to file. The IRS will assist in finding a solution to the problem.

The IRS has streamlined its policies to offer alternative account resolutions if a taxpayer cannot pay in full with the return:

The IRS will help to set up an installment agreement when the situation warrants. Installment payments allow taxpayers to pay the tax debt over time. The IRS will consider whether an offer in compromise is an appropriate solution.

What If I Don’t File Voluntarily?

The IRS is taking enforcement steps for those who repeatedly choose not to comply with the law. IRS employees will prepare returns when taxpayers do not file. The returns prepared by the IRS might not give credit for deductions and exemptions a taxpayer may be entitled to receive. Bills will be sent to those taxpayers for the tax due, plus penalties and interest.

People who repeatedly don’t comply with the law are subject to additional enforcement measures.

How Can I Avoid Owing Money on Next Year’s Return?

Many people don’t file tax returns because they don’t have enough money to pay the tax they owe. They find out after completing their return that their withholding or Estimated Tax payments do not equal their tax liability.

To help avoid this situation, the IRS can advise taxpayers how to ask an employer to withhold enough tax from their pay. For any income that is not subject to withholding, the IRS can provide information necessary to make quarterly payments to cover any amount to be owed.

Changes in financial circumstances could have an impact on taxes. For example, an increase in income, divorce, or selling an asset, may require adjustments to withholding or estimated payments.

By taking these steps, taxpayers will be better able to meet their tax obligations and avoid tax day surprises.

Will I Go to Jail?

A long-standing practice of the IRS has been not to recommend criminal prosecution of individuals for failure to file tax returns, provided they voluntarily file, or make arrangements to file, before being notified they are under criminal investigation. The taxpayer must make an honest effort to file a correct return and have income from legal sources. A letter from the IRS concerning taxes is not a notice that a taxpayer is under criminal investigation.

The IRS helps to get people back into the system as part of its long-term plan to improve voluntary tax compliance. The IRS wants to get people back into the system, not prosecute ordinary people who made a mistake. However, flagrant cases involving criminal violations of tax laws will continue to be investigated.