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If you’re an employer, then you know that you must fill in quarterly tax returns with the IRS for the payroll taxes for your employees’ wages. You are required to do that according to the two schedules imposed by the IRS: monthly or once every two weeks.
If you file those payroll taxes after their due dates, you will be facing penalties. Failure-to-pay, failure-to-file, and failure-to-deposit are all susceptible for being fined/penalized, although there are some ways to adjust the situation back to normal.
The payroll report you must fill in and send back to the IRS is called the Form 941. Subsequently, the 941 late filing penalty depends on how late you are with filling the said form and getting it to the agency.
Form 941 Late Payment Penalty
Just like filing the quarterly tax returns is done in concordance with precise timetables, the penalties vary according to strict schedules. In this regard, the penalties range from 2% to 15% for late deposits.
If you’re 1 to 5 days late, you will be paying a 2% penalty; if you’re 6 to 15 days late, you will be paying a 5% penalty. It’s 10% if you are more than 15 days late with the payment and 15% for payments that have been made within 10 days, but after the employer received a notice for “immediate payment” from the IRS. These percentages are, of course, applicable on the sum of the tax returns.
Form 941 Late Payment and Form 941 Late Filing Penalty Abatement
If you failed at either filing the Form 941 or at making the deposit, you could request an abatement from the IRS. They have a first-time penalty abatement called “FTA” (First-time Penalty Waiver), which may absolve you from the due penalties. In order for you to obtain it, you must have a clean history, which translates as “not having been penalized” in the last three years on the same issue.
The IRS, however, is not perfect. The personnel can make mistakes as well, so if you have strong suspicions that you’ve been penalized for nothing, you should get such an FTA without any problems. This First-time penalty abatement sounds like something trivial, but it can save you thousands of dollars, in particular when the return taxes are highly voluminous.
Apart from the FTA, there is one more way for you to request relief from all three types of penalties (failure-to-file, failure-to-pay, and failure-to-deposit). That is the Form 843, “Claim for Refund and Request for Abatement.”
Form 843 – What Is It and When to Use It
Form 843 allows you to get a refund on certain penalties, taxes, and interest. It cannot be used for income taxes, gift taxes or estate taxes. This form is applicable when you overpaid taxes because of errors made by the IRS itself or when there’s another strong reason to believe that the charge was no accurate. Penalties, too, can be absolved through the very same Form 843, if they were unjust or overcharged. Be careful, however, because the whole concept of filling the Form 843 is rather complicated, in the sense that you will need to fill one for each tax period.
The information you must give in the form is the following:
- The date of the payment
- The type of the tax involved in the mishap
- The date when you got the notification from the IRS on the issue
- The precise period you’re asking abatement for
- The circumstances and the reasons why you think you should be abated
One more thing you should be aware of is that sometimes, the IRS itself can give bad advice through its officers or any other employee that works in the agency. If this is the case, you have to write “Request for Abatement of Penalty or Addition to Tax Under Section 6404(f) on the Form 843, preferably on the top, where it can be seen easily.
Of course, you will also have to provide the written advice you received from the IRS employee. That’s why it’s always a good idea to store all the letters you get from the agency in a safe place where you can get what you need without rummaging for days.
How to Avoid Penalties
As an employer, you have a lot of responsibilities. You are required to pay federal income taxes, FICA taxes (you probably know them better as Medicare and Social Security) and unemployment taxes, both federal and state.
Certainly, the best way to avoid penalties is to pay all these taxes and to file the necessary forms before their due dates have expired.
Sometimes, the IRS will still give you a penalty for late payments and filings, in spite of the fact that you can prove that the delay was by no means deliberate.