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What Should You Do If You Cannot Pay Your 941 Payment to the IRS?

April 3 2017 - If you have heard this before, you do not have to read any further. It is extremely important that you do everything you can physically do to ensure your organization's 941 tax deposits and filings are updated and current.

In case you may have forgotten, a 941 payment is a tax payment made to the IRS that consists of the amount of FICA (Medicare and Social Security taxes) as well as the federal income taxes that your business withholds out of each of your employee's paychecks. You are supposed to pay these taxes every quarter via EFTPS (Electronic Federal Tax Payment System).

Your HR department, accountant, or you as a business owner can make these deposits at any time in the quarter. Many business owners have found that it is easier for them to remember to make these deposits if they are made on the same dates as payroll. However, it is important that you are aware of the absolute deadlines for each quarter.

For 2017, these dates are:

  • 1st Quarter - January, February, March- April 30
  • 2nd Quarter - April, May, June - July 31
  • 3rd Quarter - July, August, September - October 31
  • 4th Quarter - October, November, December - January 31, 2018

An important tip to keep in mind is that these deposits are not based on wages that are earned, they are based on wages that are paid to employees. For accurate records and deposits, you must know the difference.

For example, if you pay your employees through March, but they are not paid until the first week of April, the deposits for these payments must be deposited during the next quarter.

Penalties, Fees for Late Payments

Well, the bad news is that the federal government takes these types of issues very seriously, and some small business owners may even think it takes them personally. The penalties and fees that you can accrue for not paying and filing these deposits on time are often pretty severe. If you simply do not file at all, you may be hit with a 5% penalty fee of the total bill. If you do not pay, the penalty can be as high as 30% of the total you were supposed to pay.

It is also not unheard of for the IRS to charge delinquent tax filers interest on the total that is due. These calculations are based on short term rates by the federal government in addition to 3 to 4 percentage points. The interest is added to the bill on the due date, and it is compounded every day.

The good news is your company is not the first one that has faced late deposits and it will not be the last. Cash flow issues are common in small and medium sized businesses, and it is very tempting to divert 941 payments into other areas of the business that are financially starving. You can keep your business above water and also ensure you meet those critical 941 payment deadlines by using the services of an invoice factoring company.

What Happens If You Are Not Able to Pay?

The first thing you should do is immediately meet with your accountant and/or tax advisers and thoroughly discuss the situation. You should do this for any matters that are tax-related, but especially when your business is facing legal and compliance issues.

If your tax team is experienced and knowledgeable, they probably saw this coming a mile away, and they have helped other business owners in the past who were facing the same situation. You will need them to devise a plan. They will also need to be the ones who meet with the IRS, not you. This is not to say that you could not represent yourself when dealing with IRS agents, but it would probably be in your best interests not to.

Payment Plans

Most of the time, the IRS will be willing to negotiate a payment plan with your tax advisers unless the agents have a reason to suspect deception, fraud or evasion. If you have been compliant up to this point with both your personal and business tax obligations, they may be willing to offer you up to 6 years to pay the debt off.

However, you will most likely still have to pay fees and penalties that are similar to the ones that were previously described. Fortunately, you will be able to keep your business.

If cash flow management issues are normal in your business, consider invoice factoring. It has minimal cost, can be arranged quickly and you will be paid in days instead of months.

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