What Happens if You Can't Pay Your Payroll Taxes?

You are a small business owner, and due to the current economic conditions, you used the funds that you set aside to pay your payroll taxes for other business expenses.  Now, it is time to pay your payroll taxes and you do not have the money to pay them.  This is a common problem right now.

What is going to happen and what can you do?  First, make sure you file the payroll tax return that is due, whether you can make the payment or not, currently.  Once this is done, if you do not make payment timely, the IRS will send you a letter to request payment of the taxes due.  You should attempt to pay as much as you can now, because the penalties are stiff for non-payment (approaching 50%).  Then, either you or your tax adviser needs to contact the IRS, and inform them of your situation and what you are planning to do.  Within a short period of time the IRS will file a lien for the unpaid taxes, and possibly assess a trust fund recovery penalty against all responsible parties, making them personally responsible for the taxes.  If you are going to make a partial payment on the taxes due, consult your tax adviser so that they can insure that the payments are being applied against the trust fund recovery penalty first.  Now make it a priority to pay off the balance of the taxes due.  Your tax advisor can discuss the possibility of a structured payment plan with the IRS to prevent enforced collection.