Messy books
Behind on Payroll Taxes and Payroll Filings
Of everything a business can fall behind on, payroll tax is the one to deal with first. The money withheld from employees was never the business’s to keep, and the rules treat it that way.
Why payroll tax is different
When you pay an employee, part of their wage is withheld for income tax, Social Security and Medicare. That money is held in trust for the government. Using it to cover other bills in a tight month is how most payroll problems begin.
Because it is trust money, the consequences reach further than for other taxes. Penalties for late deposits grow with how late the deposit is. And the withheld portion can be assessed personally against the owners and others responsible for paying it, even when the business is an LLC or a corporation.
That is why we treat payroll as the first priority in any cleanup that includes it.
What is usually outstanding
- Federal payroll tax deposits
- Quarterly federal payroll returns
- The annual federal unemployment return
- South Carolina withholding deposits and returns
- South Carolina unemployment wage reports and contributions
- W-2s to employees and the matching filing with the Social Security Administration
The quarterly returns, the annual forms and the books all have to agree with one another. When one of them was skipped, the others usually do not tie either. Our South Carolina payroll tax guide lists who each filing goes to.
The order we fix it in
- Get the current period right first: this pay run’s deposits made on time, so the problem stops growing
- Establish what was actually paid to whom, from payroll records, bank statements and the books
- Work out what was filed and deposited, from IRS and state account records
- Prepare the missing returns, oldest first
- Prepare any missing W-2s, so employees can file their own returns correctly
- Total the balance, with penalties and interest, across every agency
- Look at how it can be paid
Staying current while the old periods are dealt with matters. The IRS is much more willing to work with a business that has stopped falling behind than with one that is still missing deposits.
Who deals with the agencies
We rebuild the payroll records, prepare the returns and forms, and run payroll correctly from here on through our payroll services. Where the balance needs a negotiated arrangement or the matter requires professional representation, that is handled by the independent licensed CPA we work with, with our office coordinating. See tax resolution.
If people were paid in cash or as contractors and should have been on payroll, read employee or contractor first. Classification decides which of these filings were due at all.
Frequently asked questions
Can I be personally liable for my company’s unpaid payroll taxes?
Yes, for the part that was withheld from employees. That portion can be assessed personally against the people responsible for collecting and paying it, and an LLC or corporation does not prevent that. It is the main reason payroll tax is dealt with before other debts.
Should I catch up old payroll taxes or keep current ones paid?
Keep the current ones paid on time, then deal with the old periods. Missing new deposits while paying old ones keeps the problem growing and makes any arrangement harder to get.
I never filed quarterly payroll returns. Can they still be filed?
Yes. The returns are prepared from payroll records, bank statements and the books, oldest quarter first, along with any W-2s that were never issued. See payroll services.
My payroll provider was supposed to handle this. Why am I behind?
Usually because a payment failed, the account was closed or underfunded, or the service was set to calculate tax but not to file it. The business remains responsible either way. The provider’s reports and your IRS account records show exactly what was and was not sent.
Not the question you had? The full tax FAQ covers more ground, and our client reviews say what the work is actually like.
Related situations and guides
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Learn moreCleanup Planner
Eight questions, then a plan: what comes first, what to gather, and which guides apply.
Part of Messy Books Help, alongside our catch-up bookkeeping service.
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