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Falling Behind? What to Do if You Owe Back Payroll Taxes

November 27th, 2023 | 4 min. read

By Bret Asmussen

When you own a small business, you have a lot on your plate. If doing your own payroll is part of that, do you always remember to pay your payroll taxes and file returns on time? If not, you can owe payroll back taxes.

At CSI Accounting & Payroll, we’ve worked with small business owners for over 50 years. After seeing how many people fall behind on business taxes - including some falling behind on payroll taxes - we know the importance of outsourcing the things you don’t specialize in.

Small business owners who have fallen behind on payroll taxes often want to know:

  • What are payroll back taxes, and why do I owe them?
  • How long can the IRS collect back payroll taxes?
  • What is the payment plan for back payroll taxes? Do most people do this?

Blog - Falling Behind What to Do if You Owe Back Payroll Taxes

Why Do I Owe Payroll Back Taxes?

Back taxes are essentially late, unpaid taxes. As an employer, you’re subject to paying payroll taxes such as FICA (Social Security and Medicare), income tax withholding, and unemployment taxes

If you haven’t been paying these taxes or filing returns, then you owe payroll back taxes. 

You have to pay these missed taxes, plus penalties and interest that increase over time. Not sure how to do that? A payroll specialist can help! 

If you don’t fix this, some states will file a return for you based on your previous tax liabilities. They’ll also add additional penalties and interest. We believe it’s always better to bring the issue to a payroll specialist who can help you find the best solution for your business.

How Long Can the IRS Collect Back Payroll Taxes?

There’s no limit to how long the IRS can collect back payroll taxes from a business. Even if you were to hypothetically file returns from 20 years ago, if you owe taxes on them, the IRS can require the tax payment, penalties, and interest for the entire time you’re overdue.

Generally speaking, the IRS is persistent about collecting owed money. However, they have been known to make some exceptions.

If you have a great track record of paying taxes on time but have a recent period of late payments, you can write a letter to the IRS asking to have the penalties and interest reduced or abated. They may allow a one-time exception, but they don’t dismiss long periods of neglect.

How Do I Pay Back Payroll Taxes?

The first part is fixing your records and filing old returns. If you work with CSI Accounting & Payroll to fix your missed payroll taxes, we’ll rebuild your data in our system as if we did your prior payrolls. (If we had originally done them, your taxes would be paid!)

We need to make up for several returns per year, and the number varies by state. Our software helps us file your old returns, and when we make amendments to your W2s, we can print them out and have them in your hands as soon as they’re done. 

The other part is paying back what you owe. You will owe all of your payroll back taxes to the IRS (via the EFTPS website) and the state (via the website you would use to file a tax return) right away.

If you owe $100,000 or more in payroll back taxes and ask the IRS for a payment plan, they may grant you one. This keeps them from pulling money from your bank account. You can also request an offer in compromise, which will let you settle your tax debt for less than you owe.

However, if you’re on a payment plan and miss or bounce a payment, you lose the payment plan and everything is due right away again. You also risk losing your offer in compromise and owing the full balance of your payroll back taxes again.

If you work with a payroll service, they will have nothing to do with how the IRS rules your payment plan or offer in compromise. If they try to make a payment on your behalf and it bounces, it’s your responsibility.

Handle Your Payroll Taxes With Confidence

Whether you or your payroll specialist caused you to owe payroll back taxes, you should now know why you owe them, how long the IRS can collect on them, and how to pay them or negotiate their pay with the IRS. 

With all of this in mind, wouldn’t professional help be nice? A payroll service like CSI Accounting & Payroll can help you fix old mistakes and prevent them in the future. To see if we can be a good fit for your business, click the button below for a free consultation:

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Not ready to talk? That’s okay! First, learn more about what a payroll service costs by clicking the image below:

How much does a payroll service cost? Click here to learn more about the common and miscellaneous factors that make up a payroll fee.

Bret Asmussen

Bret began working at CSI in 2007. Over the years, he worked his way up from an entry-level marketing position to his current role of manager of our payroll service. Bret is largely responsible for the growth of our payroll division over the last several years. His previous experience and knowledge in sales and management are exemplified in his success here. Bret has a college degree in Computer Networking, a skill that certainly comes in handy in an office environment. Bret is also a Certified Payroll Professional (CPP). Fun Fact: As an active duty member of the United States Marine Corps, he served in Operation Desert Shield and Desert Storm.