If You Are Behind on Payroll Taxes, Acting Today Matters

Falling behind on payroll taxes happens more often than most owners realize. A slow sales month, a big equipment purchase, or a payroll company glitch can throw off cash flow. The result is missed deposits and unfiled returns. The key is to act quickly, because interest and penalties grow every day, and the IRS treats payroll taxes with special urgency. The money withheld from employees is considered trust fund tax. If it is not paid, the IRS can pursue the company and certain individuals for the trust fund portion. The good news is that there is a clear first step checklist. You can stop the bleeding, get current, and build a plan. Curler Accounting and Tax Services helps small businesses do this every month, so you are not alone.

Quick Checklist: What To Do First When You Are Behind on Payroll Taxes

1. Stabilize today. Make all current payroll tax deposits going forward so the balance does not grow.
2. Confirm what you owe. Pull IRS and state account records and compare them to your payroll reports.
3. File missing returns. File Forms 941 and 940 and any state withholding and unemployment returns as fast as possible.
4. Separate trust fund from non trust fund amounts. Know how much is employee withholding and how much is employer tax.
5. Choose a short term or long term plan. Decide if you can pay in full soon or need an installment agreement.
6. Prepare basic financials. Gather bank statements, profit and loss, and a 12 week cash flow plan.
7. Ask for penalty relief. Use first time abatement or reasonable cause if you qualify.
8. Fix root causes. Build a simple system so you never fall behind again.
9. Get professional help. A CPA who does payroll tax resolution can save money and time.

Understanding What Payroll Taxes Include

What Counts as Payroll Taxes

Payroll taxes include federal income tax withheld from employee pay, Social Security and Medicare withheld from employees, the employer share of Social Security and Medicare, and federal unemployment tax. Most states, including Wisconsin, also have income tax withholding and state unemployment insurance. Federal payroll taxes are reported on Form 941 each quarter and FUTA is reported on Form 940 each year. State reports depend on your filing frequency. When you are behind on payroll taxes, the IRS and state agencies track each missed deposit and filing date.

Trust Fund Responsibility

The IRS treats employee withholding and the employee share of Social Security and Medicare as trust fund tax. The company is holding that money in trust for the government. If a business does not pay the trust fund portion, the IRS can assess a Trust Fund Recovery Penalty. This can be assessed against one or more responsible persons who willfully fail to collect or pay. The IRS often interviews owners and managers about who signs checks, who has authority over payroll, and who makes deposit decisions. This is serious, which is why it is vital to get current on new deposits right away and build a plan to resolve the past due amount.

How the IRS Responds When You Are Behind

• Notices and letters. The IRS first sends balance due and penalty notices. If balances remain, they can send a final notice of intent to levy.
• Federal tax lien. If the balance is not resolved, a lien can be filed that affects credit and public records.
• Levies and seizures. The IRS can levy bank accounts and accounts receivable if the case is not addressed.
• Revenue officer assignment. Larger or older cases may be assigned to a local revenue officer who will request records and a plan.

This does not mean you are out of options. It does mean you should take action now. Curler Accounting helps clients respond to notices, talk with the IRS, and put a plan in place before enforcement ramps up.

Step 1: Stop New Balances From Growing

When you are behind on payroll taxes, your first job is to get current on today’s deposits. It does not make sense to set up a payment plan for old tax while you create new debt each pay period.

• Set aside the employee portion every payroll. Move it to a separate bank sub account the day you run payroll.
• Make federal deposits through EFTPS by the due date for your deposit frequency.
• Make state withholding and unemployment deposits on time.
• Avoid new owner draws and nonessential expenses until you are current on deposits.
• If cash is tight, consider a short term pay cut for owners, a short pause on discretionary spending, or a short term line of credit to bridge the gap. Be careful with new debt and use it only to cover current tax deposits and essential payroll.

Step 2: Confirm What You Owe

Guessing leads to mistakes. Gather records so you know the exact picture.

• Log in to EFTPS and review past deposits and any missed dates.
• Request IRS account transcripts for each Form 941 period and Form 940. A professional can pull these quickly.
• Download payroll reports from your payroll system for each quarter. Check 941 summaries, tax liability reports, and W-2 totals.
• Check state accounts with the Wisconsin Department of Revenue and the Department of Workforce Development for any balances or missing returns.
• List each period you owe, the principal, penalties, and interest. This becomes your working plan.

Step 3: File Missing Returns Now

The IRS will not set up a long term payment plan until all returns are filed. File any unfiled Forms 941, 940, W-2, W-3, and state returns. If a quarter is wrong, file a corrected Form 941-X. It is better to file accurate returns than to file fast and fix later. Curler Accounting can prepare and file these returns and reconcile them to your books.

Step 4: Decide How to Pay the Balance

Once you are current on new deposits and all returns are filed, choose a way to clear the past due balance.

• Pay in full. If you can pay in full within a short time, penalties and interest stop growing. You can sometimes request a short extension to full pay while staying current.
• Installment agreement. Many small businesses use a payment plan. For some smaller balances there is a simple in business installment agreement if you are current with filing and deposits. Larger balances may require full financial disclosure.
• Structured payoff using cash flow. A realistic plan matters more than a big promise. The IRS wants a plan you can keep while staying current on new payroll deposits.

A CPA can help you choose the right path, prepare the forms, and talk to the IRS for you so you can focus on running the business.

Step 5: Prepare Financials and a Cash Flow Plan

The IRS may ask for a financial statement to support a payment plan. You or your accountant should prepare a recent profit and loss, a balance sheet, bank statements, and a 12 week cash flow forecast. Build a simple weekly plan that shows all sources and uses of cash, including payroll and taxes. This plan keeps you current and supports your installment agreement request.

Penalty Relief and Interest

Penalties add up fast when you are behind on payroll taxes. You may qualify for relief.

• First time abatement. If you have clean filing and payment history for the prior three years and all current returns are filed, you may qualify for first time penalty relief for one period.
• Reasonable cause. If you had events outside your control, such as theft, natural disaster, serious illness, or payroll processor failure, you can request penalty relief with documentation.
• Interest. The IRS does not remove interest in most cases. The fastest way to cut interest is to reduce the balance and set up a plan.

Curler Accounting can review your transcripts, identify which penalties may be removed, and draft a clear request that fits your facts.

Wisconsin Specific Notes

In Wisconsin, payroll compliance includes state income tax withholding through the Department of Revenue and unemployment insurance through the Department of Workforce Development. If you are behind on payroll taxes at the state level, you should also bring those accounts current and file any missing WT and UC reports. State penalties and interest can be high and state agencies can issue levies. A single plan that covers federal and state works best, and Curler Accounting can coordinate both.

Common Causes of Falling Behind and How to Fix Them

• Seasonal cash flow swings. Use a cash reserve that covers at least one payroll cycle of taxes.
• Underpricing. Review pricing to include all payroll costs, including taxes and benefits.
• Weak bookkeeping. Close the books monthly, reconcile bank accounts, and compare payroll reports to general ledger.
• Late invoicing and collections. Invoice same day, set clear terms, and follow up on past due accounts weekly.
• Rapid growth. Payroll grows faster than your deposit schedule if you add staff. Review deposit frequencies so you do not miss a date.
• Payroll provider errors. Even with a provider, the business is responsible. Reconcile reports monthly and keep EFTPS access in your name.

Build a Simple System That Keeps You Current

• Open a payroll tax savings account and move the employee and employer taxes into it each payroll day.
• Turn on EFTPS email alerts so you get deposit reminders and confirmations.
• Use a payroll calendar that lists deposit and filing due dates for federal and state.
• Schedule deposits the same day you run payroll, not on the due date.
• Review payroll liability reports every Friday. Verify that deposits posted as planned.
• Work with a CPA who reviews your payroll and account transcripts each quarter.

When to Call a Professional

If you owe more than a few thousand dollars, have unfiled returns, received a final notice, or a revenue officer calls, bring in help right away. A professional will gather records, file missing returns, stop new balances from growing, talk to the IRS or state for you, and set up a plan that fits your cash flow. This saves stress and can reduce penalties. Curler Accounting focuses on small business payroll tax issues, so you get a clear plan without judgment.

About Curler Accounting and Tax Services

Curler Accounting and Tax Services, LLC serves individuals and small businesses in Washington County, Mequon, and communities north of Milwaukee, with virtual support statewide. The owner, Matt Curler, CPA, brings more than 20 years in tax, finance, and treasury management. His background includes work at KPMG and Harley Davidson, where he developed strong skills in tax strategy and compliance. Matt is also a veteran of the Wisconsin Army National Guard, with 18 years of service as a Military Police Officer and two deployments to Iraq, followed by six years with the Milwaukee Police Department. Discipline, integrity, and attention to detail shape his approach to accounting and client service.

Services That Help You Catch Up and Stay Current

• Tax preparation and planning to minimize liabilities and avoid surprises.
• Bookkeeping that keeps financial records accurate and timely.
• Payroll solutions that handle processing and deposits with confidence.
• Cash flow optimization that aligns spending with your plan to pay down taxes.
• Business tax and compliance guidance for LLCs, S Corps, and more.
• IRS representation for notices, audits, and collection cases.
• Entity formation and help choosing the right tax structure.

Why Clients Choose Curler Accounting

• Personalized service. You receive hands on attention and clear communication.
• Military precision and integrity. Ethical, disciplined financial management from a veteran led firm.
• Small business focus. Practical strategies that work in the real world.
• Community commitment. Active in the local Rotary Club and volunteer work at the VA Hospital.
• Local and virtual services. Meet in Mequon or online, whatever fits your schedule.

Matt’s client first approach makes financial management simple and results driven. If you are behind on payroll taxes, you will get a calm plan and steady follow through.

Frequently Asked Questions When You Are Behind on Payroll Taxes

Will the IRS notify my employees?

The IRS does not usually contact employees about your payroll tax balance. Your team may be affected if W 2 forms are late or wrong. File correct W 2 forms on time and keep employees informed if you need to issue corrected forms.

Can I pay net wages if I cannot afford deposits?

No. You should not pay wages without making the required tax deposits. If you cannot fund both wages and taxes, reduce hours, delay payroll until funds are available, or seek short term financing. Paying wages while skipping deposits makes penalties worse and raises trust fund risk.

What if a payroll company caused the problem?

You still need to fix it. Gather evidence, file correct returns, and pay the taxes due. You can pursue the payroll company for damages, but that takes time. The IRS and state see the business as responsible. Curler Accounting can help you document the case and request penalty relief if facts support it.

Can I settle payroll taxes for less?

An offer in compromise is possible in rare cases if you genuinely cannot pay and do not have assets or income to cover the balance. For most operating businesses, an installment agreement is the realistic path. A CPA can review your situation and advise.

How long does it take to set up a plan?

Smaller balances can be set up in days if you are current on filings and deposits. Larger or more complex cases can take weeks. Starting now shortens the timeline.

What about state payroll taxes?

Address federal and state together. Wisconsin can issue liens and levies too. File all state returns, make current deposits, and request a plan if needed.

Behind on Payroll Taxes: A Simple Action Plan You Can Start Today

1. Make today’s payroll tax deposit and set aside funds for next payroll.
2. Pull IRS and state account records and match them to payroll reports.
3. File any missing returns, federal and state.
4. Choose a payoff path and prepare a short cash flow plan.
5. Request penalty relief where you qualify.
6. Lock in a system that keeps you current every pay cycle.
7. Call Curler Accounting for help with filings, negotiations, and cash flow support.

Being behind on payroll taxes is stressful, but it is fixable. With steady steps and a clear plan, you can stop penalties, avoid escalations, and get back to running your business. Curler Accounting supports owners in Mequon and across Wisconsin with practical help that works. Reach out to start your customized plan today.

This article is for general information. Tax rules can change and facts matter. For advice on your situation, contact a qualified tax professional.