Failure to pay payroll taxes can be a costly mistake

When business owners in California fail to remit payroll taxes to the IRS, the result is often national media attention in addition to prison sentencing and steep financial penalties. For example, U.S. News recently named a retail company owner who has received a tax evasion conviction that includes failing to pay withheld payroll taxes. Along with two years in prison, he has paid over $7.5 million.

According to, an employee could be the one who alerts the IRS to a problem if he or she notices discrepancies or has other issues filing personal income taxes. Typically, this type of report triggers an investigation that may include intensive audits.

A business owner or other responsible party, such as the CFO, who does not pay the federally required payroll taxes faces a personal liability penalty of 100 percent. The person who is responsible for the duty and failure to complete it will also face criminal penalties if the IRS refers him or her for prosecution. Civil litigation is also a possibility.

Being late on payments is not the same as failure to pay, and someone in this situation may only be required to pay a percentage penalty on the amount of taxes that are due. The later the payment, the larger the percentage is. In general, payroll taxes are paid on a monthly basis, or sometimes semiweekly.

Unpaid state and local taxes also result in penalties. The amount of these is typically determined based on a number of factors.

Tell us about your criminal case