What if You Can’t Make Your 941 Payment on Time?
Stop us if you’ve heard this one, but you need to do everything in your power to keep your company’s 941 tax filings and deposits current.
Your 941 tax payments, in case it’s slipped your mind, represent your employees’ share of federal income taxes and FICA (Social Security and Medicare taxes) that you withhold from their paychecks. These taxes are paid quarterly to the U.S. Treasury via the government’s Electronic Federal Tax Payment System (EFTPS).
Deposits can be made anytime during the quarter – and many employers schedule them along with payroll dates – but absolute drop-dead due dates for making 941 deposits for the remainder of 2013 are:
- Wednesday, July 31 (for 2nd quarter)
- Thursday, October 31 (for 3rd quarter)
- Friday, January 31, 2014 (for 4th quarter)
Tip: 941 deposits are based on when wages are paid, not earned. That’s an important distinction. For example, if an employee accrues earnings through the end of March, but is not actually paid until a pay period in April, 941 deposits tied to that payment would be filed and deposited the next quarter.
The Penalties for Late 941 Deposits
Bad news first: The feds take this sort of thing seriously, if not personally. Interest and penalties for not filing and paying on time can be pretty nasty. Simply not filing can cost you 5% of the amount due, while failing to pay can cost you as much as 25% of the amount owed.
The IRS can also charge interest on the amount due, calculated at the federal short-term interest rate, plus 3 percentage points. Interest starts accruing from the day your payment was due…and it’s compounded daily.
Now the good news: Yours won’t be the first – or last – company to fall behind with 941 payments. Cash flow management problems are common with small or growing companies, and it can be tempting to use funds that should have been earmarked for 941 accounts for other purposes. It happens.
This is not to suggest that skipping a payment is ever a good idea, or that the matter isn’t serious, potentially expensive, and damaging (see above). But, it doesn’t have to doom you, either.
If You Can’t Pay 941
First, get with your tax advisers and review the situation. This is true for any tax-related matter, but especially when it comes to compliance and legal issues.
If your people are experienced, they probably saw this coming and have likely dealt with this kind of thing before. Have them construct a plan, and let them run interference with the IRS for you.
Tip: No offense, but it’s generally a good idea to let your accountant or tax team square-off with the IRS instead of you. Just trust us on this one.
941 Payment Plans
Most likely, unless the feds are convinced that you’re truly a criminal (and that’s rare), your tax people will negotiate some sort of payment plan to address the taxes owed. If your record with the IRS has been pretty clean up to this point, it’s possible that something manageable – typically over a period of up to 72 months – can be arranged.
You’ll still likely be hit with penalties and interest charges similar to those described earlier, but at least you get to stay in business. You’ll also be expected to stay current on 941 deposits in the future.
Usually, when applying for a payment plan, you’ll be asked to complete IRS Form 433-B, the ominous-sounding Collection Information Statement for Business. You’ll provide financial information about your company, along with an explanation regarding why you could not pay on time. It’s no fun, but if you’re honest and propose a schedule you can live with, you’ve at least started to recover from the problem.
Cash Flow Management and 941 Payments
Let’s talk preventive medicine. If cash flow management problems have become the norm for your business, and have led, or could lead, to problems with 941 payments, consider an invoice or receivables factoring arrangement with MP Star Financial.
Invoice factoring lets your company get paid on your accounts receivable faster, and will let you make your 941 payments without borrowing from a bank or other source. Receivables factoring is easy to arrange, the costs are minimal, and you can be paid on your invoices in just one or two business days, not weeks.
Image courtesy Chris Hayless
Is your company having cash flow problems? You don’t need to wait 60 days or more for payments! MP Star Financial can help you get a better handle on your company’s cash flow management. Call for more information. (800) 833-3765, extension 150.