Employment Taxes & Collection Actions of the IRS for Debt Recovery

Last updated on September 26, 2022

Taxpayers must avoid getting into IRS debt by complying with tax laws. Sometimes, taxpayers get into tax debt without their knowledge. Inaccuracies in tax returns or lack of knowledge of tax laws also cause tax debt. The IRS takes collection action to recover tax debt regardless of the reason for the tax debt.

Avoid IRS Tax Debt

To avoid IRS tax debt, employers must pay employment taxes on time and correctly. Employment taxes are:

• The amounts an employer should withhold from employees for income, social security, and Medicare taxes.
• The amount of social security tax and Medicare taxes an employer pays on behalf of each employee.

Late payment of employment taxes or inaccurate payments could lead to tax debt. Penalties and interest are charged by the IRS on any amount of tax that remains to be paid. Failure to Deposit (FTD) penalties of up to 15 percent of the amount not deposited may be charged, depending on how many days the payment is late.

IRS Tax Debt Collection Actions for Employment Taxes

Employers are required to pay certain taxes and also withhold payroll taxes from their employees’ paychecks. If an employer is found non-compliant, the IRS notifies the employer about the taxes owed by sending notices. It is the first step of the collection process.

If IRS notices are ignored and no effort is made to resolve the IRS tax debt, the IRS moves on to enforced collection actions, which could include the following:

• Issuing a notice of levy on salary and other income, bank accounts or property that allows the IRS to legally seize property to satisfy the tax debt
• Assessing a Trust Fund Recovery Penalty for certain unpaid employment taxes.
• Issuing a Summons to the taxpayer or third parties to secure information to prepare unfiled tax returns or determine the taxpayer’s ability to pay

To avoid enforced collection actions by the IRS, taxpayers must begin efforts to resolve their tax debt when they receive an IRS notice.

To stay compliant, taxpayers may use the online tax payment facility of the IRS, Electronic Federal Tax Payment System (EFTPS). They may use hired help from a tax professional to stay up-to-date with their payment requirements. For resolution of tax debt, taxpayers may hire a tax resolution company or a tax professional.