What To Do When You Can Make Payroll but Can’t Cover the Taxes

When it comes time for payroll and a business owner has the funds for payroll, but not the tax, they may consider paying the tax at a later date. Especially when funding huge million-dollar payrolls, the tax portion can become a massive additional expense. This article will discuss everything you need to know when considering this option.

Can I pay the taxes portion of payroll later?

The simple answer is yes, it is possible to pay the tax portion of payroll late. However, there are many factors and risks that go along with this decision and your payroll company may urge you to choose a different option. If you decide to continue with paying your taxes late, this is what could likely happen.

After asking your payroll provider if you can pay taxes late, the first thing your payroll provider may do is ask you to sign a form that would release them from any tax liability. It is likely that there will be some sort of penalty from the IRS for paying payroll taxes late, so your payroll company will want to be absolved of any penalties. You will assume complete responsibility and must accept any penalties.

The time you have to cover the tax portion of payroll may vary from immediately, to that week, to monthly, or even quarterly, all depending on the size of the payroll. Larger payroll taxes will be due sooner than smaller payroll taxes. Once you’ve missed the date you are supposed to pay the tax portion of your payroll, you’ll likely receive penalties on the federal and state level. On the federal level, the IRS will contact you to collect the tax payment plus a late fee. As you wait longer and longer to pay your taxes, the late fee will get greater. If you pay 1-5 days late, you’ll be charged an extra 2% in late fees, but if you pay 6-15 days late, you’ll be charged an extra 5%, and so on. On a state level, it varies from state to state, and each state will have its own penalties.

What are the alternative options to paying the tax portion of payroll late?

Paying the tax portion of payroll later is not advisable, because it can easily be forgotten and might end up costing a lot of money in fees and late payment penalties. Most payroll companies would advise business owners to avoid doing this, even though it is possible. Instead, a payroll company would suggest considering a business payroll loan option.

The first option a payroll company would suggest is taking out a bank loan. Banks typically charge anywhere from 7-10% interest annually, so this would be significantly less expensive than paying the tax portion of payroll late.

Another option your payroll provider might suggest is to consider payroll funding. With the help of the payroll funding company, you can take out a short-term payroll loan for small businesses specifically to cover payroll. Because the loan is short-term, interest is 1.5% per week, with a four-week maximum payroll funding. This option would also be much cheaper than paying the tax portion of payroll late.

A final option they might suggest is paying via checks rather than direct deposits. When paying with checks, the money will take an extra day or so to be withdrawn from your account. If all you need is another day or so to have enough funds, this could be a simple solution that wouldn’t involve taking out a loan or paying the tax portion of payroll late.

Many business owners are hesitant to be upfront with their payroll provider about the state of their cash flow out of fear that they will be seen as higher risk and will no longer be wanted as a client. While this fear is understandable, your payroll company can provide invaluable advice for when you’re in a situation like this.

Nonetheless, business owners should be aware that asking to not pay the tax portion of their payroll will be a concern for their payroll companies and every company will respond differently. In many cases, the payroll company will simply want to keep a closer eye on them for a bit after making this decision. They’ll monitor their next payroll very closely and make sure they have the funds to cover it and they pay on time. If everything seems to go back to normal, they will not be viewed as high risk.

This information was provided by Michael Reis, Vice President of Sales/Payroll at Southland Data Processing. Michael has been a key component of SDP’s success since 2008. His payroll experience started in 1993 at ADP, and he has spent the past 22 years consulting with businesses to help them find ways to be more efficient, reduce costs, and stay compliant. Year over year, he has helped SDP grow by setting sales records each year. In addition to managing SDP’s team of inside and outside sales reps, he sits on the board of the Claremont Chamber of Commerce and loves volunteering in the community. He attended Saint Mary’s College of Moraga with a B.S. in Business Management and a Minor in Economics. Michael’s top two favorite movies of all time are It’s a Wonderful Life and Rudy. Book a time to meet with Michael directly here or email him at michael.reis@sdppayroll.com

Payro Finance is a short-term, low-cost funding solution specifically designed for covering payroll. Once approved, Payro provides same-day funding for payroll. To learn more about payroll funding, schedule a meeting here with Payro’s founder & CEO, Morris Reichman.

---