Averaged Failure to Deposit Penalties

Did you know that IRS penalities may be charged to you even if you deposited your tax liabilities on time?

The IRS may assess an “averaged” failure-to-deposit (FTD) penalty of 2% to 10% if you are a monthly schedule depositor and did not properly complete line 15 of Form 941 when your tax liability (line 10) shown on Form 941 exceeded $2,500. IRS may also assess an “averaged” FTD penalty of 2% to 10% if you are a semiweekly schedule depositor and your tax liability (line 10) shown on Form 941 exceeded $2,500 and you:

· Completed line 15 of Form 941 instead of Schedule B (Form 941),

· Failed to attach a properly completed Schedule B (Form 941), or

· Improperly completed Schedule B (Form 941) by, for example, entering tax deposits instead of tax liabilities in the numbered spaces.

The FTD penalty is figured by distributing your total tax liability shown on line 10 of Form 941 equally throughout the tax period. As a result, your deposits and payments may not be counted as timely because the actual dates of your tax liabilities cannot be accurately determined. You can avoid an “averaged” FTD penalty by reviewing your return before you file it. Follow these steps before submitting your Form 941.

· If you are a monthly schedule depositor, report your tax liabilities (not your deposits) in the monthly entry spaces on line 15.

· If you are a semiweekly schedule depositor, report your tax liabilities (not your deposits) on Schedule B (Form 941) in the lines that represent the dates your employees were paid.

· Verify that your total liability shown on line 15 of Form 941 or the bottom of Schedule B (Form 941) equals your tax liability shown on line 10 of Form 941.

· Do not show negative amounts on line 15 or Schedule B (Form 941). If a prior period correction results in a decrease to your tax liability, reduce your liability for the day that you discovered the error by the tax decrease resulting from the error, but not below zero. Apply any remaining decrease to subsequent liabilities.

StaffScapes, a Professional Employer Organization (PEO), takes over the responsibility and liability of tax deposit and reporting for our clients.  Please call (303)466-7864 and ask a StaffScapes’ representative how we can reduce your tax administration liability.