Payroll tax penalties and interest
Payroll tax penalties and interest are the amounts a tax agency adds when you deposit late, file late, or leave employment tax unpaid.
- LAW
- IRC §6656 (deposits), §6672 (trust fund taxes)
- BOUNDARY
- Calendar days late, counted from the due date
- FORMULA
- 2%, 5%, 10%, or 15% of the unpaid deposit
- WATCH FOR
- Trust fund taxes can reach you personally
Federal penalties are set by statute and can stack. A single late payroll can draw a deposit penalty, a filing penalty, and interest at the same time. The deposit penalty runs from 2% to 10% with the days late, and 15% after an IRS notice goes unpaid. Interest runs on unpaid tax from its due date, and on penalties too. State agencies set their own penalty schedules, independent of the federal ones.
How much is the late-deposit penalty?
The IRS counts calendar days from the deposit’s due date. The tiers do not add up: a deposit 20 days late costs 10%, not 17%. The penalty does not apply when a failure was due to reasonable cause and not willful neglect. Confirm current figures with the IRS.
| WHEN THE DEPOSIT IS MADE | PENALTY ON THE UNPAID DEPOSIT |
|---|---|
| 1-5 days late | 2% |
| 6-15 days late | 5% |
| 16 or more days late, before 10 days after the first IRS notice | 10% |
| Paid directly to the IRS or with the return instead of deposited | 10% |
| Unpaid more than 10 days after the first notice, or on a demand for immediate payment | 15% |
Work it out: one late deposit
Enter the deposit that was late, how it was paid, and how many calendar days late it was. The card picks the one rate that applies, since the tiers never add up.
One late deposit in 2026: $25,000, a week after its due date
One rate applies; the tiers never add up.
The federal failure-to-deposit penalty under 26 U.S.C. §6656 on one late deposit, by calendar days late from the due date, with one rate for amounts paid directly to the IRS or with the return and 15% after an IRS notice. It leaves out reasonable cause and other penalty relief, how an undesignated deposit is applied, failure-to-file and failure-to-pay penalties, interest, and the trust fund recovery penalty. Other cases and state law can change the result.
Which other penalties and interest apply?
Late filing and late payment carry their own penalties, generally charged on the unpaid tax. In a month when both apply, the filing penalty is reduced by the payment penalty. Interest runs until the balance is paid in full.
| CHARGE | RATE | LIMIT |
|---|---|---|
| Failure to file | 5% of the unpaid tax per month or part month | 25% in total |
| Failure to pay | 0.5% of unpaid tax per month or part month, 1% from 10 days after a levy notice | 25% in total |
| Interest | Federal short-term rate plus 3 points, set quarterly; 5 points on large C corporation underpayments | Runs until paid in full |
What is the trust fund recovery penalty?
The trust fund recovery penalty (TFRP) equals 100% of unpaid trust fund taxes, the amounts you must withhold from employee pay and hold for the government. When that tax cannot be immediately collected from the business, the IRS can assess the penalty against any responsible person who acted willfully. A responsible person can include an officer, an employee, an accountant, a check signer, or a payroll service provider. Paying other creditors while the business cannot pay its employment taxes indicates willfulness. Work with a qualified tax professional on any assessment.
- Federal income tax withheld
- Employee share of Social Security tax
- Employee share of Medicare tax
- Employer share of Social Security tax
- Employer share of Medicare tax
- Federal unemployment (FUTA) tax
Frequently asked
- 26 U.S.C. §6656, Failure to make deposit of taxes
- 26 U.S.C. §6672, Failure to collect and pay over tax, or attempt to evade or defeat tax
- Failure to Deposit Penalty
- Administrative penalty relief
General information, not legal or tax advice. Apply current federal and state rules with qualified guidance.