Payment Plans for Businesses: Payroll Taxes and Other Business Debts

When a business falls behind on taxes, payroll taxes are usually the first problem. Money withheld from employees' paychecks for income tax, Social Security and Medicare is supposed to be sent to the IRS. When cash is tight, it is tempting to use that money to keep the doors open. The IRS treats that differently from almost any other tax debt.

The good news is that businesses can get payment plans too. This guide explains which plan fits which kind of business debt, and what owners and managers need to know about their own personal exposure.

Trust fund taxes versus other business taxes

The IRS divides business tax debt into two broad groups for payment plan purposes:

• Trust fund taxes. These are the amounts withheld from employees' wages (income tax withholding and the employees' share of Social Security and Medicare). The business holds that money "in trust" for the government.
• Non-trust-fund taxes. These include corporate income tax, and employment tax balances that remain after the trust fund portion has been paid.

The thresholds for a simple plan are different for each group, so it matters which kind of balance you have.

The Simple Payment Plan for trust fund balances

The Internal Revenue Manual describes a Simple Payment Plan (Business Trust Fund) for businesses that are still operating (IRM 5.14.5.4). The basic requirements:

• The business is still in business.
• The trust fund (payroll tax) balance is $25,000 or less.
• The balance will be paid in full by the Collection Statute Expiration Date (CSED), the end of the IRS's collection period.
• The business is current on its federal tax deposits and filings.

No financial statement is required. There are two important limits. This plan is not granted together with a request to release a levy. And if your balance is over $25,000, you cannot use a lump-sum first installment to get under the limit. You need to pay the balance down before you ask (IRM 5.14.5.4).

The Simple Payment Plan for other business balances

Business balances that are not trust fund taxes, such as corporate income tax, or employment tax left after the trust fund portion is paid, can use the regular Simple Payment Plan rules if the balance is $50,000 or less (IRM 5.14.5.2). The Simple Payment Plan was formerly called a streamlined installment agreement. Under those rules:

• The aggregate assessed balance (tax, assessed penalties and assessed interest) is $50,000 or less.
• The balance must be paid in full, including accruals, by the CSED.
• No financial statement is required.
• Direct debit is not required.
• You can pay the balance down to $50,000 first to qualify.

For more on these rules, read our guide to Simple Payment Plans for $50,000 or less.

Business balances over the thresholds

If a business owes more than these limits, the IRS uses its business installment agreement procedures (IRM 5.14.7). Expect a full financial statement for the business, usually Form 433-B, Collection Information Statement for Businesses (IRM 5.14.1.4). The process looks a lot like an individual plan over $50,000, which we cover in how larger payment plans work.

Type of business balance	Simple plan limit	Source
Trust fund (payroll) taxes, business still operating	$25,000 or less, paid by the CSED	IRM 5.14.5.4
Non-trust-fund taxes (for example, corporate income tax)	$50,000 or less, paid by the CSED	IRM 5.14.5.2
Balances over those limits	Financial statement and full review	IRM 5.14.7

The personal penalty owners need to know about

Here is the part that turns a business problem into a personal one. Internal Revenue Code section 6672 says that any person required to collect, account for and pay over a tax who willfully fails to do so can be liable for a penalty equal to the total amount not collected or not paid over. This is the Trust Fund Recovery Penalty, often called the TFRP.

In practice, that means the IRS can assess the unpaid trust fund taxes against the owners, officers or employees it decides were responsible and acted willfully. Section 6672(b) requires the IRS to send written notice before it assesses the penalty, at least 60 days before any notice and demand for payment.

There is a reason to act early. The IRM says a TFRP determination may not be required if the Simple Payment Plan (Business Trust Fund) is granted within 120 days of the case being assigned to a field revenue officer and the plan pays the balance in full by the CSED (IRM 5.14.5.4). Waiting can take that option off the table.

Staying current is not optional

Every installment agreement requires that all required returns be filed and that you be current on estimated payments, withholding or federal tax deposits before approval (IRM 5.14.1.4.2; IRM 5.14.5.1.1). For a business with employees, that means filing payroll returns on time and making every federal tax deposit while you pay down the old balance.

This matters after approval too. Under Internal Revenue Code section 6159(b), the IRS may terminate an agreement if you fail to pay another tax liability when it is due, after giving at least 30 days' notice with an explanation. A business that keeps adding new payroll tax debt while on a plan is at real risk of default. See what happens when a plan defaults.

Levy protection while you ask

Businesses get the same levy protection as individuals. Internal Revenue Code section 6331(k)(2) bars a levy while an installment agreement request is pending, for 30 days after a rejection (and during an appeal filed within that time), while the agreement is in effect, and for 30 days after a termination (and during a timely appeal). For a business, that can protect bank accounts and receivables while the plan is worked out.

Costs

Business installment agreements carry the same user fees as other agreements, and penalties and interest keep accruing on the unpaid balance during the plan (IRM 5.14.1.1.1). See what a payment plan costs. You can estimate monthly payments with the payment plan calculator.

Practical steps for a business owner

1. Get current first. Make this quarter's deposits and file any missing payroll returns.
2. Find out what you owe and what kind of tax it is. Separate the trust fund portion from the rest.
3. Check the thresholds. If you are near $25,000 in trust fund taxes, consider paying down before you apply.
4. Apply early. See how to apply for an IRS payment plan.
5. Think about your personal exposure. If you sign checks or decide which bills get paid, the TFRP may apply to you.

Getting help

Payroll tax debt can follow you personally, and the timing of your plan can affect whether the IRS pursues the Trust Fund Recovery Penalty. If your business is behind, talk to a tax attorney before you call the IRS. You can reach our office through GetIRSHelp.com or at (813) 229-7100.