Updated: September 25, 2025

IRS Failure To Deposit Penalty: What Happens If You Pay Payroll Taxes Late?

IRS failure to deposit penalty

As an employer, you are responsible for withholding taxes from your employees’ paychecks and making matching Social Security and Medicare payments. You must deposit these taxes with the US Treasury on a due date based on your payroll volume, and late payments will lead to a failure-to-deposit (FTD) penalty. FTD penalties increase the longer you delay making your payment, and if the late payments generate an FTD alert, that can trigger a Trust Fund Penalty Recovery investigation.

To reduce penalties, you should make your deposits as soon as possible -- especially if you've received a notice of a visit from a revenue officer. You may be able to get the FTD penalty waived if you had a reasonable cause or are requesting first-time penalty abatement (FTA).

Key takeaways

Late payroll deposits lead to a failure-to-deposit penalty.
Penalties start at 2% of the tax due but can get up to 15%.
To get the penalties waived, apply for first-time or reasonable cause penalty abatement.
Getting behind on payroll taxes can lead to even more penalties, and the IRS may refuse to set up payments if you have a history of issues.
Don't wait -- use TaxCure to find a licensed tax professional to help with payroll tax problems now.

What is the Failure to Deposit Penalty?

The failure-to-deposit (FTD) penalty is a penalty the IRS assesses against businesses that make late payroll tax deposits. All businesses with employees must make payroll tax deposits on a semi-weekly, monthly, or annual basis. The deposits include taxes withheld from your employees' pay (Social Security tax, Medicare tax, and federal income tax) plus a matching payment for the Social Security and Medicare taxes.

The taxes withheld from your employees' checks are part of their wages -- businesses don't pay these taxes. Instead, they act as the middleman -- they collect the taxes from their employees and send them to the government. This is a very serious obligation that the IRS entrusts employers with, and failure to pay this portion of the tax bill can lead to significant problems that are much worse than FTD penalties. The other portion of the payroll deposit is paid by the business -- that's the matching portion of the Social Security and Medicare taxes.

When Does the IRS Charge the FTD Penalty?

The FTD penalty begins to accrue if your tax deposits are one day late. For example, if you're supposed to make a payroll tax deposit on September 15th but you pay on September 16th, you'll incur a late penalty. Most IRS penalties apply monthly, but the IRS is much more serious about payroll taxes. As a result, these penalties are applied much more aggressively than most penalties -- you get another penalty if you're more than six days late, another one at 15 days late, and an even higher penalty if you don't pay after receiving an IRS notice.

How Much Is the IRS Failure to Deposit Penalty or Penalty for Late Payment of Payroll Taxes?

The FTD penalty structure has four tiers, with the penalty amount increasing over time. The amount of the FTD penalty is as follows:

2% of the unpaid deposit for payments that are 1 to 5 days late
5% for tax payments that are 6-15 days late
10% for deposits that are more than 15 days late or made within ten days of receiving the first IRS notice requesting a tax payment
15% for deposits not received within ten days after receiving the first IRS notice demanding payment

If you deposit less than the amount of taxes you owe, the FTD penalty will apply to the part of the payment you still owe. For example, if your deposit should be $10,000 and you deposit $4000, the penalty applies to the $6000 that you didn't pay. You should pay as much of the required amount as you can and make late payments as soon as possible to reduce the penalties and interest you owe. Also, deposits not made by electronic funds transfer are subject to the 10% penalty rate -- for example, if you mail in a check, you'll incur the FTD penalty even if the payment is on time.

Other penalties for unpaid payroll taxes

If the IRS determines that you willfully failed to remit payroll taxes, they may also assess the more severe Trust Fund Recovery Penalty (TFRP). You can be personally liable for paying the TFRP if you are:

This penalty is equal to 100% of the unpaid trust fund taxes (the portion of the deposit that was withheld from your employees' paychecks, but not the company's matching portion), and it can even be assessed against employees of the company.

What is the Interest Associated With Failure to Deposit Payroll Taxes?

As of Q 2025, interest rates on unpaid taxes are 7%. But the rate may be 8% if you're a corporation of a certain size. The interest applies to the unpaid taxes and to the penalties. It also compounds daily. Interest rates adjust quarterly, and they're the Fed Rate plus three points.

Can the Failure to Deposit Penalty Be Waived or Reduced?

Yes. First, taxpayers can request the IRS’s first-time penalty abatement waiver for the failure to deposit penalty. However, to qualify, the business must not have incurred other significant penalties within the past three years. Moreover, your company or firm must be in payment and filing compliance.

Second, the IRS can waive the FTD penalty if you had a reasonable cause. If you failed to make your first required tax deposit or the first deposit after a change in the frequency of your tax deposits, the IRS might waive your penalty. For example, if you forget to make the first payment after switching from monthly to semiweekly tax deposits, you may request a penalty waiver. You will need to make sure you file your employment tax returns on time to be eligible for this penalty reduction.

You can also determine which payment periods you want your tax payments to address. By default, the IRS will apply payments to your most recent tax liability. However, you can send a request to the IRS specifying how you want your tax payments applied. You may choose to pay off the oldest delinquent balances first, which could reduce the number of penalties you owe. You can also choose to have your payments applied to the trust fund portion of the liability, rather than to the employer matching part of the payment due -- that can help reduce the TFRP if applicable.

Additional Consequences of Late Payroll Deposits

If you fail to make payroll tax deposits, the FTD alert system may flag your account as problematic. Then, the IRS will assign a revenue officer who will either go to your business in person or request a call using Letter 5857. Once the IRS reaches you, they'll try to figure out if you're behind or if your deposits are just lower than normal due to extenuating circumstances - for instance, you're a seasonal business or you reduced employee hours. If the agency determines that you are delinquent, they will expect you to catch up, and they may look into assessing the trust fund recovery penalty if you don't.

How to Catch Up on Delinquent Payroll Taxes

The IRS may let you make monthly payments if you get behind on your payroll tax obligations. The agency offers fast approval on payroll tax debts for less than $25,000 if the business has a history of compliance and can pay off the taxes in 24 monthly installments. If you owe more or need more time to pay, the IRS may be willing to approve a payment plan, but only if you provide financial details showing that you're paying the most possible and prove that you can keep on top of operating expenses and payroll taxes in the future. Check out this post on payroll tax payment plans to learn more.

How to Avoid Making Late Payroll Tax Deposits

Late deposit penalties add up quickly, especially if you have a lot of employees. To protect yourself from unnecessary penalties, keep these tips in mind:

Automate as much as possible -- if it's a simple organization issue, look into payroll software that will automate paying and filing payroll taxes. There are several different options designed for all types of businesses with a variety of automation levels.
Set aside the payroll taxes and don't mix them in the general fund -- A lot of software will simply take the taxes out of your bank account when you do payroll. Then, the software will transfer wages to your employees and hold onto the taxes until it's time to make the payment. This can be an effective option if you just want to pay wages and taxes on the same date and not have to worry about multiple due dates.
Budget carefully -- If you're running on a tight budget, the above tips will only help to a certain extent. You may need to work with an accountant or a business coach to get your budget under control. Unfortunately, there are costs to having employees, and you need to factor in all of them (taxes, benefits, insurance, etc) when making financial decisions.
Pay attention to IRS letters -- If you get an FTD alert letter like Letter 5857 or 5664, don't ignore it. The IRS may have assigned a revenue officer, they may be changing your deposit schedule, or they may be alerting you about other issues. In all cases, don't ignore their requests or instructions. Talk with a tax professional if you're not sure what to do.

Get Help With Payroll and Business Taxes Now

If your business has unpaid payroll taxes, the IRS can use powerful collection methods to get the money you owe. For example, the IRS can put a lien on your business or seize your business assets, effectively forcing you to shut down. However, you may be able to have your FTD penalties waived or work out an arrangement to pay back your delinquent taxes over time. To determine your best option for handling your unpaid payroll taxes.

Don't wait to get help -- instead, use TaxCure to find a licensed tax professional today. Start your search now and use the filters to narrow in on tax pros with payroll experience. If you've also gotten behind on your state payroll obligations -- for instance, withholding tax payments, special state tax program payments or filing requirements, unemployment tax, etc -- use the filters to look for a pro who has experience with the Department of Revenue in your state. Then, review your options and reach out to the tax professional of your choice.