Withholding Tax in Utah: Rules, Requirements, and Resolution Options

If you have employees in Utah, you will need to take care of payroll taxes. You must withhold federal and state taxes from your employees' paychecks and remit them to the IRS or the state. You also must pay additional payroll taxes, such as federal or state unemployment taxes and employer matches for FICA taxes. 

Taking care of multiple requirements on both the state and federal levels can get extremely complicated, and even a small mistake can lead to penalties and potential personal liability for the unpaid tax. This guide is designed to help – it provides an overview of payroll tax requirements in Utah, consequences of not paying, and payment options if you get behind. 

Key takeaways

• Withholding taxes – Employers must withhold FICA taxes and possibly federal and state income tax from employees' paychecks. 
• Employer taxes – Employers must also pay a matching amount for FICA taxes, plus state and federal unemployment taxes. 
• Payroll tax returns – The IRS and the Utah State Tax Commission require quarterly payroll returns from most employers.
• Consequences of non-payment – Penalties, risk of personal liability for the trust fund portion of payroll taxes, loss of business licenses, tax liens, and involuntary collection actions.

What are payroll taxes?

Payroll taxes are the taxes you must deal with if you have employees. Some taxes you withhold from your employees' checks and send them to the government, while other payroll taxes you (the employer) must pay. 

Here are the payroll taxes most Utah employers face:

• FICA taxes – Social Security and Medicare payments withheld from the employees' paychecks and remitted to the IRS by the employer.
• Matching employer payments - Matching payments for Social Security and Medicare paid by the employer and remitted at the same time as FICA taxes. 
• IRS income taxes – Withheld from the employees' paycheck based on the details of the employees' W-4 statements and remitted to the IRS by the employer. 
• Utah withholding – Utah income taxes withheld from employees' paychecks and remitted to the state by the employer.
• Federal unemployment tax – Paid by the employer to the IRS, based on the total wages paid to employees for the year.
• State unemployment taxes – Paid by the employer to the Utah Department of Workforce Services, based on employee wages paid in Utah.

In addition, Utah employers must obtain workers' compensation coverage. The rules are administered by the Utah Labor Commission, but employers purchase policies from private insurers. 

Who must pay payroll taxes in Utah?

Anyone who hires an employee in Utah must register for a withholding certificate – there are special rules for household employees, agricultural employees, and employees of non-profit organizations. You can get a withholding number online using tap.utah.gov. You must have an email address – once you're registered, the STC will correspond with you via email. 

You also must set up an EFTPS account to pay and file federal payroll tax returns. Set this up early -- even a small mistake can delay the process and lead to potential penalties. 

Due dates for payroll tax returns and payments

Both Utah and IRS payroll tax returns are due quarterly on the last day of the month following the quarter of payments. For example, due dates are usually as follows, but they move to the next business day if this date falls on a weekend or holiday:

• Q1 – April 30th
• Q2 – July 31st
• Q3 – October 31st
• Q4 – January 31st

Utah withholding taxes are typically due the same date as the return, but there may be exceptions for very small or very large employers. Most IRS payroll taxes are due on the 15th of the month following the month of payments, but some small employers can pay annually, while some large employers may need to pay semi-weekly.

In Utah, most businesses must file and pay electronically. With the IRS, most businesses must pay online (or over the phone using an automated system), but they can file through the mail or electronically.

Penalties for filing or paying late

Failure to deposit IRS payroll taxes on time can lead to failure-to-deposit penalties ranging from 2 to 10% of the unpaid tax liability. The IRS may also assess late payment and late filing penalties that can each get up to 25% of the unpaid balance for a possible maximum total of 50%. The Utah STC may assess late filing and payment penalties, ranging from 2 to 10% of the unpaid balance, with a minimum penalty of $20. 

Both agencies assess interest on unpaid taxes. The IRS uses the current federal short-term rate plus three. Utah uses the federal short-term rate from the last quarter of the previous year plus two.

However, even more significantly, both agencies may assess a trust fund penalty of 100% of the unpaid trust fund taxes. While all of the other penalties go against the business, this penalty can be assessed against individuals, as explained in the following two sections.

What are trust fund taxes?

Trust fund taxes are taxes collected from another entity and held in trust until they are paid to the government. All of the payroll taxes that are withheld from an employee's check are considered to be trust fund taxes. For example, Social security contributions withheld from an employee's check are considered to be trust fund taxes, but the employer's matching payment is not considered to be a trust fund tax. 

Both Utah and the IRS may assess trust fund penalties against individuals who are deemed responsible for not paying a business's trust fund taxes. Trust fund penalties are 100% of the unpaid tax, and once they're assessed against an individual, the Utah STC or the IRS can use involuntary methods (tax liens, wage garnishments, asset seizures, etc) to collect the penalty. 

On both the state and federal levels, these penalties can be assessed against business owners but also against responsible employees.

Personal liability for trust fund taxes in Utah

Let's look at a sample scenario to see how personal liability for trust fund taxes plays out in Utah. Imagine the business owner does payroll. They determine withholding for federal and state taxes correctly, and they pay employees. However, they don't pay either their federal or state payroll taxes. 

Once the IRS or the Utah STC notices the unpaid taxes, they'll generally reach out with a letter or potentially even an in-person visit. You may have heard that the IRS ended surprise house calls – that is true for most individual tax debts, but it's not true for business taxes. The IRS (or the STC) may show up at your business if you don't file or pay payroll taxes, or they may request a phone call.

Both the state and the IRS will try to get you to pay voluntarily. In fact, you can set up IRS payment plans on payroll taxes, and Utah also allows businesses to make payments on state tax liabilities. However, if you refuse to pay or if you can't qualify for a payment plan, the IRS and the STC may both start looking for responsible individuals. 

The IRS holds trust fund recovery interviews to figure out who does what in the company, who's responsible for filing and paying payroll taxes, and why the taxes weren't paid. The state uses a similar process to identify potential responsible parties, but the state's process tends to be faster and may feel more aggressive. States typically reach out about unpaid business taxes before the IRS does.

Once they've identified responsible persons, the IRS and the Utah STC will propose a penalty assessment against the individual. The IRS has a very clear appeals process, but if you miss deadlines, you may lose your chance to appeal. If you're facing individual liability for a Utah trust fund tax, you should reach out to a licensed Utah tax professional – you need someone experienced in this state when you're facing that type of penalty. 

If you're able to avoid assessment against you personally, then you can just focus on getting the business back into compliance. If the IRS or the STC assesses a penalty for unpaid payroll taxes against you, you must make arrangements to pay it off individually. If you don't, you risk facing tax liens, wage garnishments, and other collection actions. 

How to set up payments on payroll taxes

To avoid individual liability or excessive penalties, you need to be proactive about setting up payments. The IRS will usually approve a payment plan on payroll taxes if:

• You owe less than $25,000 and can pay off the liability within two years, while not incurring any new tax debt and filing all returns on time.
• You're out of business, owe $50,000 or less, and can pay off the liability within six years. 

You may be able to get other options if you provide a business collection information statement or contact the IRS directly. 

Utah may approve a payment plan on your state payroll taxes if: 

• You owe less than $5000 and can pay off the liability within 24 months. 
• You owe over $5000 and can pay off the liability in three equal installments within 90 days.

If you don't meet either of those requirements, you should contact the STC directly to request additional options. Note that neither the IRS or the state is easy to work with when it comes to delinquent payroll taxes. You should always prioritize paying these taxes. 

Consequences of unpaid payroll tax

In addition to the penalties discussed above, the IRS and the state can start involuntary collection actions. Both agencies may use tax liens, wage garnishments, bank levies, and/or asset seizures to pursue unpaid payroll taxes. 

The state can go even further – remember, most of your business and professional licenses are issued by the state. As a result, the Utah STC can revoke business or professional licenses for unpaid state withholding tax.

How to resolve payroll tax problems

If you're facing payroll tax problems, keep these tips in mind:

1. File all unfiled payroll returns – unfiled returns carry higher penalties than late payments. As filing lets you see exactly how much you owe.
2. Pay as much as you can – when possible, note that you want the payment to cover the trust fund portion of the liability so that you can minimize the risk of personal liability for trust fund penalties.
3. Contact the IRS or the state about payment plans – proactively setting up payments can help you minimize penalties and avoid unwanted collection actions. 

Ideally, you should work with a professional. Both the IRS and the state take payroll taxes very seriously. Even if you've resolved other tax problems on your own, you may want to get professional assistance on this issue. 

What if you can't afford to pay?

The IRS may accept an offer in compromise on payroll taxes, but generally, you must be out of business or have compelling circumstances. The Utah STC also accepts offers in compromise on business taxes on a case-by-case basis.

What if you haven't filed your Utah state withholding returns?

The State offers a Voluntary Disclosure Program for businesses or individuals operating a business that have failed to file or pay state business taxes. To qualify, you typically must apply before the state contacts you. If the Tax Commission accepts your application, they will waive penalties and give you a limited look-back period. 

Typically, the lookback period is up to three years or the amount of time you've been doing business in Utah, if shorter. However, if you have been withholding state income taxes from your employees' checks, the lookback period will extend across that whole time frame.

Find help now

Finding the best tax relief firm can be challenging – it's hard to know which companies are legitimate and which ones should be avoided. But when you use TaxCure to look for a tax professional, you get access to the nation's only curated directory of tax professionals who focus on tax resolution, and you can use the site's filters to narrow down your results to find a pro with the exact experience you need. 

Don't get weighed down with penalties or risk the assessment of a trust fund penalty. Instead, get help now – a licensed tax professional can help you get back on track with minimal impact to your business.