The Failure to Deposit Penalty applies to employers that don’t make employment tax deposits on time, in the right amount, or in the right way. 

Employer-paid taxes include federal income tax, Social Security and Medicare taxes, and Federal Unemployment Tax. Employers must send employment tax deposits to the IRS on a monthly or semi-weekly schedule.

How the penalty is calculated

The Failure to Deposit penalty is determined by the IRS based on the number of calendar days that pass since the deposit was due. The penalty is calculated as a percentage and does not accumulate. This means that if your deposit is more than 15 calendar days late, the penalty will be 10%, not the sum of the 2%, 5%, and 10% penalties. See chart below: 

• 1-5 calendar days = 2% of your unpaid deposit

• 6-15 calendar days = 5% of your unpaid deposit

• More than 15 calendar days = 10% of the unpaid deposit

• More than 10 calendar days after the date of your first notice or letter (for example, CP220 Notice) or The day you get a notice or letter for immediate payment (for example, CP504J Notice)= 15% of your unpaid deposit. 

Remove or Reduce Penalty

If a taxpayer fails to meet their tax obligation, they may ask the IRS to remove the penalty by demonstrating a reasonable cause. However, it is important to note that penalty abatements are not often granted despite the seemingly simple requirement of reasonable cause. To maximize the chances of approval, it is advisable to seek guidance from professional IRS representation such as an EA, CPA, or Attorney. They can help you navigate the process and increase your likelihood of success.