The IRS Uses Cascading Penalties to Make Your Payroll Tax Liability Snowball

Missing payroll tax payments is a cardinal sin of any business owner. Since these taxes are considered a trust tax, the Internal Revenue Service (IRS) treats non-payment of the taxes as a crime. The business may incur enormous fines, and the business owner may also face personal liability. In addition, penalties can escalate very quickly because of cascading penalties.

What Are Cascading Penalties?

Missing even one payroll tax deposit can result in an enormous tax bill that you will then be responsible for. This occurs because of something known as cascading penalties. The tax liability owed can quickly grow into the hundreds of thousands of dollars as a result of this technique. How do cascading penalties work? Following is an overview:

  • You miss paying the payroll taxes during a previous quarter.
  • When you subsequently make a payment for the next quarter, the IRS applies that payment to the previous quarter in which you did not pay the tax.
  • Since the IRS applied that payment to the previous quarter, you are now late on the current or subsequent quarter.
  • This cycle continues, meaning you are delinquent in multiple quarters rather than the one quarter you originally missed.


As you can see, cascading penalties turn what should have been one missed payment into a snowballing debt with overstated penalties. Fortunately, an experienced tax attorney can help prevent this from occurring. We hope that you found this information about cascading penalties helpful. If so, we encourage you to find us on Twitter.

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