What to Do If You Can’t Afford to Pay Your Payroll Tax Debt

Payroll Tax Debt Is One of the Most Dangerous Kinds of IRS Debt

When your business falls behind on payroll taxes—especially the amounts withheld from employees' paychecks—things can escalate fast. The IRS treats unpaid trust fund taxes as one of the most serious violations of tax law.

You may be worried about how to pay, how much you owe, or whether the IRS will come after you personally. This guide walks you through what to do when payroll taxes fall behind, and how to protect yourself, your business, and your future.

What Happens If You Don’t Pay Payroll Taxes?

The IRS and California FTB can:

• File federal tax liens
• Seize your business assets
• Freeze bank accounts
• Issue levies on receivables
• Assess personal liability through the Trust Fund Recovery Penalty against you personally

In addition, state-level California EDD payroll enforcement actions can add another layer of pressure on business owners.

Related: Behind on Payroll Taxes? Orange County Businesses, Here’s What to Do Now

Step 1: File All Past-Due Payroll Tax Returns

Even if you can’t pay, file the required returns:

• IRS Form 941 (quarterly)
• IRS Form 940 (annual FUTA)
• California DE-9 and DE-9C (state reporting)

Filing keeps penalties from compounding and shows the IRS you’re not trying to conceal the debt.

Related: Facing Back Taxes? Here’s How Orange County Residents Can Get Relief

Step 2: Don’t Delay Contacting the IRS

If the IRS has sent notices or is calling, don’t wait.

Responding early allows you to:

• Request a short-term hold to gather documents
• Prevent levies or garnishments
• Qualify for resolving payroll debt through an IRS installment agreement or hardship relief

Once the IRS assigns a Revenue Officer, you’ll have fewer flexible options.

Step 3: Explore These Payroll Tax Resolution Options

A. Installment Agreement

Set up structured monthly payments to repay the tax debt over time through resolving payroll debt through an IRS installment agreement.

B. Offer in Compromise

You may qualify for settling payroll tax debt through an Offer in Compromise if your business is insolvent or financially distressed.

C. Currently Not Collectible (CNC)

If your business can’t afford to make any payments, the IRS may grant temporary CNC status and suspend enforcement actions.

Related: How to Qualify for IRS Hardship Status

D. Voluntary Disclosure + Reasonable Cause Letter

If you’re concerned about willfulness or prior non-filing, get in front of the issue and document your reasons (e.g., medical crisis, natural disaster, employee theft).

Step 4: Avoid Personal Liability

If you’re an owner, officer, or payroll manager, the IRS may attempt to assess the Trust Fund Recovery Penalty against you personally.

Related: IRS Trust Fund Recovery Penalty – What Business Owners Need to Know

To protect yourself:

• Don’t delegate payroll without oversight
• Make federal deposits before any other payments
• Respond to IRS Letter 1153 immediately

Step 5: Don’t Wait for an IRS Revenue Officer Visit

If you’ve ignored notices and phone calls, the IRS may send someone to your place of business.

A Revenue Officer has the power to:

• Seize business assets
• Interview employees
• Recommend referral to the IRS Criminal Investigation Division

Proactive resolution is far safer—and often cheaper.

We Help Orange County Businesses Solve Payroll Tax Problems

At Boulanger CPA and Consulting PC, we help employers:

• Avoid or resolve the Trust Fund Recovery Penalty
• Negotiate with IRS Revenue Officers
• Set up payment plans or hardship-based settlements
• Restore compliance without losing their business

You don’t have to face this alone—explore more in Defend What’s Yours.

Call  (657) 218-5700 or request a strategy call at  www.orangecounty.cpa

We serve businesses across Orange County and California.

📣 About the Author

Marc Boulanger, CPA is the founder of Boulanger CPA and Consulting PC, a boutique tax resolution firm based in Orange County, California and trusted by high-income individuals and business owners across Southern California.

He is the author of Defend What’s Yours: A California Taxpayer’s Guide to Beating the IRS and FTB at Their Own Game, available now on Amazon. The book offers a step-by-step plan for resolving IRS and FTB tax debt without losing your business, your home, or your peace of mind.

With over a decade of experience resolving high-stakes IRS and State tax matters, Marc brings strategic insight to complex cases involving wage garnishments, bank levies, unfiled returns, and six-figure tax debts. He is known for helping clients reduce or eliminate tax liabilities through expertly negotiated settlements and compliance plans.

Marc is a Certified Public Accountant licensed in California and Oklahoma and holds the designation of Certified Tax Representation Consultant. He is a member of the American Society of Tax Problem Solvers (ASTPS) — the national organization founded by the educators and practitioners who have trained thousands of CPAs, EAs, and tax attorneys in IRS representation strategy.

Every case is handled with discretion, proven methodology, and direct CPA-led representation — not call center scripts.

📍 Learn more at www.orangecounty.cpa or call (657) 218-5700.