What Is IRS Notice CP210/CP220?
The IRS sends Notice CP210 or CP220 to business owners who have not made employment tax deposits, underreported income, and/or improperly claimed deductions/exemptions.
These notices inform businesses that the IRS is applying a penalty for failing to pay their portion of Medicare and Social Security taxes withheld from employee wages or that they have a higher tax liability after the IRS made changes to a business tax return.
What Is the Difference Between CP210 and CP220 IRS Notices?
CP210 notifies businesses that they have failed to deposit the correct amount of employment taxes or did not pay employment taxes on time. Business owners may also receive a CP210 notice if they do not make any required tax deposits.
This notice includes details like the penalty amount, how the IRS calculated it, and the specific tax period it applies to.
If the IRS audits a company’s tax return and believes it underreported its income, claimed deductions or exemptions for which it is not eligible, or made calculation errors, the IRS will send a CP220 notice.
CP220 notifies a company of proposed IRS changes to a business tax return that typically increase the business owner’s tax liability.
When are Deposits for Employment Taxes Due?
Due dates for depositing employment taxes depend on the type of tax (Medicare, Social Security, income) and the company’s total tax liability.
For example, if an employer reports less than $50,000 in taxes during the four-quarter (lookback) period that usually ends on June 30, they are considered a monthly depositor.
Each monthly deposit must be made by the 15th of the following month. If an employer accrues taxes in March, those taxes should be deposited by April 15th to avoid penalties.
Businesses expected to deposit employment taxes twice a week are those reporting over $50,000 in taxes during the lookback four-quarter period. Employers paying wages on Wednesday, Thursday, or Friday must deposit employment taxes by next Wednesday.
Employers paying wages on Saturday, Sunday, Monday, or Tuesday should deposit employment taxes by next Friday.
Companies with over $100,000 in taxes on any day during lookback must deposit employment taxes by the following business day. This next-day deposit rule supersedes other deposit schedules.
How Much Is a Failure to Deposit Penalty for Unpaid Business Taxes?
The Failure to Deposit (FTD) penalty for unpaid business taxes is determined by how late the tax deposit is made. The IRS calculates FTD penalties as a percentage of the unpaid tax amount. The more overdue the deposit, the higher the percentage.
Standard FTD penalties for 2024:
- Deposits one to five days late: 2%
- Deposits six to 15 days late: 5%
- Deposits over 15 days late: 10%
Employment taxes not deposited within ten days after receiving a notice have a 15% penalty.
Are You at Risk of an IRS Lien or Levy for Failure to Deposit Employment Taxes?
Yes, failing to deposit employment taxes can put you at risk of an IRS lien or levy. Employment tax noncompliance may also lead to criminal charges if an employer does not respond to CP210/CP220 notices and pay or deposit missing taxes.
Federal tax liens are claims against individual or company property that the IRS can seize to offset unpaid employment taxes.
IRS levies are intended to seize property to pay off past due employment taxes.
How Can You Settle an IRS Failure to Deposit Penalty If You Can’t Afford Employment Taxes?
The IRS offers several options for employers if they cannot pay employment taxes:
- Penalty Abatement: a business can request penalty abatement if they have a history of compliance with depositing employment taxes on time. Employers must prove that FTD was due to a reasonable cause and not deliberate neglect.
- Installment Agreement: employers can apply for an installment agreement plan and make monthly payments until the debt is paid off.
- Offer in Compromise (OIC): The IRS may agree to settle a tax debt for less than the employer owes after evaluating the company’s expenses, asset equity, and income.
- Temporary Collection Delay: the IRS may delay collections if an employer can show financial hardship is preventing employment tax deposits.
Will the IRS Ever Reduce or Remove a CP210/CP220 Penalty?
Under certain circumstances, the IRS may remove or reduce CP210/CP220 penalties if the taxpayer can show reasonable cause for the employment tax underpayment.
Examples of how employers could avoid paying FTD penalties include first-time penalty abatement, administrative waivers, reasonable cause, or IRS error correction.
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