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Payroll Tax Penalties: Federal Rules and 2025 State Rates

Explore federal and state payroll tax penalty rates and some practical steps to safeguard your organization.
Tax Resource
September 05, 2025
Prabhjot (PJ) Naul Headshot

By: Prabhjot (PJ) Naul

Lead (Tax)
Compliance & Government Relations

Every business, from small startups to global enterprises, must handle payroll taxes when it hires its first employee. This includes withholding the correct amounts from employee wages, adding employer portions, remitting the amounts to the proper federal, state, and local agencies, and filing returns verifying compliance.  

Yet, year after year, businesses of all sizes face costly penalties or fines due to payroll tax errors or oversights. Fortunately, these penalties aren’t just avoidable, but entirely preventable with the right tools, knowledge, and support.  

What Are Payroll Tax Penalties? 

Payroll tax penalties are financial consequences imposed on an employer, business, or organization when they fail to comply with various payroll tax laws or regulations. This can result from late deposits, inaccurate withholdings, or failure to file returns. 

Regardless, the repercussions for these oversights can escalate quickly if left unresolved, especially if the Internal Revenue Service (IRS) or corresponding state agency determines the noncompliance was intentional. In such cases, the punishments can go beyond penalties or fines, including personal liability for the employer and even jail time for unpaid payroll taxes.  

Key Takeaways

  • Federal and state payroll tax penalties can result from late filings, missed deposits, and inaccurate reporting.  
  • Federal penalties can be disputed or forgiven if the employer can prove there was a reasonable cause for missing a tax deadline. 
  • Organizations can minimize compliance risks by maintaining accurate records, automating payroll audits, and staying informed of current tax requirements. 

What Happens if Payroll Taxes Aren’t Paid? 

If an organization has payroll tax problems and fails to meet its tax obligations, the punishment isn’t an individual tax penalty but a combination of fines, interest, and potentially harsher actions the longer the issue goes unresolved.  

For example, if a company misses or makes a federal payroll tax deposit late, the IRS typically sends a notice regarding the infraction, details on the nature of the penalty and applicable interest, and a deadline for resolving this situation. Interest on the unpaid amount then begins to accrue, compounding the financial burden and potentially snowballing into a significant liability.  

Common Federal Payroll Tax Penalty Types

The two most common federal payroll tax penalties are the IRS’s Failure to File and Failure to Deposit penalties, although there are others for when an organization fails to pay its own taxes (i.e., Failure to Pay) or deliberately doesn’t deposit the payroll tax withholdings it’s collected (i.e., Failure to Deposit).

Failure to File Penalty 

The penalty for filing taxes late, or not at all, starts at 5% of the unpaid tax for each month (or part of a month) the return is late and ranges up to 25%. If the return is over 60 days late, the minimum penalty is either $510 (for 2025 tax returns) or 100% of the unpaid tax, whichever is less. Regardless, the IRS can also impose interest on this penalty type, though businesses may dispute or request that the penalty be forgiven if there’s reasonable cause for not meeting this tax obligation. 

Failure to Deposit Penalty

The penalty for not depositing employer payroll taxes on time, or at all, ranges from based on how late the deposit is:

  • 1-5 calendar days = 2% of unpaid deposit
  • 6-15 calendar days = 5% of unpaid deposit
  • Over 15 calendar days = 10% of unpaid deposit

If, however, it’s been over 10 calendar days since an employer received their first penalty notice letter (e.g., CP220) or they receive a notice for immediate payment (e.g., CP504J), the penalty can reach 15% of the unpaid deposit. 

Like the Failure to File penalty, the IRS can impose interest on the unpaid deposit amount, and employers may dispute the penalty or request forgiveness. 

What Happens If You Don’t File State Taxes?

State tax deadlines and types vary, but, like federal payroll tax penalties, the most common ones are failing to deposit collected amounts or a late penalty for filing taxes after their due date.

State

Employment Taxes

 State Unemployment Insurance (SUI) Taxes 

Alabama
  • Late Filing: $50 or 10% of the tax due, whichever is greater. 
  • Late Deposit: 10% of the tax due. 
  • Late Filing: $25 or 10% of the tax due, whichever is greater. 
  • Late Deposit: 10% of the tax due. 

Alaska

 N/A
  • Late Filing: 5% - 25% of the tax due (but no less than $10) for each overdue 30-day period, or part of a 30-day period. 
  • Late Deposit: 12% annual interest on all unpaid amounts. 

Arizona
  • Late Filing: 4.5% of the tax due for each overdue month or part of a month. 
  • Late Deposit: 0.5% of the tax due for each overdue month or part of a month. 
  • Late Filing: 0.1% of the total wages paid that quarter, but no less than $35 and no more than $200. 
  • Late Deposit: 1% monthly interest on the tax due. 

Arkansas
  • Late Filing & Late Deposit: 5% of the tax due, increased by 5% for each overdue month, up to 35%. 
  • Late Filing: Whichever is greater of the two amounts for each period. 
    • 20 Days Late: $10 or 5% of the tax due 
    • Over 20 Days Late: $20 or 10% of the tax due 
    • Certain circumstances: $30 or 15% of the unpaid tax 
  • Late Deposit: 1.5% interest on all unpaid amounts. 

California
  • Late Filing & Late Deposit: 15% of the tax due, plus $20 per unreported employee on the filed return. Additional penalties are possible. 

Colorado
  • Late Filing & Late Deposit: $5 or 5% of the unpaid tax, plus 0.5% of the tax for each full or partial overdue month, up to 12%. 
  • Late Filing: $50 per quarter, unless the employer is newly liable, in which case $10 for each violation during the first four quarters.  
  • Late Deposit: Either the total of all past delinquent penalty premiums or 1% of the taxable payroll, whichever is less.  
  • 1.5% monthly interest on all overdue filings or deposits. 

Connecticut
  • Late Filing: $50 
  • Late Deposit: 10% of the tax due on all returns. 
  • Late Filing: $25 
  • Late Deposit: $50 or 10% of the balance due, whichever is greater, plus 1% interest on all unpaid amounts. 

Delaware
  • Late Filing: 5% of the tax due, each month, plus 0.5% monthly interest. 
  • Late Deposit: 5% of the tax due, each month, plus 0.5% monthly interest, and another 1% per month up to 25%. 
  • Late Filing: $17.50 per return 
  • Late Deposit: 1.5% monthly interest on unpaid assessments. 

D.C.
  • Late Filing & Late Deposit: 5% of the tax due, each month, up to 25%. 
  • Late Filing & Late Deposit: $100 or 10% of the tax due, whichever is higher, plus 1.5% monthly interest. 

Florida

 N/A
  • Late Filing & Late Deposit: $50 or 10% of any tax due, whichever is greater, up to $300 per return. 

Georgia
  • Late Filing: $25 plus 5% of the tax due (before applying credits or adjustments), and an additional 5% of the tax for each overdue month.  
  • Late Deposit: $25 plus 5% of the tax due, and an additional 5% of the tax for each overdue month. 
  • Late Filing: $20 or 0.5% of the total gross payroll, whichever is greater, for each overdue month or part of a month. 
  • Late Deposit: 1.5% monthly interest until all amounts are paid. 

Hawaii
  • Late Filing: For the first month, 5% of the tax due, increasing by 5% each overdue month or part of a month, up to 25%. 
  • Late Deposit: 20% applied to unpaid amounts. 
  • Late Filing: $30 
  • Late Deposit: 10% of the tax due, but no less than $100. 

Idaho
  • Late Filing & Late Deposit: $10 or 5% of the tax due for every month (up to 25%), whichever is greater. If part but not all of the tax is paid, 0.5% of the tax due is added monthly.  
  • Late Filing: Whichever is greater of the two amounts for each offense: 
    • First Offense: $75 or 25% of the unpaid tax 
    • Second Offense: $150 or 50% of the unpaid tax  
    • Third Offense: $250 or 100% of the unpaid tax 
  • Late Deposit: $20 or 4% of the tax due for every overdue month or part of a month, up to the total unpaid tax. 

Illinois
  • Late Filing: $250 or 2% of the tax due (after applying credits and adjustments), whichever is less. For not filing at all, there is an additional penalty of $250 or 2% of the tax due, up to $5,000. 
  • Late Deposit: 2% penalty for the first 30 days, increasing to 10% after 30 days. If an audit occurs, an initial 15% penalty is applied, which increases to 20% if the audit takes more than 30 days. 
  • Late Filing: $2,500 - $5,000 total or $5 - $10 for each $10,000 in reported wages, whichever is less, but no less than $50. 
  • Late Deposit: 2% monthly interest.  

Indiana
  • Late Deposit: 10% of the unpaid amounts. 
  • Late Filing & Late Deposit: 2% penalty, plus that year’s premium rate, up to 9.4%. 

Iowa
  • Late Filing: 5% of the tax due. 
  • Late Deposit: 5% of unpaid amounts. If a partial payment (less than 90% of the amount due) was made, then another 5% is added to the unpaid amount. 
  • Late Filing: 0.1% - 0.5% of total reported wages from 1 – 241 days overdue, but no less than $35. 
  • Late Deposit: 50% of the amount due, plus either 1% monthly or 1/30 of 1% daily interest. 

Kansas
  • Late Filing & Deposit: Along with the following, an additional 1% penalty is possible, which increases monthly up to 24%.  
    • 2% of the tax due if 1 – 5 days late 
    • 5% of the tax due if 6 – 15 days late 
    • 10% of the tax due if over 15 days late 
    • 15% of the tax due if over 15 days late and 10 days have passed since the agency issued a notice about the tax due 
  • An additional 50% penalty can be applied if the employer fails to submit a late return within 20 days of notice date.  
  • Late Filing: 0.05% of the total wages each month, or part of a month, but no less than $25 or greater than $200 per calendar quarter. 
  • Late Deposit: 1% for each overdue month or part of a month. 

Kentucky
  • Late Filing: 2% of the tax due for each overdue 30-day period (or part of 30 days), but no less than $10 and no more than 20% of the tax due. 
  • Late Deposit: 2% of the tax due for each overdue 30-day period (or part of 30 days), but no less than $10 and no more than 20% of the tax due with 8% annual interest. 
  • Late Filing:  
    • $25 for a first infraction, if tax is paid within 30 days, with an additional $50 if paid after 30 days.  
    • $125 for subsequent infractions, if paid within 30 days, with an additional $50 if paid after 30 days. 
  • Late Deposit: 1.5% monthly interest. 

Louisiana
  • Late Filing & Deposit: 5% of the tax due, if paid within 30 days, with an additional 5% for each 30 days thereafter, up to a maximum of 25%. 
  • Late Filing: $25 or 5% of the total amount due for the quarter, whichever is greater, if payment is less than 30 days overdue. Additional $25 or 5% of the total amount due, whichever is greater, is added for every 30-day period thereafter, up to a maximum of $125 or 25% of the amount due, whichever is greater. 
  • Late Deposit: 5% - 25% monthly penalty, plus 1% monthly interest. 

Maine
  • Late Filing: $25 or 10% of the tax due, whichever is greater, if filed within 60 days after formal demand, rising to $25 or 25% of the tax due, whichever is greater, if not filed within 60 days. 
  • Late Deposit: 1% monthly interest on the tax due, up to a maximum of 25%.  
  • Late Filing: $25 or 10% of the tax due, whichever is greater, if filed within 60 days after formal demand, rising to $25 or 25% of the tax due, whichever is greater, if not filed within 60 days. 
  • Late Deposit: 1% of tax due for each overdue month, or part of a month, up to a maximum of 25%.  

Maryland
  • Late Filing & Deposit: 25% of the tax due. 
  • Late Filing: $35 per contribution and employment report; $15 per earnings report. 
  • Late Deposit: 1.5% monthly interest. 

Massachusetts
  • Late Filing: 1% of the balance due, for each overdue month, or part of a month, up to 25%. 
  • Late Deposit: 1% of the tax due, for each overdue month, or part of a month, up to 25%. Businesses with over $25,000 in annual withholding liabilities are liable for a 5% penalty on any part of an overdue tax payment or weekly withholding tax deposit. 
  • Late Filing: If not filed within 15 days of a demand notice, then 10% of the tax due, but no less than $35 and no more than $1,000. 
  • Late Deposit: 1% of the tax due, for each overdue month, or part of a month, up to 25%. 

Michigan
  • Late Filing & Deposit: 5% of the tax due, increasing by 5% for each overdue month, or part of a month, up to 25%, and daily interest charged using the average prime rate plus 1%. 
  • Late Filing: 10% of the tax due, but no less than $5 or more than $25 per report. 
  • Late Deposit: 1% monthly interest that’s calculated daily. So if payment is late but before the first business day of the next month, interest will not accrue.  

Minnesota
  • Late Filing: $100 or 5% of the tax due, whichever is greater. If a formal demand or warning letter is issued, an additional 25% of the tax due is added every period until the tax is paid.  
  • Late Deposit: 5% of any tax due. 
  • Late Filing: $10 per employee, but no less than $250. The fee doubles if the wage detail report isn’t received within 30 calendar days of the late fee notification.  

Mississippi
  • Late Filing & Deposit: 10% of the tax due, plus 0.5% monthly interest. 
  • Late Filing: 10% of the tax due, if filed no more than 30 days overdue.  
  • Late Deposit: Additional 10% penalty, if paid no more than 60 days overdue or warrant for collection is issued, plus 1% monthly interest until all taxes, penalties, and interest are paid.  

Missouri
  • Late Filing & Deposit: 5% if one month overdue, increasing by 5% for each subsequent month, or part of a month, up to 25%. 
  • Late Filing: $100 or 10% of the tax due, whichever is greater, for each overdue quarterly wage and contribution report, up to $200 or 20% of the tax due, whichever is greater.  

Montana
  • Late Deposit: 1.5% of unpaid amounts, up to 15%. 
  • Late Filing: $25 per report. 
  • Late Deposit: 1% interest on all unpaid amounts.  

Nebraska
  • Late Filing: $25 
  • Late Deposit: 14% annual interest on tax due and penalty amount if the penalty isn’t paid within 10 days of a notice and demand for payment. 
  • Late Filing: 0.1% of the total gross wages paid that quarter, but no less than $25 or more than $200. Assessment is for reports filed after the 10th day of the second month following the quarter.  
  • Late Deposit: 1.5% monthly interest until all amounts are paid. 

Nevada

N/A 
  • Late Filing: $5 forfeit if report is one or more days overdue, plus 0.1% of the total taxable wages, every month, if a report is more than 10 days late after a demand notice.  
  • Late Deposit: 1% interest on all unpaid amounts. 

New Hampshire

 N/A 
  • Late Filing: $25 or 10% per occurrence. 
  • Late Deposit: 1% monthly interest on all unpaid amounts. 

New Jersey
  • Late Filing: 5% for each overdue month, or part of a month, up to 25%. 
  • Late Deposit: 3% interest on all unpaid amounts. 
  • Late Filing: 5% for each overdue month, or part of a month, up to 25%. 
  • Late Deposit: 3% interest on all unpaid amounts. 

New Mexico
  • Late Filing & Deposit: $5 or 2% of the tax due, up to 20%, whichever is greater. 
  • Late Filing: $50 for a wage report more than 10 days overdue. 
  • Late Deposit: 5% plus an additional 5% (but no less than $25) of the unpaid contributions remaining 10 days after filing a wage report submission. 

New York
  • Late Filing & Deposit: 5% of the tax due for a month, or part of a month, up to 25%. If the return is more than 60 days overdue, the penalty is $100 or 100% of the tax due, whichever is less. 
  • Late Filing & Deposit: 5% of the tax due for a month, or part of a month, up to 25%. If the return is more than 60 days overdue, the penalty is $100 or 100% of the tax due, whichever is less. 

North Carolina
  • Late Filing: 5% of the net tax due, for each month, up to 25%. 
  • Late Deposit: 5% of unpaid amounts, plus 7% monthly interest.  
  • Late Filing: 5% of the tax due, for each month, up to 25%. 
  • Late Deposit: 10% of the tax due, plus 0.42% interest on all unpaid amounts. 

North Dakota 

N/A
  • Late Filing: $5 or 5% of the tax due, whichever is greater, plus 5% for each overdue month, or part of a month, up to 25%. 
  • Late Deposit: $5 or 5% of the tax due, whichever is greater, if a return is filed on time but deposits are late.  

Ohio
  • Late Filing: $50 or 5% of the tax due, whichever is greater, for each overdue month, up to $500 or 50% of the tax due.  
  • Late Deposit: 10% of the tax due, plus double the applicable interest, which accrues at a rate of 8%. 
  • Late Filing: 0.25% of the total wages reported, but no less than $50 and no more than $1,000. 
  • Late Deposit: 14% monthly interest on all unpaid amounts. 

Oklahoma
  • Late Filing & Deposit: 10% of the tax due, or the remaining amount after underpayment, plus 1.25% monthly interest on all unpaid amounts.  
  • Late Filing: $100 if report isn’t filed within 15 days of notice of nonreceipt. 
  • Late Deposit: 10% of tax due, plus 1% monthly interest on all unpaid amounts. 

Oregon
  • Late Filing & Deposit: 5% of the tax due, but additional penalties are possible. Interest accrues on all unpaid amounts. 
  • Late Filing & Deposit: 5% of the tax due, but additional penalties are possible. Interest accrues on all unpaid amounts. 

Pennsylvania
  • Late Filing: 5% for each overdue month, or part of a month, up to 25%. 
  • Late Deposit: 5% of unpaid amounts, monthly, plus an additional 3% (but no more than $500) for failure to pay via EFT when the required deposit is $1,000 or more. 
  • Late Filing: 15% of total tax due. 
  • Late Deposit: Interest accrues on all unpaid amounts. 

Rhode Island
  • Late Filing: 5% of tax due. 
  • Late Deposit: 0.5% of tax due, every month. 
  • Late Filing Only: $25 plus an additional $25 for each overdue month. 
  • Late Filing & Deposit: 10% of the tax due, plus $25 for failing to file quarterly tax reports, and 1.5% in interest.  

South Carolina
  • Late Filing: 5% per month, up to 25%. 
  • Late Deposit: 0.5% per month, up to 25%. 
  • Late Filing: 10% of the tax due, but no less than $25 or more than $1,000. 
  • Late Deposit: 1% monthly interest until the tax is paid. 

South Dakota

N/A
  • Late Filing: $25 for each overdue month or part of a month. 
  • Late Deposit: 1.5% monthly interest on all unpaid amounts.  

Tennessee

N/A
  • Late Filing: $10 for every overdue month, or part of a month, up to $50, per report. 
  • Late Deposit: 5% of all unpaid dues. 

Texas

N/A 
  • Late Filing: $15 if report is filed with 15 days after due date. Otherwise, additional penalties may apply.  
  • Late Deposit: 1.5% - 37.5% on all unpaid dues.  

Utah
  • Late Filing & Deposit: $20 or 2% of the tax due, depending on how late the filing or payment are.  
  • Late Filing & Deposit: 5% of the tax due for the first 15 days overdue, with an additional 5% for each 15-day period thereafter, up to 25%, but no less than $25 total.  

Vermont
  • Late Filing: 5% for each overdue month, plus $50 if the return is more than 60 days overdue.  
  • Late Deposit: 5% for each overdue month, plus interest on all unpaid amounts. 
  • Late Filing: $100 
  • Late Deposit: 1.5% monthly interest until payment is made. 

Virginia
  • Late Filing & Deposit: 6% of the tax due, each month, up to 30%, but no less than $10. The $10 minimum penalty applies to all late filings, even if no tax is due.  
  • Late Filing: $100 
  • Late Deposit: 1.5% on all unpaid amounts. 

Washington

N/A 
  • Late Filing: $25 per report 
  • Late Deposit: 1% monthly interest on all unpaid amounts, plus whichever is greater of the two amounts for each of the following overdue periods: 
    • One Month: $10 or 5% of taxes due 
    • Two Months: $20 or 10% of taxes due 
    • Three Months: $30 or 20% of taxes due 

West Virginia
  • Late Filing Only: 5% of the tax due, per overdue month or part of a month, up to 25%, plus a minimum 8% annual interest. 
  • Late Deposit Only: 0.5% of the tax due, per overdue month, up to 25%, plus a minimum 8% annual interest. 
  • Late Filing & Late Deposit: 5% of the tax due for every overdue month, up to 50%, plus a minimum 8% annual interest.  
  • Late Filing & Deposit: $50 or 10% of the tax due, up to $500. 

Wisconsin
  • Late Filing: 5% of the tax due, per overdue month, up to 25%. 
  • Late Deposit: 25% of the amount not withheld or properly reported, deposited, or paid. 
  • Late Filing: $50 if filed no more than 30 days overdue, or the greater of $100 or $20 per employee if filed more than 30 days overdue. 
  • Late Deposit: Monthly interest on all unpaid amounts. 

Wyoming

N/A 
  • Late Filing: $25 per report. 
  • Late Deposit: The greater of the two values for each of the following overdue periods: 
    • One Month: $10 or 5% of taxes due 
    • Two Months: $20 or 10% of taxes due 
    • Three Months: $30 or 20% of taxes due

Payroll Tax Penalty Best Practices 

Avoiding issues like a Form 941 late payment penalty or a failure to pay penalty starts with building strong, reliable compliance and reporting processes.  

Employers must maintain meticulous records, understand how to calculate payroll taxes, and stay informed on legislative changes to payroll tax rates. Automating tax deposits and report filings helps ensure payments are never late, and storing collected amounts in a separate account helps prevent accidentally using them on other business expenses.  

Finally, organizations are encouraged to run quarterly payroll audits to catch issues early and keep up on federal, state, and local tax deadlines and requirements.  

Prevent Payroll Tax Penalties with Paylocity 

Local, state, and federal agencies take tax enforcement seriously, as payroll taxes fund essential programs like Social Security, Medicare, and unemployment insurance. This makes a penalty for not filing taxes or depositing funds on time more than just a compliance concern, but a significant liability.  

Fortunately, as an elite payroll services provider, Paylocity has the automation and compliance tools you need to efficiently navigate every tax season and pay period, including: 

  • Tax geolocation capabilities that apply the correct local, state, and federal tax rates based on employee or business location. 
  • Automated payroll audits that safeguard data entry and identify potential errors. 
  • A centralized compliance dashboard for managing state and federal employment and tax requirements.  

Request a demo today and discover how Paylocity can transform your payroll tax challenges into a seamless compliance process.

About the Author

PJ joined Paylocity in 2015 as a Government Relations Specialist and earned her M.A. in Finance from Southern New Hampshire University in 2017. PJ currently leads a team of tax professionals and works with tax and payroll operations groups.

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