Few mistakes worry the IRS more than an employer failing to file 941 or 940 or pay employment taxes. Forms 941 (Employer’s Quarterly Federal Tax Return) and 940 (Employer’s Annual Federal Unemployment Tax Return) are the backbone of payroll compliance. They report — and fund — critical federal programs like Social Security, Medicare, and Unemployment Insurance. If your business misses these filings, even once, it can trigger a chain reaction of penalties, interest, liens, and Trust Fund Recovery Penalty (TFRP) assessments that can follow you personally, especially if you fail to file 941 or 940.
📘 Official IRS References:
- Form 941 — Employer’s Quarterly Federal Tax Return
- Form 940 — Employer’s Annual Federal Unemployment (FUTA) Tax Return
Understanding the Purpose of Forms 941 and 940
| Form | Purpose | Frequency |
|---|---|---|
| Form 941 | Reports federal income, social security, and Medicare taxes withheld from employee’s paychecks, and report the employer’s share of social security and Medicare taxes. | Quarterly. |
| Form 940 | Reports annual Federal Unemployment Tax (FUTA). | Annually (due January 31). |
💡 Insight: Missing a 941 filing is viewed more seriously than missing an income tax return — because 941 funds are “trust fund” taxes withheld from employees.
How Payroll Tax Nonfiling Leads to Personal Liability?
The IRS can impose the Trust Fund Recovery Penalty (TFRP) on any “responsible person” who willfully fails to collect, account for, or pay withheld taxes.
Who Can Be Liable:
- Business owners and corporate officers
- Accountants or controllers with signing authority
- Payroll managers and bookkeepers
- Anyone who knew taxes were due but paid others instead
| Stage | What Happens |
|---|---|
| Investigation | IRS conducts investigation (Form 4180 (interview)) to determine who is responsible. |
| Assessment | IRS mails Letter 1152 and Form 2751 proposed penalty. |
| Appeal | You may file protest to avoid personal assessment. |
💡 Insight: Once assessed, the TFRP becomes your personal debt — collectible through wage garnishment or lien, even if the business dissolves.
How to Fix Unfiled 941 or 940 Returns?
Gather Records
Gather all records, such as payroll registers and Form W-2 data.
File All Missing Returns and Pay the Balance Immediately
File 941s and 940s with accurate totals, and pay the balance immediately.
Resolve Any Trust Fund Assessments
If you’ve received Letter 1153 or Form 2751, contact legal counsel immediately. You have a certain timeframe to appeal — or the penalty becomes personal.
Why Legal Representation Matters?
Payroll nonfiling cases are among the IRS’s most aggressive enforcement areas. They involve complex interactions between your business and personal liability.
A tax attorney can:
- File back 941s and 940s with accurate data and legal protection.
- Negotiate with IRS Revenue Officers directly.
- Prevent or lift liens, levies, or seizures.
- Represent you in TFRP interviews and appeals.
💡 Advantage: Once an attorney is on record with Form 2848, the IRS must communicate solely through counsel, insulating you from direct interviews or enforcement pressure.
📘 Reference: Form 2848 — Power of Attorney
Need help with a similar issue? Contact our firm today for a consultation.
Unfiled 941s or 940s can spiral quickly into liens, levies, and personal liability. But with professional help, most payroll tax cases can be corrected and resolved without long-term damage. A tax attorney can file back returns and negotiate directly with the IRS — ensuring compliance and protecting your assets. Contact Pelham PLLC today for a confidential payroll tax consultation.
FAQs
Can the IRS hold me personally liable if I didn’t sign checks?
Yes, if you had authority over financial decisions or knew taxes weren’t paid. The TFRP focuses on responsibility, not just signatures.
