Craig’s bookkeeper called with bad news.
The IRS sent a notice. Three months of unpaid payroll taxes. Thousands owed, plus penalties.
Craig was confused. He looked at his books. Payroll taxes were recorded every month. The expense was right there. How could they be unpaid?
His payroll service calculated the taxes. They appeared on every payroll report. But the payments never went through—insufficient funds when the automatic debits tried to process.
The alerts went to spam. Three months passed. Now the IRS was involved.
This happens more often than you’d think. Seeing the expense recorded doesn’t mean the payment went through.
This article shows you how to verify your payroll taxes are actually being paid—not just calculated.
Disclaimer: This article provides general financial education. It is not tax, accounting, or legal advice. Consult with your CPA or tax professional regarding your specific payroll tax obligations.
This article is written for business owners and managers who:
- Control payroll decisions
- Are responsible for withholding taxes from employee paychecks
- Have authority over business tax payments
If that describes you, the personal liability risks discussed here are real for you.
Why Payroll Taxes Matter
Payroll taxes are different from other business expenses.
When you withhold taxes from employee paychecks—Social Security, Medicare, federal income tax—that money belongs to the government. You’re holding it temporarily before sending it to the IRS. Your business also pays an employer matching share for Social Security and Medicare.
If you don’t send it in, the IRS can come after you personally—not just your business.
This risk exists because payroll taxes withheld from employee paychecks are treated differently than most other business obligations.
That means your personal bank accounts, your home, your personal assets are at risk. Your LLC or corporation may not protect you in these situations.
Plus, unpaid payroll taxes accrue penalties and interest that compound quickly.
This is why you need to verify payments actually happened.
The Two-Step Check
Step 1: Make Sure Taxes Are Filed
Your payroll service should file these forms automatically:
Federal forms:
- Form 941 (filed quarterly)
- Form 940 (filed annually)
State forms:
- State unemployment and withholding forms (varies by state)
What to do:
Log into your payroll service once per quarter. Look for “Tax Filings” or “Compliance” section. Verify the forms show “Filed” status with confirmation numbers.
If you don’t see filed forms, call your payroll service immediately.
If you don’t have a payroll service and haven’t filed these forms, contact your CPA or accountant now. This isn’t optional.
Step 2: Make Sure Taxes Are Paid
Filing forms doesn’t mean the payments went through. You need to verify the money actually left your account.
What to do:
After each payroll, check your business bank account within two weeks. Look for debits to the IRS or your state tax agency.
Federal tax payments usually show as “IRS EFTPS” or similar. State payments show your state agency name. Note that federal and state taxes are typically separate debits—you’ll see multiple transactions, not one combined payment.
The amount should roughly match the payroll taxes on your payroll report. This includes both the taxes withheld from employee paychecks and your employer matching share for Social Security and Medicare.
If you don’t see the payment:
- Log into your payroll service and check payment status
- If it shows “Failed” or “Pending,” call your payroll service immediately
- If your account had insufficient funds, the payment didn’t go through—you still owe it
You can also verify federal payments directly at www.eftps.gov—the Electronic Federal Tax Payment System, which is the official method your payroll provider uses to make federal tax deposits.
Common Reasons Payments Fail
Insufficient funds: Your payroll service tried to debit your account, but you didn’t have enough money. The payment failed. The tax is still owed.
Authorization required: Some payroll services need you to manually approve tax payments. If you miss the notification, the payment doesn’t happen.
Bank account changed: You switched banks but didn’t update your payroll service. They tried to debit the old account.
Service error: Your payroll service made a mistake. Rare, but it happens.
All of these can leave you personally liable for unpaid taxes, penalties, and interest.
What to Do If Payments Didn’t Go Through
Step 1: Figure out how much you owe
Contact your payroll service and ask for total unpaid tax amounts. Include any penalties and interest.
Step 2: Talk to your CPA
Before you contact the IRS or make payments, talk to your CPA. They can verify the amounts, help you understand penalty relief options, and communicate with the IRS if needed.
Step 3: Pay or set up a payment plan
If you have the money, pay immediately through your payroll service or directly at www.eftps.gov. This stops additional penalties and interest.
If you don’t have the money, contact the IRS to set up a payment plan. You’ll still owe penalties and interest, but you can avoid more serious collection actions.
Don’t ignore this. The IRS doesn’t forget about unpaid payroll taxes, and the situation only gets worse with time.
Step 4: Fix the process
Figure out why the payment failed and fix it:
- If it was insufficient funds, maintain a larger cash reserve for payroll
- If it was missed authorization, switch to automatic payments or set reminders
- If it was a bank account issue, update your payroll service and verify it’s connected
- If it was a service error, document everything and consider switching providers
The Simple Verification Routine
This takes less than two hours per year total.
Monthly (5 minutes):
After each payroll, check your bank account for IRS debits. If you don’t see them within two weeks, contact your payroll service.
Quarterly (15 minutes):
Log into your payroll service. Verify that quarterly forms were filed and all payments show “Paid” status. Download confirmations.
Do this in January, April, July, and October.
Annually (30 minutes):
In February, verify the annual forms were filed (Form 940 for federal). Confirm employee W-2s are correct. Provide copies to your CPA.
Two Simple Actions
If you’ve been running payroll and haven’t checked whether payments went through:
Action 1: Log into your payroll service right now. Check if your quarterly forms (Form 941) were filed. If you’re not sure, call your payroll service and ask.
Action 2: Open your bank account. Look for IRS debits over the past three months. If you don’t see them, call your payroll service today.
That’s it. Two actions that take ten minutes and could save you thousands in penalties.
Related Resources
Understand how expenses are recorded vs. paid:
This article focuses on the gap between recording payroll tax expenses and actually paying them. To understand how this timing difference works across your financial statements:
- GAAP Basics: Financial Literacy for Small Business Owners – Learn how expenses appear on your P&L and what they actually represent
- Cash vs. Accrual Accounting for Small Business Owners – Understand why cash in your account and expenses on your books don’t always match
Spot other financial warning signs:
Unpaid payroll taxes are a serious red flag. Learn what other warning signs to watch for:
Conclusion
Payroll tax expense on your books doesn’t mean payroll taxes were paid.
The calculation happens automatically. The payment is a separate step. And if that payment fails, you can be personally liable.
The verification is simple: Check that forms are filed. Check that payments went through.
Two hours per year prevents thousands in penalties and protects your personal assets.
Don’t assume it’s handled. Verify it’s handled.