IRS payroll tax notices and penalty relief for employers
Read the notice, keep it, and if it asks for a response, act by the due date printed on it, because the IRS says replying by that date guarantees your appeal rights if you disagree. The IRS may remove some payroll tax penalties, including the failure-to-deposit penalty, when an employer qualifies for relief such as reasonable cause or First Time Abate (FTA), which the Automatic Exemption from Penalty (AEP) is replacing, and the IRS decides each request.
IRS notices employers may receive and the response periods they state
Each row reflects what the IRS page for that notice says as of October 2026.
Notice
What it means
Response period the notice states
CP161
You have an unpaid balance due
Contact the IRS within 10 days of the notice date if you think it made a mistake, and pay by the date on the notice
CP207
The Record of Federal Tax Liability has missing or incorrect information
Mail a new record to the address on the notice within 45 days of the notice date
CP230 and CP240
The IRS changed your return because the amounts on your information returns do not match your employment tax returns (CP230), or because your employment tax return differs from the income reported on your W-2, W-2G and 1099-R forms (CP240)
If you disagree, contact the IRS within 30 days of the notice date; pay any balance by the date shown on the notice
CP250A, CP250B and CP250C
The annual employment tax filing requirement changed because annual liability exceeded $1,000 and you are no longer eligible to file Form 944 (CP250A and CP250C), or you remain a Form 944 filer for the current year and must file Form 941 quarterly starting the first quarter of the next year (CP250B)
If you do not agree, contact the IRS within 30 days of the notice date
CP504B
A notice of intent to levy under section 6331(d); if the IRS does not receive the amount due within 30 days of the notice date, it may serve a Disqualified Employment Tax Levy or a Federal Contractor Levy
Pay the amount owed immediately; pay or contact the IRS as soon as possible but no later than 30 days from the notice date
What should I do first when I get an IRS payroll tax notice?
Start by reading the notice and keeping a copy, then follow what the notice asks you to do. If you agree, take any requested action; you need not reply unless the notice asks for a response. If you disagree, follow the instructions on the notice, which Tax Topic 651 says should tell you where to send your response.
How long do I have to respond to an IRS payroll tax notice?
Every IRS notice that asks for a response states its own response date, so act by the due date printed on the notice, because the IRS says replying by that date guarantees your appeal rights if you disagree. Tax Topic 651 tells you to allow at least 30 days for a reply from the IRS, which is how long the IRS can take to answer you, not your deadline. For an LT11 notice or Letter 1058, the IRS says you have 30 days from receipt to request a Collection Due Process hearing, and a Letter 3172 about a lien filing gives 30 days to request one.
What does my IRS payroll tax notice number mean?
The number in the right corner of the letter identifies the notice, and the IRS says to search for a notice by number or topic on its page for understanding a notice or letter. Beyond the notices in the table, the IRS pages describe these:
* CP136 and CP136B tell a Form 941 filer its deposit schedule for next year, monthly if the lookback tax was $50,000 or less and semiweekly if it was over $50,000. If the tax used is zero for a period, the IRS has no record of receiving the Form 941 (CP136) or the Form 944 (CP136B) for it, so file the missing return.
* CP238 and CP235 say the IRS waived the deposit penalty, CP238 because you are filing Form 941, 943 or 944 for the first time and CP235 because your deposit schedule recently changed and you used the prior schedule. CP276A and CP276B say the IRS decided not to charge the penalty this time, and neither requires a reply, though each page says to check your records.
* CP504J concerns the Employer Shared Responsibility Payment under the Affordable Care Act, not payroll tax.
Where can I see my IRS notices and letters online?
Business Tax Account shows an eligible business its IRS notices and letters, account balance, payment history and tax records such as transcripts and the EIN verification letter, and lets it make payments, including federal tax deposits. A Designated Official has full access; for an S corporation or a C corporation, that person must be an officer or managing member who is a current employee with a W-2 for the most recent filing year and authority to bind the entity.
The IRS corresponds with the employer at its address of record, so the Form W-2 instructions suggest that the employer’s own address, not a third party’s, be on file. CP148A says the IRS changed the mailing address and, if the change is wrong, to return the notice with a completed Form 8822-B.
Who can talk to the IRS about a notice for my business?
Form 2848 lets an eligible representative speak and act for the business before the IRS, Form 8821 lets a designee only see and receive the business’s tax information, and the third-party designee on Form 941 can only discuss that return’s processing questions.
The Form 2848 instructions say that authorizing someone to represent you “does not relieve you of your tax obligations.” On Form 941, the designee can give the IRS missing information, call about processing and respond to certain IRS notices the employer has shared with the designee about math errors and return preparation, but the IRS will not send notices to the designee, who cannot bind the employer or represent it, and the authorization expires 1 year after the due date of the return, without regard to extensions.
When a payroll provider handles deposits and filings, the employer remains responsible for deposits and timely returns, and the IRS says that depending on the arrangement the employer may remain solely liable or become jointly and severally liable.
What do I do about a balance due notice for Form 941 or Form 940?
A balance due notice asks you to pay by the date printed on it, and the IRS says that paying the full amount by that date means no additional interest on that amount. CP161 says you have an unpaid balance due and does not name Form 941 or Form 940, so compare the notice to your return and the list of payments applied. If you cannot pay in full, the IRS says to pay what you can and apply for a payment plan, which may reduce future penalties.
CP504 is the Notice of Intent to Levy under section 6331(d) and says to pay immediately. LT73 says the IRS issued a levy for unpaid federal employment tax and offers payment in full, a payment plan or a Collection Due Process hearing request on Form 12153.
What are the failure-to-deposit penalty rates?
The IRS failure-to-deposit penalty is 2 percent of the unpaid deposit when it is 1 to 5 calendar days late, 5 percent at 6 to 15 days, and 10 percent at more than 15 days, and it is 15 percent of the unpaid deposit when it stays unpaid more than 10 calendar days after the date of the first IRS notice or on the day you get a notice demanding immediate payment; the tiers do not add up, so the highest tier that applies is the total. As of October 2026, the penalty applies to employers that do not make employment tax deposits on time, in the right amount, or in the right way.
Hypothetical example. A $10,000 deposit that is 3 days late draws a 2 percent penalty, or $200 ($10,000 times 0.02). The same deposit 20 days late, with no IRS notice sent yet, draws a 10 percent penalty, or $1,000 ($10,000 times 0.10).
What happens if I file or pay payroll taxes late?
For Form 941, the IRS says the failure-to-file penalty is 5 percent of the unpaid tax for each whole or part month the return is late, generally up to 25 percent, and the failure-to-pay penalty is 0.5 percent of the tax for each whole or part month it is paid late, up to 25 percent, with the failure-to-file penalty reduced by the failure-to-pay penalty in any month both apply. These rates are from Publication 15 as of October 2026. The IRS failure-to-pay penalty page adds that the failure-to-pay penalty is 1 percent for each month or part of a month if the tax is not paid within 10 days after a notice of intent to levy, and that the IRS applies full monthly charges even when the tax is paid before the month ends.
Hypothetical example. An employer owes $10,000 of tax with a Form 941 filed and paid one month and one day late, which counts as two months. Each month the failure-to-file penalty is 5 percent less the 0.5 percent failure-to-pay penalty, or 4.5 percent ($450), so $900 over two months. The failure-to-pay penalty is 0.5 percent ($50) a month, so $100 over two months. The total is $1,000 before interest.
How does the IRS charge interest on unpaid payroll taxes and penalties?
For the quarter that began October 1, 2026, the IRS underpayment interest rate is 7 percent a year, compounded daily; the rate is set each quarter as the federal short-term rate plus 3 percentage points. The IRS charges underpayment interest on unpaid tax, penalties, additions to tax and interest, per its interest page, and its quarterly interest rates page and fourth quarter 2026 release list the rates, including a separate 9 percent rate for large corporate underpayments, which are underpayments of tax over $100,000 by C corporations.
When the IRS reduces or removes a penalty, it automatically reduces or removes the related interest, but it does not remove or reduce interest for reasonable cause or as first-time relief, per its interest page. Interest may be reduced only if it results from an unreasonable error or delay by an IRS officer or employee.
How do I fix a missed payroll tax deposit?
If you under-deposited, bring your deposits up to date through EFTPS, which is what the IRS says in a CP239 notice when it is checking your deposits after a drop in current-quarter deposits or an assessed late-payment penalty. Monthly depositors deposit by the 15th of the next month, and semiweekly depositors deposit Wednesday to Friday paydays by the next Wednesday and Saturday to Tuesday paydays by the next Friday, per the IRS CP136 page. If you receive a deposit penalty notice, you may designate how deposits are applied within 90 days of the notice date by following the notice’s instructions; otherwise deposits are applied to the most recent liability in the quarter, per Publication 15.
Can I get a payroll tax penalty removed?
The IRS may remove a payroll tax penalty when you qualify for relief, and its penalty relief page lists failure to deposit, failure to file and failure to pay among the eligible penalties. The types of relief are first time penalty abate and administrative waiver, reasonable cause, and statutory exception, and the IRS decides whether you qualify. During a reasonable-cause call, if the IRS determines you qualify for FTA, it applies that instead.
For deposit penalties, Publication 15 says the IRS may waive them if you filed your employment tax return on time and inadvertently failed to deposit in the first quarter you were required to deposit, or the first time after your deposit frequency changed, within the net worth and size limits that Publication 15 lists.
Does first time penalty abatement apply to failure-to-deposit penalties?
The IRS lists the failure-to-deposit penalty, charged when tax was not deposited in the correct amount, within the prescribed time or in the required manner, among the penalties eligible for FTA and the Automatic Exemption from Penalty (AEP), regardless of amount, on its administrative penalty relief page. The same return type must have been timely filed for the prior three years, or 12 consecutive quarters, and either no penalty (except the estimated tax penalty) was assessed or a penalty was assessed but later abated for reasonable cause or IRS error. Business taxpayers also need a record in which the IRS did not waive the failure-to-deposit penalty four or more times during that period and did not charge it for EFTPS avoidance. The IRS reviews your account to see whether you meet the requirements.
What is the Automatic Exemption from Penalty and how is it different from First Time Abate?
As of the IRS pages dated October 2026, First Time Abate (FTA) is being replaced by the Automatic Exemption from Penalty (AEP); AEP is automatic for eligible original returns beginning with tax year 2025 and 2026 quarterly returns, FTA still must be requested from the IRS for some returns processed before AEP starts, and the IRS says AEP replaces FTA for eligible returns with original due dates on or after January 1, 2027.
When AEP applies, the IRS does not assess failure-to-file, failure-to-pay or failure-to-deposit penalties and sends a notice that relief was applied; you need no application, form or call, and you need not respond to that notice. AEP “does not eliminate penalties under the law,” and it excludes information return, Daily Delinquency and accuracy-related penalties, per the IRS fact sheet. The fact sheet says FTA still applies to eligible 2024 tax year returns and eligible 2025 quarterly returns, and to eligible 2025 tax year and 2026 quarterly returns processed before AEP starts, and that the taxpayer must contact the IRS to request it because it is not applied automatically. If a notice shows an assessed penalty you believe AEP should have covered, contact the IRS.
The IRS administrative penalty relief page, reviewed October 22, 2026, still describes AEP as starting in summer 2026, and neither that page, the July 2026 news release nor the fact sheet gives a start date for AEP.
What counts as reasonable cause for a payroll tax penalty?
The IRS decides reasonable cause case by case, asking whether you used ordinary care and prudence and were still unable to file, pay or deposit on time; reliance on a tax professional, lack of knowledge, mistakes and lack of funds alone generally do not qualify. Examples that may qualify include fires, natural disasters or civil disturbances; inability to get records; death, serious illness or unavoidable absence of the taxpayer or immediate family; and system issues that delayed a timely electronic filing or payment.
Explain what happened and when, how it prevented timely compliance, and what you tried, and attach support such as hospital or court records, disaster documentation, correspondence or receipts, as the IRS reasonable cause page describes. For information return penalties, the IRS says to respond to a Notice 972CG within 45 days (60 days for a foreign filer) before the penalty is assessed, per the IRS information return penalties page.
How do I request penalty relief by phone, by letter or on Form 843?
Follow the instructions in the IRS notice, because some penalty relief requests are accepted by phone at the toll-free number on the notice, and the IRS says you may request relief in writing with Form 843 if it cannot approve the request over the phone. For a phone request, have the notice, the penalty and your reasons ready; for a letter, send a signed letter with supporting documents to the address on the notice. To request FTA, call the number on the notice or send a written statement or Form 843 to the address in the Form 843 instructions; you do not need to name FTA or attach documents. Form 843 is the IRS form for abating assessed penalties or interest, and its instructions say you may not have to file it if you received a notice.
If you get a penalty notice after you file, reply to the notice with an explanation; the IRS says not to attach an explanation to the return.
Should I pay a payroll tax penalty before I ask the IRS to remove it?
The IRS failure-to-deposit page says that sending a payment or paying the taxes in full stops future penalties and interest from adding up, and it describes disputing a penalty separately, by calling the number on the notice or writing a signed letter. Under FTA, the IRS says the “Penalty is assessed first, then later removed,” and the failure-to-pay penalty may continue to accrue until the tax is fully paid. The trust fund recovery penalty has a separate payment requirement when it is contested after assessment.
What can I do if the IRS denies my request for penalty relief?
If the IRS rejects a request to remove a failure-to-file or failure-to-pay penalty, you may be able to ask for a conference with the IRS Independent Office of Appeals, and you generally have 30 days from the date of the rejection letter to file the request; the letter states the specific deadline. If the penalty cannot be resolved, the IRS pages point to the Taxpayer Advocate Service, an independent organization within the IRS.
What is the trust fund recovery penalty?
The trust fund recovery penalty equals 100 percent of the unpaid trust fund tax (income tax withheld plus the employee share of Social Security and Medicare tax) and the IRS can assess it personally against any responsible person who willfully fails to collect or pay it over; before assessing, the IRS sends a letter that gives 60 days (75 days if addressed outside the United States) to appeal.
The IRS calls these trust fund taxes because the employer holds the employee’s money in trust until it makes a deposit. The penalty may apply if the unpaid trust fund taxes cannot be immediately collected from the business, and the business does not have to have stopped operating. The IRS also charges interest on the penalty. Per the IRS page on employment taxes and the trust fund recovery penalty, willful means the responsible person was, or should have been, aware of the outstanding taxes and either intentionally disregarded the law or was plainly indifferent to it; no evil intent or bad motive is required.
Who can be held personally responsible for unpaid payroll taxes?
The IRS can assess the trust fund recovery penalty against any person who is responsible for collecting or paying withheld income and employment taxes and who willfully fails to do so, and a responsible person has the duty to perform and the power to direct the collecting and paying of those taxes. The IRS list of people who may be responsible includes an officer or employee of a corporation, a member or employee of a partnership, a corporate director or shareholder, a board member of a nonprofit, and a payroll service provider or Professional Employer Organization (PEO) or the responsible parties within either one.
Responsibility turns on whether the individual exercised independent judgment over the business’s finances, and an employee whose function was solely to pay bills as directed by a superior is not a responsible person. An unpaid, volunteer board member of a tax-exempt organization who serves solely in an honorary capacity, does not participate in day-to-day or financial operations, and has no actual knowledge of the failure is excepted unless that would leave no person liable, under 26 U.S.C. 6672.
What happens when the IRS proposes a trust fund recovery penalty against me?
When the IRS determines you are a responsible person, it sends a letter stating that it plans to assess the penalty and giving you 60 days from the date of the letter to appeal (75 days if the letter is addressed to you outside the United States), and Publication 594 identifies that letter as Letter 1153 with Form 2751, Proposed Assessment of Trust Fund Recovery Penalty. If you agree, sign and return Form 2751 within 60 days, or pay the trust fund taxes personally to avoid assessment. If you disagree, you have 10 days from the date of the letter to tell the IRS that you disagree, have more information or want to resolve it informally, and 60 days from the date of Letter 1153 to appeal with IRS Appeals. If you do not respond, the IRS assesses the penalty against you personally, sends a Notice and Demand for Payment and begins collection.
After assessment, CP15B says the IRS charged the penalty and explains the amount due and the due date. To contest it, you must pay the portion attributable to one employee (the withheld tax for one employee) for each quarter the penalty was charged and file a claim for refund on Form 843 for each quarter at issue, per the Form 843 instructions. To suspend collection, you must also post a bond for one and a half times the balance owed.
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