What Is a 941 Tax Lien?

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Alexandra Tapp
Alexandra Tapp
March 06, 2019

  • All employers must fill out and submit Form 941 on a quarterly basis to report the federal income tax, Social Security tax, and Medicare tax they’ve withheld from their staff’s paychecks.
  • Failure to pay employment taxes can result in the government placing a lien on your business, which can have serious repercussions for your company’s credit, finances, and assets.
  • To release a tax lien on your business, you must pay all taxes owed, either in one lump sum or with the assistance of a discharge, withdrawal, or subordination.

As a business owner, you’re responsible for collecting payroll taxes from your employees using Form 941 and paying those taxes to the government. Failing to do so can result in the Internal Revenue Service (IRS) placing a lien on your business property. In doing so, the government claims a legal right to that property until you pay off your tax debt in full. This can have serious repercussions on your company’s credit, finances, and assets.

Here’s how to avoid or handle a Form 941 tax lien.

What Is Form 941?

Form 941 is called the Employer’s Quarterly Federal Tax Returns. It’s the document employers use to report the quarterly federal income tax, Social Security tax, and Medicare tax they withhold from their staff’s paychecks, as required by the IRS. They also use this form to pay their share of Social Security or Medicare tax. Form 941 requires the following information:

What Is a 941 Tax Lien?
  • The number of paid employees during each quarter and their wages
  • The amount of taxes withheld from employee paychecks for tax purposes
  • Taxable Social Security and Medicare wages
  • Adjustments for things like sick days and tips
  • The amount the employer owes
  • How much the employer has already paid
  • Underpayment and/or overpayment

If additional payment is necessary, you’ll submit that with Form 941-V, Payment Voucher.

What If You Don’t Pay Employment Taxes?

If you do not submit Form 941 or pay employment taxes for your business, the IRS will send you an official notification called a Notice and Demand for Payment stating its intent to put a lien on the company. This means a lien is imminent, and you have 10 days to pay off your tax debt or make arrangements with the IRS to pay it down.

You cannot sell or refinance any part of your business while the IRS has a lien against it. The lien on your company is also public record until you’ve paid off your debt.

Don’t ignore this notification from the IRS, as a lien on your business can have serious consequences. It applies to all of your existing business properties and assets, as well as any acquired while the lien is active.

A lien can also hinder your company’s credit and ability to get a business loan or refinance. Even if you file for bankruptcy, your debt and lien might still exist.

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If your business is incorporated or a limited liability company, the IRS lien only applies to your business property. This includes not only buildings, equipment, and inventory but also intellectual property such as copyrights, patents, and trademarks. If you’re a sole proprietor, however, the government’s lien can apply to your personal property, as well. Your house, vehicles, and more could be at risk as long as the lien is active.

You might also receive a Notice and Demand for Payment letter if you’ve missed the deadline to file Form 941 or unintentionally paid less than you owe. Again, you must pay your full tax debt — plus fees, late penalties, and interest — within 10 days or be at risk of having a lien filed against your business.

IRS Tax Lien Letters

Correspondence you might receive from the IRS if you haven’t paid your payroll taxes includes the following:

  • Final Notice – Notice of Intent to Levy and Notice of Your Rights to a Hearing. This expresses the IRS’s intent to levy assets due to unpaid employment taxes.
  • Certified Copy of Notice to Federal Tax Lien and Right to a Hearing. This notifies you that the government is putting a lien on your company.
  • Attempt to Collect Unpaid Employment Tax. This is a collections letter for unpaid employment tax.
  • Notice of Levy on Wages, Salary and Other Income. This notifies you that the IRS has seized financial assets.
  • Notice of Summons. This forces the employer to show up for a court hearing.

Take these notices seriously, and respond immediately.

How to Release a Tax Lien

To remove a tax lien from your business, you must pay your tax debt in full. Within 30 days of receiving these funds, the IRS will release the lien. Paying a large amount of taxes at once, however, can be difficult, particularly if you’re struggling financially. If you can’t afford to pay off this debt entirely, you may pursue one of the following options:

  • Discharge. If you apply for and are granted a discharge, the IRS agrees to remove the lien from a particular property because it has sufficient liens on your other business properties to fulfill your tax debt. This allows you to sell or refinance just that property.
  • Withdrawal. The IRS can withdraw the tax lien. You must still pay all taxes and fees owed the government, but the lien notice on your business no longer shows in the public record or on your credit report. To qualify for a withdrawal, you must owe the government less than $25,000 and be paying it off in installments.
  • Subordination. The IRS can issue you a certificate of subordination. In this scenario, the lien is still on your business, but you’re now allowed to work with certain creditors to do things such as take out loans. This can help some employers pay off their tax debt sooner.

You can also appeal the government’s tax lien if you can prove it was issued mistakenly. You must do this right away, however, for it to be effective.

It’s critical that you stay current on your company’s payroll taxes to avoid having the government put a lien on your business and its properties. This involves filing Form 941 on a quarterly basis.

If your business is struggling with tax debt, there are ways to keep it afloat. Browse our resources on Solvable, or reach out to one of our debt relief experts.

 

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