Delaware Payroll Tax Nonpayment Emergency
Checklist
Payroll tax nonpayment is one of the most serious tax issues a Delaware business can face. These taxes, which include withheld income tax and unemployment insurance tax, are considered Trust Fund taxes. This means the state views them as money held in trust for employees and government programs, rather than as business operating funds.
When payroll taxes are not filed or paid on time, the Delaware Division of Revenue begins enforcement actions quickly.
Ignoring tax debt does not make it disappear. Instead, it typically triggers penalties, interest, liens, levies, and potential liability for business owners. Understanding what non-payment of taxes means and what happens next can help you respond appropriately and avoid escalation. This checklist explains the state's process and what steps to take if you are facing payroll tax nonpayment in Delaware.
What This Issue Means
Payroll tax nonpayment occurs when required employment taxes have not been filed or paid to the Department of Revenue by the specified deadline. In Delaware, employers are required to file withholding tax returns and remit withholdings on a regular schedule, based on their average monthly tax liability. Filing frequency depends on the amount withheld: quarterly filers have an average monthly liability of less than $600, monthly filers have $600 or more, and eighth-monthly filers have $25,000 or more in average monthly liability.
These payroll obligations include Delaware personal income tax withheld from employee paychecks and unemployment insurance tax. The Division of Revenue
administers withheld income tax, while the Delaware Department of Labor administers unemployment insurance tax.
When the state does not receive tax payment on or before the due date, the account is considered delinquent. The Division of Revenue will record this as an unpaid tax liability that requires immediate attention.
Why the State Issued This or Requires This
Delaware requires payroll tax filing and payment because these funds support state programs and employee protections. Withheld income tax belongs to employees, not the employer. Unemployment insurance funds provide benefits to workers during job loss. The state treats payroll tax collection seriously because nonpayment directly harms workers and depletes state revenue.
When an employer fails to file or pay on time, the Division of Revenue initiates an account review to determine the amount owed and the due date. This is a standard administrative process triggered by the failure to submit payment or a return by the deadline.
If the account remains unpaid after the initial due date, collection procedures typically begin automatically, as mandated by state law. Employers must ensure accurate reporting using wage information from Form W-2 documents provided to employees.
What Happens If This Is Ignored
If Delaware payroll tax nonpayment is not addressed, the state escalates collection efforts. Penalties and interest are added to the original tax debt, causing the balance to grow significantly. The Division of Revenue will typically send multiple notices
demanding payment. If the debt remains unpaid, the state may file a tax lien against the business, which can damage the business's credit and impact its operations.
The state may also pursue wage levy actions, bank levy, or other collection remedies. A wage levy notice may be sent to the employer's own employer if the business owner receives wages from a source other than their own. Under Delaware Code Title 30
Section 1155, every employer required to deduct and withhold tax is made liable for such tax.
The longer nonpayment continues, the more aggressive the state's collection actions typically become, including potential investigation of whether business officers or owners can be held personally responsible under general legal principles.
What This Does NOT Mean
Receiving a notice about payroll tax nonpayment does not mean a lawsuit has already been filed against you or your business. It does not mean a wage garnishment or bank levy is happening immediately. It does not automatically trigger personal liability for business owners, though that is a possibility if the state investigates further under applicable legal theories.
It does not mean the tax debt cannot be resolved or that a payment agreement is impossible. A notice is a communication about an unpaid obligation; it is the state's way of formally alerting you that action is required. At this stage, Payment Options typically exist for addressing the debt, though the longer a response is delayed, the fewer options may remain available.
Checklist: What to Do After Receiving This or Identifying
This Issue
Step 1: Locate All Payroll Tax Notices and Documents
Gather any notices from the Delaware Division of Revenue regarding unpaid payroll taxes. Find copies of filed payroll tax returns or confirmation that returns were not filed.
Collect bank statements, payroll records, Form W-2 documents, and documentation of any payments made. Note the specific tax periods involved and the amounts listed as unpaid. Keep all original documents in one location for reference.
Step 2: Determine Exactly What Is Owed
Review each notice to identify the specific tax type (income withholding or unemployment insurance). Note the tax period, the original tax amount, and any penalties or interest added. Calculate the total current tax debt owed if multiple quarters or years are involved. Determine whether the debt includes only tax or also includes penalties and interest. If amounts seem incorrect, note specific discrepancies for later discussion with the state.
Step 3: Verify Filing and Payment History
Check your business tax account records to see which quarters were filed and paid.
Determine whether returns were filed, but payment was not made. Determine whether neither returns nor payments were submitted. Review canceled checks or payment confirmations for any estimated tax payments or periodic payment amounts sent to the state. Identify the specific periods that remain unpaid and unreported.
Step 4: Contact the Delaware Division of Revenue
For withholding tax questions and issues, call the Withholding Tax Unit at (302)
577-8779. For general business tax assistance, call (302) 577-8205. For questions about unemployment insurance tax, contact the Delaware Department of Labor at (302)
761-8200. Have your account information, business identification, Taxpayer
Identification Number, and documentation ready.
Explain the situation and request clarification regarding the unpaid balance. Ask what
Payment Options are available, including immediate payment, Short-Term Installment
Payment Plan, or other arrangements—request written confirmation of the conversation and any agreements discussed. Ask for the name and direct contact information of the person assisting you.
Step 5: Review the Payment Options Explained by the State
Determine whether immediate tax payment of the full balance is possible. Ask about
Delaware's installment payment agreements process if full payment is not possible.
Inquire about any available relief programs or penalty abatement options. Ask whether the state will accept a partial payment while a payment agreement is being arranged.
Be aware of any deadlines for requesting a payment plan or alternative arrangement.
Step 6: Gather Financial Information If a Payment Plan Is Needed
Document your current business financial situation, including business income, expenses, and cash flow. Prepare a proposed payment schedule that reflects the business's economic capabilities. Calculate how much can be paid as a periodic payment, monthly or quarterly, while continuing operations. Document any circumstances that contributed to the nonpayment, such as business closure or financial hardship. Be prepared to explain the plan when you contact the state.
Step 7: File All Missing or Delinquent Payroll Tax Returns
Identify which quarters or years have no filed return with the state. Gather payroll records for those periods, including employee names, wages, withholdings, and copies of Form W-2 documents. Complete the appropriate Delaware payroll tax return forms for each unfiled period. File each return with the Division of Revenue, even if payment cannot be made immediately. Keep proof of filing for all submitted returns.
Step 8: Submit Your Payment or Payment Plan Request
If full payment is possible, prepare the tax payment and submit it to the Division of
Revenue. If a Short-Term Installment Payment Plan is needed, submit a written request with your proposed schedule. Include supporting documentation of your financial situation with the plan request. Please specify the monthly or quarterly payment amount and the desired start date. Request written confirmation that the state has accepted the installment payment agreements.
Step 9: Document Everything in Writing
Keep copies of all notices, correspondence, and payment records for future reference.
Document the dates and times of calls to the Division of Revenue. Record the names of state representatives who assisted you. Save copies of filed returns and payment confirmations. Maintain a timeline of actions taken and agreements reached for your records.
- State enforcement notices and responses
- Sales tax audits, assessments, and collections
- Payroll & trust fund tax enforcement issues
- Penalty and interest reduction options
- Payment plans and state tax relief eligibility
- Representation before state tax agencies
Step 10: Follow Through on All Agreed Payments and Deadlines
Make payments on the exact dates agreed to in any payment agreement. Do not miss scheduled periodic payment dates, as this typically violates the terms of the plan. File all future payroll tax returns on time and pay them in full according to your filing frequency
(quarterly, monthly, or eighth-monthly). Contact the state immediately if you are unable to make a scheduled payment. Maintain contact with your assigned representative from the Division of Revenue.
What Happens After This Is Completed
After you submit your response, whether it is an immediate payment or a payment plan request, the Division of Revenue typically processes your submission. If tax payment in full is received, the account is closed, and the tax debt is satisfied. If installment payment agreements are approved, the state will provide written documentation of the payment agreement, including payment amounts and due dates.
The state will typically expect payments to be made as scheduled. If you are compliant with the plan, the Division of Revenue generally does not pursue additional collection actions during the term of the agreement.
However, failure to meet payment plan obligations typically results in the plan being terminated, and collection efforts resume. The state will also expect all future payroll tax returns to be filed and paid on time according to your assigned filing frequency.
Common Mistakes to Avoid
Do not ignore notices or assume the problem will resolve itself on its own. Each unanswered notice escalates the state's collection process. Do not wait too long to respond; the sooner you contact the Division of Revenue, the more Payment Options are typically available.
File returns even if you cannot pay in full. Filing preserves your record and shows good faith. Do not make informal or partial payments without a payment agreement; random
payments without a contract do not stop collection actions. Do not pay other debts first; payroll taxes have priority status because they involve Trust Fund money.
Do not continue to miss filings while in non-payment of taxes status. File all returns on time according to your filing schedule. Understand payment plan obligations; missing even one periodic payment on an agreed plan typically voids the agreement.
Do not fail to keep documentation; maintain copies of all notices, agreements, and payment records. Always obtain written confirmation of the accords, installment payment agreements, and any relief granted by the state.
Frequently Asked Questions
Will the Division of Revenue place a lien on my business if I have unpaid payroll taxes?
The state can file a tax lien if tax debt remains unpaid and collection efforts have not resolved the issue. A lien is a legal claim against your business assets. It is not automatically filed when debt first occurs, but it can be filed as part of collection proceedings.
Can I be personally liable for the payroll taxes my business is required to pay?
Under Delaware Code Title 30 Section 1155, every employer required to deduct and withhold tax is made liable for such tax. While the statute imposes liability on the employer entity, the state may pursue collection from business officers or owners under applicable legal principles in certain circumstances. This is not automatic, but the state can investigate liability.
What if I filed the payroll tax return but did not pay the tax?
Contact the Division of Revenue to discuss a payment agreement. Filing the return is important because it establishes what is owed. The state will work with you on a payment plan based on your ability to pay, though penalties and interest will continue to accrue until the balance is paid.
How often must I file payroll tax returns in Delaware?
Filing frequency depends on your average monthly tax liability. Quarterly filers have an average monthly liability of less than $600, monthly filers have $600 or more, and eighth-monthly filers have $25,000 or more. Contact the Division of Revenue to confirm your filing schedule.
If I set up a payment plan, how long do I have to pay?
Delaware does not publish standard payment plan lengths. The length of a Short-Term
Installment Payment Plan or longer arrangement depends on the amount owed and your ability to pay. This is negotiated between you and the Division of Revenue. The state typically prefers shorter payment periods.
What happens if I cannot afford to pay the full amount now?
Contact the Division of Revenue to discuss your Payment Options. The state typically prefers a realistic payment agreement to no payment at all. Explain your financial situation and propose what you can afford. Installment payment agreements protect you from additional collection actions as long as you meet the plan obligations.
Can penalties be reduced or removed?
You may request penalty abatement by submitting a written request to the Tax Conferee at the Division of Revenue. Whether relief is granted depends on whether you can demonstrate reasonable cause for your failure to file or pay on time. Contact the
Division directly to ask about penalty relief options.
Will the state garnish my wages or bank account?
The state can pursue wage levy actions or bank levy if payroll taxes remain unpaid and other collection methods have not worked. A wage levy notice may be issued as part of collection escalation. These actions are not taken immediately but may be pursued if the tax debt is not resolved.
What if I no longer operate the business?
Contact the Division of Revenue immediately. You are still liable for unpaid payroll taxes from the periods the business operated. The state will expect tax payment or a payment agreement. Closing the company does not eliminate the tax debt.
How can I contact the Delaware Division of Revenue about payroll tax issues?
Call the Withholding Tax Unit at (302) 577-8779 for withholding tax questions. For general business tax assistance, call (302) 577-8205. Have your business identification,
Taxpayer Identification Number, and account information ready when you contact them.
Does Delaware accept payment for employment taxes similar to the Internal
Revenue Service?
Delaware has its own payment procedures for state employment taxes. While the concept of Trust Fund taxes is similar to federal requirements, Delaware administers its own withholding tax program separately from the Internal Revenue Service. Contact the
Division of Revenue for Delaware-specific Payment Options.
What documentation do I need when setting up a payment plan?
You will typically need to provide information about your business income, expenses, cash flow, and ability to make periodic payment amounts. The Division may also request bank statements, profit and loss statements, and explanations of circumstances that led to non-payment of taxes.
Facing State Tax Enforcement Action?
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