Maryland Payroll Tax Default Prevention Checklist
What This Issue Means
A payroll tax default occurs when an employer fails to deposit withheld income taxes, fails to file required employer withholding returns such as Form MW506, or fails to pay payroll taxes by the due date. The Maryland Comptroller considers payroll taxes trust fund obligations because the money withheld from employee paychecks belongs to employees and the state, not to the business.
Why the State Requires This
Maryland requires employers to remit withholding taxes because those funds are deducted from employee wages under regulations established by the Maryland General Assembly. Employers must deposit payroll taxes based on five filing schedules: accelerated filers remit within three business days, monthly filers remit if withholding exceeds $700 in any quarter, quarterly filers remit if withholding is less than $700 per quarter, seasonal filers operate with prior approval, and annual filers remit if withholding is less than $250 per year.
What Happens If This Is Ignored
If payroll tax obligations are not addressed, the state typically assesses penalties and interest, which accumulate as tax debt over time. The Maryland Office of the Comptroller may issue additional notices requesting payment. If the account remains unpaid, enforcement actions may include administrative garnishment under garnishment laws, bank account levies, liens against business or personal property, or referral to the Attorney General’s office for legal action.
What This Does Not Mean
Receiving a payroll tax notice does not mean criminal charges or tax crime allegations have been filed or that you are being prosecuted. It does not automatically mean your bank account will be levied immediately or that your business license will be revoked. A notice is a formal communication requesting action, not a court judgment.
Step-by-Step Checklist
Step 1: Gather All Payroll Tax Notices
Collect every notice you have received from the Comptroller of Maryland related to payroll taxes. Write down the notice date, the notice number, if shown, and the tax period referenced on each document.
Step 2: Identify Outstanding Tax Periods
Review each notice and identify the specific tax period that is unpaid or unfiled. Note the amount of tax liability shown on the notice and the tax periods involved for your records.
Step 3: Request Account Statement
Contact the Comptroller’s office, Taxpayer Services Division, at 410-260-7980 or
1-800-638-2937 and provide your Employer Identification Number. Request a current account statement showing all outstanding tax periods, amounts owed, penalties, interest, and any payments received.
Step 4: Collect Financial Records
Gather payroll records, bank statements, and any proof of payments you may have made toward payroll taxes. Include cancelled checks, receipts, or bank transfer confirmations organized by date and tax period for review.
Step 5: Determine Filing Requirements
Verify which tax periods require Form MW506 Employer’s Return of Income Tax Withheld to be filed. Confirm whether you need to file monthly, quarterly, or annual returns based on your withholding amounts and filing category.
Step 6: File Outstanding Returns
Prepare and file Form MW506 for each unfiled period using your payroll records to calculate wages paid and taxes withheld. File through Maryland Tax Connect at mdtaxconnect.gov or by mail, keeping copies of all filed returns and confirmation receipts.
Step 7: File Annual Reconciliation
If you have not filed Form MW508 Annual Employer Withholding Reconciliation Return for any year, complete and submit it by January 31st. Attach all applicable Form W-2 documents for employees as required by Maryland law for that tax year.
Step 8: Calculate Total Amount Due
Based on your account statement and any returns filed, determine the total amount due, including original tax, penalties, and interest. Contact the Comptroller’s office for a final amount owed after you have filed any outstanding returns.
Step 9: Make Payment or Arrange Plan
If you can pay the full amount owed, submit payment immediately through Maryland Tax
Connect or by check to the Maryland Comptroller. If you cannot pay in full, contact the Taxpayer
Services Division to inquire about payment plan options or installment agreements.
- Sales and use tax compliance: Businesses selling tangible personal property or certain
- Corporate and business entity taxes: C corporations file Maryland Corporation
- Employee withholding forms: Employers must obtain an Employee’s Maryland
Step 10: Document and Follow Up
Keep copies of all correspondence with the state, including notices, account statements, filed returns, and proof of payments. After 10 to 15 business days, contact the Comptroller’s office again to confirm that your returns have been received and fees have been credited.
Related Tax Obligations for Maryland Employers
Maryland employers should also be aware of other state and local taxes and compliance requirements beyond payroll withholding. These include sales tax obligations if selling taxable goods or services, federal income tax reporting requirements, and compliance with the Healthy
Working Families Act for paid sick and safe leave. services must register with the Comptroller of Maryland and collect Maryland sales and use tax. Marketplace Facilitators may have additional obligations under Maryland law for facilitating sales through online platforms.
Income Tax Return using Form 500, while pass-through entities, including partnerships and S corporations, may file Form 510 or Form 511. These filings and payments are separate from payroll withholding obligations and may have different fiscal-year filing requirements or extensions, such as the July 15 extension.
Withholding Exemption Certificate (Maryland Form MW 507) from each employee to
determine proper withholding amounts. This form is similar to the federal Form W-4 required by the Internal Revenue Service under the Internal Revenue Code.
- Additional employer obligations: Maryland employers must also comply with
regulations administered by the Maryland Department of Labor, including the Division of
Labor and Industry and Employment Standards Service. Employers should be aware of wage issues, support payment requirements, and consumer debt garnishment rules for resident and nonresident individuals.
Resources and Assistance
Employers seeking additional guidance on Maryland tax compliance can access forms, information, and reports through Maryland Business Express and the Maryland State
Department of Assessments and Taxation. The Comptroller of Maryland provides regulations and rulings to assist businesses with tax and accounting questions.
- Tax credits and incentives: Maryland offers various tax credits, including the Maryland
Earned Income Tax Credit for eligible employees. Employers should review available credits when preparing Maryland individual income tax withholding for tax year 2021 and subsequent years.
- State offices and locations: Employers can contact the Baltimore County Office or
Silver Spring Office for in-person assistance with payroll tax matters. These offices provide support for businesses navigating state or federal tax obligations and financial and corporate compliance requirements.
Common Mistakes to Avoid
- Ignoring notices: Not responding to payroll tax notices can result in penalties and
interest accumulating and may trigger enforcement action. Notices require prompt attention to prevent escalation of collection activities and additional financial consequences.
- Paying without filing: If returns are unfiled, paying the amount on a notice without filing
the actual Form MW506 return may not satisfy filing requirements. Returns and payments are separate obligations that must both be completed.
- Sending incomplete information: Always include your Employer Identification Number
and the specific tax periods being paid when making payments. Without this information, the state may not be able to credit your payment correctly to your account.
- Missing follow-up deadlines: If the state requests additional information, payroll
records, or clarification, respond within the deadline provided. Missing deadlines can result in further enforcement action and additional penalties.
- Not keeping payment records: Always obtain and keep proof of payment, including
receipts, cancelled checks, or bank confirmations. Without evidence, it is difficult to dispute errors later or verify that payments were properly applied.
Received a State Tax Notice?
If you’ve received a state tax notice and aren’t sure how to respond, we can help you review your options and next steps.
- State tax notice review and response
- Penalty and interest reduction options
- Payroll and trust fund tax assistance
- Payment plan and relief eligibility review
- Representation with state tax agencies
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