Maryland Payroll Tax Enforcement and Liens Checklist
Introduction
Maryland payroll tax obligations represent serious responsibilities for businesses and employers across the state. Payroll taxes include federal income tax withholding, state income tax withholding, unemployment insurance taxes, and employee Social Security and Medicare taxes withheld from worker paychecks.
When these taxes are not filed or paid on time, the Comptroller of Maryland initiates enforcement actions to collect the outstanding debt. Unlike other business taxes, payroll tax debt receives priority treatment because the withheld funds belong to employees rather than to the business.
What This Issue Means
Payroll tax enforcement occurs when a business fails to pay withheld employment taxes or does not file required payroll tax returns to the Comptroller of Maryland. This typically means the state has identified a gap between taxes that should have been withheld and paid, and those actually received by the state treasury. The enforcement action represents a formal process by the
Comptroller to recover unpaid trust fund tax debt and ensure future compliance with state tax laws.
Why the State Issued This or Requires This
Maryland treats payroll tax collection as a high priority because these funds represent employee withholdings that must be remitted to the state treasury. When a business withholds taxes from paychecks, the state views those funds as trust fund money that must be paid regardless of the business’s cash flow or profitability. The Comptroller’s Office initiates enforcement when a company misses payment deadlines or fails to file required payroll tax returns on schedule.
What Happens If This Is Ignored
If payroll tax enforcement notices are ignored, the Comptroller of Maryland typically escalates collection efforts through more aggressive means. The state can place a lien notice on the business’s property, bank accounts, and personal property, making it difficult to secure loans or transfer ownership.
Under Maryland Tax-General Article Section 13-812, the Comptroller may issue a Notice of Levy on bank accounts after following specific notice procedures, including sending notice to financial institutions and providing taxpayers with 10 days to challenge the action in circuit court.
Continued non-response can lead to wage garnishment, criminal tax referral if willful avoidance is suspected, and potential judgment lien filings.
What This Does Not Mean
Receiving a payroll tax enforcement notice does not automatically mean the state has filed a judgment lien against the business. The notice does not mean the company must immediately close, nor does it mean all assets will be seized without additional legal steps and proper notice.
It also does not mean that business owners are automatically personally liable for the debt unless they are determined to be responsible persons under Maryland tax law through a specific legal process.
Understanding Tax Liens and Levies
A tax lien is a legal claim filed against business property that gives the state priority over secured creditors when collecting unpaid debt. The lien may attach to real property, personal property, and after-acquired property obtained after the lien filing. A Notice of Levy is the actual seizure of assets or funds to satisfy the debt, which typically occurs only after a lien has been filed and proper notice provided.
Step-by-Step Checklist
Step 1: Gather All Notices and Documents
Collect all notices, liens, and correspondence from the Comptroller of Maryland to understand the scope of the enforcement action. Review the notice date, tax year or quarter involved, amount owed, and any deadline listed on each document you received.
Step 2: Verify Debt Amount and Tax Periods
Compare the amount listed on the notice to your payroll records and prior tax filings to confirm accuracy. Identify which quarters, months, or years are included in the enforcement action and whether the amount includes penalties and interest.
Step 3: Contact the Comptroller of Maryland
Call the Comptroller’s Office at 410-260-7980 or 1-800-MDTAXES to request a current account statement showing all credits, payments, and charges. Ask for clarification on what tax periods and tax types remain unpaid and whether any liens or levies are on file.
Step 4: Review Your Payroll Records
Examine payroll records, including W-2 forms, pay stubs, and payroll summaries for all affected periods to identify when issues began. Determine whether the debt involves unpaid filing, incorrect calculation, or failed payment transmission to the Comptroller.
Step 5: Evaluate Worker Classification Issues
Review whether all workers were properly classified as employees or independent contractors, as misclassification can result in additional employment taxes owed. If worker classification is disputed, consult Form SS-8 from the Internal Revenue Service or consider the Voluntary
Classification Settlement Program for resolution options.
Step 6: Consult a Tax Professional
Contact a certified public accountant or tax professional who specializes in payroll issues to review the debt calculation. Request their assessment of whether amended returns, penalty abatement, or other relief options may apply to your specific situation.
Step 7: Respond Within Required Deadlines
Submit any required written response before the deadline stated on the assessment notice, along with supporting documentation if disputing the amount. If unable to pay immediately, inquire about payment plan options and request any agreement in writing before making payments.
Step 8: Ensure Current Compliance
Verify that all current payroll tax returns are filed on schedule and that payroll taxes withheld are being paid by the due date. Set up a tracking system to monitor payroll tax payment deadlines, which are typically quarterly, to prevent additional debt accumulation.
- Ignoring enforcement notices: Many businesses delay responding to enforcement
- Failing to maintain current compliance: If payroll taxes continue to be missed during
- Assuming verbal agreements are binding: Any arrangement with the Comptroller’s
- Missing payment plan deadlines: If a payment plan is approved, missing even a single
- Neglecting federal tax obligations: While addressing Maryland state payroll taxes,
- 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
Step 9: Document All Communications
Keep a complete file of all notices, correspondence, and communication records with the
Comptroller of Maryland for future reference. Record dates of phone calls, names of representatives, topics discussed, and save copies of any written agreements or payment plans.
Understanding Personal Liability
Responsible persons who had authority over payroll may face personal liability for unpaid trust fund taxes separate from the business entity. The Comptroller may pursue individuals under
Maryland law, as the Internal Revenue Service does at the federal level with the Trust Fund
Recovery Penalty. This personal liability can attach even if the business closes or files for bankruptcy protection.
Statute of Limitations Considerations
Maryland generally has 3 years from the due date or filing date, whichever is later, to audit a tax return. However, there is no statute of limitations when the Internal Revenue Service changes a federal tax return, and the taxpayer fails to notify the Comptroller within 90 days. Maryland recently implemented a 20-year statute of limitations for tax liabilities, significantly extending the collection period.
Common Mistakes to Avoid notices, which typically results in escalated enforcement, including liens and bank levies that could have been avoided through early communication. the resolution process, additional debt accumulates, and enforcement actions multiply, making resolution significantly more difficult.
Office should be confirmed in writing before making payments, as verbal agreements alone do not protect the business from further enforcement actions. payment can result in termination of the plan and the immediate resumption of enforcement actions against the business. businesses must also ensure federal tax compliance with the Internal Revenue Service to avoid facing both state and federal tax lien filings.
Frequently Asked Questions
Does an enforcement notice mean I have a lien on my property?
An enforcement notice indicates that the Comptroller may place a lien notice or has already filed a lien on business property. Contacting the Comptroller’s Office at 410-260-7980 to request a current account status will clarify whether a lien has been filed with the circuit court.
Can the Comptroller take money directly from my business bank account?
The Comptroller of Maryland has authority under the Tax-General Article Section 13-812 to levy bank accounts to collect unpaid payroll tax debt. The process requires notice to the financial institution, followed by notice to the taxpayer within 10 business days, with 10 days to file a circuit court challenge.
Am I personally responsible for the payroll tax debt as a business owner?
Under Maryland law, responsible persons who had authority over payroll may be held personally liable for unpaid trust fund taxes through a specific legal determination process. However, personal liability is not automatic and requires the Comptroller to establish responsible person status through proper legal procedures.
How does Maryland payroll tax enforcement differ from federal tax enforcement?
Both Maryland and the Internal Revenue Service can pursue unpaid employment taxes through liens and levies, but they operate under different legal frameworks. Maryland enforcement follows state statutes, while federal tax enforcement follows the United States tax code, and both can proceed simultaneously against the same taxpayer.
Can wage garnishment be used to collect Maryland payroll tax debt?
The Comptroller of Maryland has the authority to implement wage garnishment against business owners or responsible individuals to collect unpaid payroll tax obligations. Wage garnishment continuously attaches to wages and salaries until the balance is paid in full under Maryland’s continuous lien provisions.
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.
20+ years experience • Same-day reviews available
