Maryland Payroll Tax Nonpayment Emergency
Checklist
Introduction
Payroll tax nonpayment occurs when an employer fails to remit withheld income taxes to the
Comptroller of Maryland by the required deadline. These withheld amounts are trust fund taxes that belong to employees and the state, not to the employer. The Comptroller of Maryland handles state income tax withholding, while the Maryland Department of Labor manages unemployment insurance contributions separately. Failing to address unpaid payroll taxes can result in penalties, interest charges, liens, and potential personal liability for responsible parties.
What This Issue Means
Payroll tax nonpayment means that state income taxes withheld from employee wages were not remitted to the Comptroller of Maryland by the due date. This differs from filing a return late because it involves trust fund money already collected from employees. Employer withholding requirements depend on the withholding amount: employers with less than $700 in withholding per quarter file quarterly returns, while employers with $700 or more must file monthly.
These requirements apply to compensation for services performed by employees in Maryland, regardless of the employer’s physical location or whether employees work full-time or part-time positions.
Why the State Requires This
The Comptroller of Maryland monitors employer withholding accounts and identifies delinquent payments through automated tracking systems. Payment schedules are based on wage tax withholding amounts, not payroll frequency. When payments are not received by the deadline, the account is flagged as delinquent, and collection procedures begin. The state requires timely payment because these funds represent employee wages already withheld and held in trust for tax purposes, with special rules applying to source income earned within Maryland.
What Happens If This Is Ignored
Failing to pay payroll taxes results in escalating collection actions by the Comptroller of
Maryland. Interest and penalties accumulate on the unpaid balance until it is paid in full, at a rate set by state law. The state may file tax liens against business assets, garnish wages through income attachments, or suspend business licenses.
The Child Support Administration may also become involved in certain collection cases.
Responsible parties may face personal liability for trust fund taxes through Maryland law and federal Trust Fund Recovery Penalty provisions.
What This Does Not Mean
Nonpayment of payroll taxes does not mean immediate asset seizure or automatic criminal charges. Civil collection methods are typically pursued first. This status does not prevent you from exploring payment arrangements or requesting penalty relief for reasonable cause. Being delinquent does not automatically mean all future tax obligations cannot be met. However, the debt will not be forgiven without action, and interest and penalties continue accruing until the balance is paid.
Understanding Employer Withholding Requirements
Employers must understand their obligation to withhold Maryland income tax from employee compensation for services performed within the state. Employers are required to withhold from
Maryland-source income regardless of where the employer’s permanent company office is located. This includes situations involving the current shift from premises to teleworking arrangements.
For-profit small businesses and other entities in the DC Metro area, Community MD regions, and throughout the state must track where employees physically perform services to determine proper withholding obligations for tax purposes.
Special Considerations for Remote and Nonresident
Workers
The physical presence of employees determines withholding obligations even when workers are time residents of other states. Employers must file a nonresident state return for employees who live outside Maryland but perform services in Maryland. Maryland tax alert notices guide special rules that apply when employees work remotely or split time between multiple locations. These temporary regulations address situations where the previous arrangement involved in-office work, but the current shift has moved to telework during emergency declaration periods or other circumstances.
COVID-19 Emergency Relief Options
Businesses facing financial hardship due to the COVID-19 emergency may have experienced disruptions to working capital and cash flow. During the initial stages of the pandemic, the
Maryland Small Business COVID-19 Emergency Relief Loan Fund provided loan assistance to qualifying businesses.
While this specific Loan Fund program has concluded, employers should explore current relief options and document how emergency circumstances affected their ability to maintain payroll tax compliance. Business interruption insurance may also provide coverage for certain losses impacting cash operating expenses and utility expenses during emergency declaration periods.
Step-by-Step Checklist
Step 1: Locate All Written Notices
Check mail, email, and fax for official notices from the Comptroller of Maryland about unpaid withholding taxes. Note the date received, amount due, tax periods involved, and any deadlines mentioned in the notice or tax alert.
Step 2: Review Your Payment Records
Pull bank statements, canceled checks, and payroll records for the periods listed in the notice.
Compare the amounts your records show were withheld against what was actually remitted to the Comptroller for tax purposes.
Step 3: Contact the Comptroller of Maryland
Call the Revenue Administration Division at 410-260-7980 or 1-800-638-2937 to verify the exact balance and current account status—request written confirmation of the amount owed, tax periods involved, and any penalties or interest assessed.
Step 4: Determine the Cause of Nonpayment
Review whether payment was sent to the wrong address, whether the amount paid was insufficient, or whether no payment was made. Consider whether the COVID-19 emergency or other circumstances affecting working capital contributed to the nonpayment.
Step 5: Gather Payment Documentation
Collect bank statements, wire transfer confirmations, check images, or receipts showing payment dates and amounts for the periods in question. This documentation will support your response to the Comptroller regarding your previous situation.
Step 6: Request Penalty and Interest Details
Ask the Comptroller to provide a detailed breakdown of the original tax amount, penalties assessed, and interest accrued to date. Confirm whether additional penalties are accruing and at what interest rate under current regulations.
Step 7: Inquire About Payment Options
Ask whether your business is eligible for a payment arrangement or installment agreement.
Request information about eligibility requirements, application procedures, and whether interest and penalties continue accruing during the payment plan.
Step 8: Prepare Required Documentation
Gather financial statements, business tax returns, or proof of current payroll tax compliance if applying for a payment plan. If your business experienced hardship affecting cash operating expenses, utility expenses, or working capital, document these circumstances for consideration.
Step 9: Submit Your Response by the Deadline
File any payment plan application or written response by the deadline specified in the notice. If no deadline is stated, submit as soon as possible and keep copies of everything submitted.
Step 10: Make Payment Using the Correct Method
Verify the correct payment address, account number, and payment amount before submitting.
Use the payment method specified by the Comptroller and retain proof of payment for your records.
Step 11: Establish a Tracking System
Set up payroll software, calendar reminders, or another system to track all future withholding tax payment due dates and amounts. Coordinate with your payroll department to ensure payments for full-time and part-time employees are made on time.
- Ignoring written notices: Notices often include important deadlines and account
- Failing to verify the amount owed: Paying an incorrect amount may not resolve the
- Missing application deadlines: The Comptroller may set specific deadlines for
- Making partial payments without confirmation: Clarify with the Comptroller how any
- Continuing to miss future payments: Failing to maintain current payroll tax
- Not keeping payment records: Documentation is essential if questions arise about
- Misunderstanding withholding obligations: Employers must correctly determine
- Ignoring remote work implications: The current shift from on-premises to telework
- 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 12: Document All Communications
Keep records of all communications with the Comptroller, including dates, names of staff contacted, and summaries of discussions. These records may be necessary if questions arise later or if you need to follow up.
Common Mistakes to Avoid information that require prompt responses to prevent additional penalties and enforcement actions. delinquency and can cause further complications with your account balance. payment plan applications or responses, and failure to meet them may result in denial of
relief options. payment will be applied, especially when paying less than the total amount owed. compliance while resolving past debt will result in additional delinquencies and compound the problem. whether payments were made or if disputes occur regarding account status. whether employees perform services in Maryland to meet employer withholding requirements for Maryland source income, including time residents and nonresidents. requires employers to reassess where employees physically perform services.
Frequently Asked Questions
What if I believe the amount is incorrect?
Contact the Comptroller and request a detailed accounting of the amount owed, including tax periods, original tax amounts, penalties, and interest. If you still disagree after reviewing this documentation, ask about the formal dispute process for your tax withholding question and reference any previous answers or tax alert guidance received.
Can penalties be reduced or eliminated?
The Comptroller may waive penalties for reasonable cause when you demonstrate ordinary care but were still unable to comply. Contact the Tax Debt Assistance Programs to discuss available relief options and eligibility requirements for your specific tax situation, including circumstances related to the COVID-19 emergency or other hardships affecting working capital.
If I am a new business owner, am I responsible for the prior owner's debts?
Maryland has successor liability provisions for unpaid withholding taxes that may make purchasers liable regardless of transaction structure. Obtain tax clearance certificates from the
Comptroller before closing and consult with a tax professional about your specific circumstances for tax purposes.
How do withholding requirements apply to remote employees?
Employers must withhold Maryland income tax on compensation for services performed within
Maryland, even if the employee’s permanent company office is elsewhere in the United States.
The current shift from premises to teleworking arrangements requires employers to determine the physical presence of time employees and time residents. If a Maryland-based employee performs work in the state, withholding applies to that Maryland source income regardless of the employer’s physical location or whether employees work in the DC Metro or Community MD regions.
What if my business faced financial hardship during the COVID-19 emergency?
Document any circumstances that affected your ability to pay, including impacts to working capital, cash operating expenses, or utility expenses during the COVID-19 emergency. When requesting penalty relief or payment arrangements, explain how the emergency declaration or business interruption affected timely payment. While the Maryland Small Business COVID-19
Emergency Relief Loan Fund program has concluded, provide supporting documentation to the
Comptroller showing how loan assistance or business interruption insurance affected your previous situation.
How do I handle withholding for employees who are time residents of other states?
Employers must determine the source of income based on where services are physically performed, not where the time residents spend maintaining their primary residence. Employees who are time residents of other states but perform services in Maryland are subject to withholding on Maryland-source income. These employees may need to file a nonresident state return to report income earned in Maryland while claiming credit on their resident state return.
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.
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