New York Payroll Tax Default Prevention Checklist
Introduction
New York State withholding tax refers specifically to income tax withheld from employee wages and remitted to the Department of Taxation and Finance. The New York Department of Labor administers unemployment insurance contributions. The New York State Insurance Fund administers disability insurance.
These are distinct obligations reported on Form NYS-45, but are separate programs with different administration, purposes, and legal frameworks. New York requires employers to file these taxes on specific schedules and remit payment by set deadlines.
When withholding taxes are not filed or paid on time, the state begins a collection process that can result in penalties, interest, tax warrants, and enforcement actions. Understanding what withholding tax obligations are and recognizing early warning signs helps you stay compliant and avoid costly consequences.
What This Issue Means
Withholding tax noncompliance occurs when an employer fails to file required withholding tax returns, fails to pay withheld amounts, or both. State withholding tax and sales tax are trust taxes under the New York Tax Law, meaning they are held in trust for the state.
The trust tax designation has specific legal implications for collection and the responsible person's liability. The state views these funds as legally belonging to New York, not to the business, which is why noncompliance triggers enforcement action.
Why the State Issued This or Requires This
State withholding tax is income tax withheld from employee wages and remitted to the New York
Department of Taxation and Finance for income tax purposes. The state monitors compliance through quarterly filings using Form NYS-45, Quarterly Combined Withholding, Wage Reporting, and Unemployment Insurance Return. NY DTF follows specific statutory procedures for tax assessments and collection.
After an audit or when returns are not filed, the state issues a Statement of Proposed Audit
Changes or Notice of Deficiency. Taxpayers have 90 days to request a conciliation conference using Form CMS-1-MN or file a Division of Tax Appeals petition using Form TA-100. Only after
appeal rights expire does the liability become fixed and final, allowing Civil Enforcement to pursue collection through legally defined procedures, including tax warrants.
What Happens If This Is Ignored
NY assesses specific penalties and interest according to the Tax Law. The late filing penalty is
5% per month, or part of a month, up to a maximum of 25%. The late payment penalty is 0.5% per month, up to a maximum of 25%. Interest is compounded daily with rates adjusted quarterly.
The minimum penalty for returns more than 60 days late is the lesser of $100 or the total amount due.
After a tax liability becomes fixed and final following the expiration or exhaustion of appeal rights, NY DTF may file a tax warrant with the NY Secretary of State and the county clerk. The filed warrant is equivalent to a civil judgment and creates a lien against real and personal property.
What This Does NOT Mean
Civil withholding tax enforcement is entirely separate from criminal prosecution. Criminal tax fraud under New York Tax Law requires proof of willful intent to evade taxes and is prosecuted by district attorneys or the Attorney General, not by DTF. Civil collection actions, such as notices, warrants, and levies, do not result in criminal referrals.
Different notices serve different purposes in the collection process and represent specific stages with specific taxpayer rights and timeframes. You have statutory rights to respond and appeal within clearly defined deadlines.
Checklist: What to Do After Receiving a Notice or
Identifying a Withholding Tax Issue
Follow these steps in order. Do not skip steps, and do not ignore notices from the New York
Department of Taxation and Finance.
Step 1: Stop and Read the Notice Carefully
Identify the exact notice type, such as Statement of Proposed Audit Changes, Notice of
Deficiency, Notice of Determination, or other assessment. Note the tax period or periods affected and the amount owed. Locate the due date for response or payment, typically 90 days from the notice date for appeals. Determine the notice number or reference ID. Check for contact information and where to send payment or correspondence.
Step 2: Locate Your Withholding Tax Records
Gather all quarterly withholding tax returns filed for the periods mentioned in the notice. Collect payroll records showing wages paid and taxes withheld. Retrieve bank statements or payment confirmations showing when you paid taxes. Locate any correspondence with New York about this account. Set these documents aside for review.
Step 3: Verify What You Owe
Compare the amounts shown in the notice to your payroll records. Determine whether you filed all required quarterly returns for the periods listed. Confirm which payments you made and when you made them. Identify any discrepancies between what you believe you owe and what the notice states. Note any periods where you possibly failed to file or pay.
Step 4: Contact the New York Department of Taxation and Finance
For business withholding tax matters, call the Withholding Tax Information Center at
518-485-6654. For general tax bills and collection matters, call 518-457-5893. Provide your notice number and employer identification number. Explain the issue briefly, such as an unfiled return, an unpaid payment, or a dispute over the amount. Ask for clarification on what is owed and why. Document the name of the person you spoke with and the date of the call. Ask whether a payment plan or extension is available.
Step 5: Request a Copy of Your Account Transcript
Contact the department and request a complete account history. This shows all filings, payments, notices, and penalties assessed to your account. Review it to understand the complete picture of what the state has recorded. Identify any discrepancies or missing payments that the state may not have posted.
Step 6: File Any Overdue Returns Immediately
If you have not yet filed the required quarterly withholding tax returns, please do so at your earliest convenience. Use Form NYS-45, Quarterly Combined Withholding, Wage Reporting, and Unemployment Insurance Return. File online through the New York Department of Taxation and Finance website or by mail. Include payment if possible, even if it is partial. Keep a copy of your return and proof of filing for your records.
Step 7: Make a Payment or Arrange a Payment Plan
If you can pay the full amount owed, proceed with the payment at your earliest convenience.
Payment methods include online payment, check, or other methods listed on the notice. Include your notice number and EIN with any payment. If you cannot pay in full, contact the department to request an installment agreement. Online IPA eligibility requires a balance of $20,000 or less
and up to 36 monthly payments. For balances greater than $20,000 or longer terms, call
518-457-5434—request written confirmation of any agreement reached.
Step 8: Write a Letter Explaining Your Situation (If Applicable)
If there is a legitimate reason for the missed filing or payment, such as a payroll processor error or a change in business status, explain it. Keep the letter factual and brief. Provide relevant documentation, such as proof of payment made elsewhere or a confirmation of a processor error. Send it to the address on the notice. Keep a copy for your records.
Step 9: Follow Up in Writing
If you contacted the department by phone, follow up with a written summary. Make sure to include the date of your call, the name of the person you spoke with, and the topics you discussed. Send your letter to the address listed on your notice. Request written confirmation of any agreements or clarifications. Keep copies of all correspondence.
- Failing to respond to state notices does not make the debt go away and triggers
- Sending a partial payment without contacting the state to arrange a plan may not be
- Filing overdue returns without attempting payment can delay resolution and signal
- Failing to document phone calls, names of state representatives, and dates can make it
- Addressing past withholding taxes while missing current quarterly filing and payment
- Withholding tax debt does not disappear; without action, penalties and interest
- Using an outdated address or the wrong department can result in payment not being
- 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: Watch for Additional Notices
Monitor your mail for further correspondence from the state. Make timely payments if you have agreed to a payment plan. If you received a warrant notice, address it immediately by working with the department. Keep paying current withholding taxes while resolving the past debt.
What Happens After This Is Completed
After you file overdue returns and establish a payment plan or make a payment, the state processes your submission. If you agree to a payment plan, you will receive a written confirmation outlining the payment schedule. NY DTF applies payments in accordance with established procedures.
For installment payment agreements, payments are applied to the tax liability being paid in installments. Interest is charged on unpaid tax from the due date, is compounded daily, and rates are adjusted quarterly. During an installment payment agreement, interest and any penalties continue to accrue on the unpaid balance until the debt is paid in full.
Common Mistakes to Avoid escalated collection action. appropriately credited and can be viewed as continued noncompliance. continued inability to comply. difficult to resolve disputes or prove you took action. deadlines undermines your credibility and adds new debt. accumulate, and enforcement escalates. credited to your account.
Frequently Asked Questions
What is the difference between a notice and a tax warrant?
A Statement of Proposed Audit Changes or Notice of Deficiency is an assessment you may appeal within 90 days. A tax warrant is filed after the liability becomes fixed and final, which occurs after appeal rights have expired or been exhausted. The warrant is equivalent to a civil judgment and creates a lien against real and personal property.
Do I have to pay penalties and interest, or just the original tax?
You owe the original tax amount plus interest calculated from the original due date and any penalties assessed. Interest is a charge for the use of money and, in most cases, may not be waived.
Penalties may be waived if you can show reasonable cause for noncompliance. "Reasonable cause" means circumstances beyond your control prevented compliance despite ordinary care and prudence.
Can the state take my personal assets for business withholding taxes?
For withholding tax, a trust tax, responsible individuals may be held personally liable for unpaid amounts. A responsible person is an officer, director, or employee who is under a duty to collect or pay the tax and who acted willfully in failing to do so. Responsible person assessments can attach to personal assets regardless of business structure.
How long does it take to resolve a withholding tax issue?
This depends on the complexity of the issue and whether you file returns, make payments, and cooperate with the state. Simple cases involving one late quarter with immediate payment made may resolve within weeks. Cases involving multiple periods, warrants, or disputes may take months or longer.
Will this affect my ability to get a business loan?
As of April 2018, major credit bureaus no longer include tax liens on consumer credit reports.
Tax warrants remain public records filed with the Secretary of State and county clerks, but do not appear on credit reports. The public-record nature of warrants could be discovered during credit reviews or financing due diligence.
What if I think the state is wrong about what I owe?
Contact the Withholding Tax Information Center at 518-485-6654 with specific documentation supporting your position. Request a review of your account. You have the right to request a conciliation conference using Form CMS-1-MN or file a petition using Form TA-100 with the
Division of Tax Appeals within 90 days of the date of a Notice of Deficiency or Notice of
Determination.
Is there a penalty for filing a return late, even if I pay the taxes now?
NY assesses separate penalties for late filing and late payment. Late filing penalty is 5% of the tax due per month, or part of a month, up to a maximum of 25%. If more than 60 days late, the minimum penalty is the lesser of $100 or the total amount due. The late payment penalty is
0.5% of the unpaid amount per month, up to a maximum of 25%.
What if my payroll processor made a mistake and did not file or pay?
You remain responsible for ensuring withholding taxes are filed and paid correctly, regardless of whether you use a processor. If an error has occurred, promptly address it by filing the return yourself and contacting the state to explain the situation. Documentation of the processor error may support a penalty abatement request.
Can the state garnish my wages if I am the owner?
NY DTF may issue an income execution against wages. An income execution requires payment of up to 10% of gross wages each time you are paid. Income executions can be issued against business owners who are paid wages from their business. The income execution remains in effect until the outstanding tax liability is satisfied.
Closing
Withholding tax debt requires prompt action. Read any notices carefully, contact the state for clarification, file overdue returns, and establish a payment plan if needed. Staying organized, documenting your actions, and maintaining current compliance while resolving past debt demonstrates good faith. The state has processes in place to work with taxpayers who take action.
Facing State Tax Enforcement Action?
If you’ve received a notice related to sales tax or payroll tax enforcement and aren’t sure how to respond, our team can help you understand your options and next steps.
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