North Dakota Payroll Tax Penalties and Interest
Checklist
Introduction
Payroll tax obligations require employers to withhold, deposit, and report personal income tax and State Unemployment Insurance contributions from employee wages. North Dakota enforces strict compliance through two separate agencies: the Office of State Tax Commissioner handles income tax withholding, while Job Service North Dakota administers North Dakota SUI taxes.
When payroll taxes are late, unpaid, or unfiled, these agencies apply penalties and interest automatically under their respective state statutes. Understanding how North Dakota calculates these charges and managing tax liability helps you respond appropriately and prevents further complications.
What This Issue Means
Payroll tax penalties and interest are automatic charges added to unpaid or late tax payments under North Dakota state law. Penalties typically apply to amounts not paid by the due date, while interest accrues monthly on all unpaid balances. These additions can increase your total amount owed significantly over time and may trigger collection actions. Income tax withholding and unemployment insurance are separate systems with different penalty rates and interest rates, administered by various state agencies.
What Happens If This Is Ignored
Unpaid payroll taxes with accruing penalties and interest typically result in escalated collection activity by the Accounts Receivable Section. The state may place a tax lien against business or personal assets, offset refunds, or pursue wage garnishment through the Sheriff’s office. The longer balances remain unpaid, the more penalties and interest accumulate under state regulations.
Checklist: Steps to Take After Receiving a Notice
Step 1: Locate and Review All Notices
Find any notice from the North Dakota Office of State Tax Commissioner or Job Service North
Dakota showing amounts due. Review each notice for the specific tax period, the original tax amount, penalty amounts, interest charges, the effective date, and the response deadlines.
Step 2: Gather Your Payroll Documentation
Collect all payroll records, including pay stubs, deposit confirmations, payment receipts, and correspondence for the affected tax periods. Locate your Federal Employer Identification
Number, social security number information, and any state account numbers. Retrieve copies of all filed or unfiled returns, including Form 306, Form ND-1, W-2 forms, and federal W-2 forms.
Step 3: Verify Penalty and Interest Calculations
Compare the amounts on notices with your records and deposit history to identify any tax underpayments or overpayments. For income tax withholding under the North Dakota Personal
Income Tax law, penalties are 5% of the unpaid tax or $5, whichever is greater. Interest rates are one percent per month on unpaid amounts. For State Unemployment Insurance under
Contribution and Wage Reports requirements, penalties are five percent per month with specific minimums, and interest is 1.5 percent per month.
- Income tax withholding issues: Contact the North Dakota Office of State Tax
- Unemployment insurance issues: Contact Job Service North Dakota at 701-328-2814
Step 4: Contact the Appropriate Agency
Commissioner at 701-328-7088 to discuss your withholding account, current tax liability, payment options, and access to the North Dakota Taxpayer Access Point. or toll-free at 855-884-8223 to discuss your unemployment tax account, SUI tax rates, wage reporting requirements, and available payment arrangements.
Step 5: Determine the Source of Noncompliance
Identify whether your issue resulted from an unfiled Income Tax Return, a filed return with unpaid amounts, or incorrect tax payments. Review your records, including employee information and gross wages earned, to determine if taxes were withheld but not deposited.
Document any business circumstances that affected compliance, such as payroll audit findings, payroll processor errors, or cash flow problems affecting quarterly release schedules.
Step 6: File Any Missing Returns
If returns were never filed, prepare the required forms, such as Form 306 for withholding or
Contribution and Wage Reports for unemployment insurance, using your payroll records.
Ensure Form W-4 information for employees is current and complete. Keep copies before submitting, and include a cover letter explaining the late filing and the circumstances that caused the delay, in accordance with good cause standards.
Step 7: Arrange Payment or Payment Plan
Obtain your current balance, including penalties, interest, and original tax amounts, from the state treasurer's records. Determine whether full payment is possible within your business's
cash flow. Access ND TAP or North Dakota Taxpayer Access Point to make electronic tax payments via ACH Debit. If full payment is not possible, request an Installment Agreement or a
Monthly Payment Plan from the appropriate agency.
Step 8: Request Penalty Abatement If Warranted
Contact the agency to ask about penalty relief procedures under good cause standards and Tax
Relief eligibility requirements. Explain circumstances that contributed to late or unpaid taxes, such as business hardship or reasonable cause situations recognized under the Taxpayer Bill of
Rights. Submit supporting documentation with any formal abatement request, or consider an
Offer in Compromise for Tax Debt Resolution purposes.
Step 9: Review Reciprocity Agreements and Tax Deductions
Verify whether any Reciprocity Agreements with Minnesota or Montana affect your withholding obligations or if employees qualify for specific tax deductions. Ensure compliance with Payroll
Laws regarding workers’ compensation and federal payroll taxes, including FICA Tax and federal unemployment taxes, to avoid additional liabilities.
- Missing response deadlines: Failing to respond by the deadlines stated on notices can
- Confusing the two tax systems: Income tax withholding and State Unemployment
- Incomplete return filings: Submitting late returns with incorrect amounts or missing
- Failing to keep records: Without copies of deposits, pay stubs, Contribution and Wage
- Not following through on payment plans: Missing payments on an agreed Installment
- 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 10: Document All Communication
Keep a detailed log of all phone calls, including dates, names, and discussion topics, with the
Office of State Tax Commissioner or Job Service North Dakota. Save copies of all written communication sent to or received from state agencies. Retain payment confirmations and receipts for any amounts paid. Maintain confidential information securely and keep documentation for at least seven years per wage reporting requirements.
Additional Compliance Considerations
Employers must maintain accurate employee and employer information to satisfy North Dakota payroll compliance requirements across multiple reporting systems. Form 941 for federal payroll taxes operates separately from state withholding requirements under Form 306. Understanding state withholding, workers’ compensation, and SUI tax rates by industry type helps prevent future compliance issues. Enrolled Agents and tax professionals can assist with complex situations involving amended return filings or payroll audits conducted under the audit process outlined in state regulations.
Common Mistakes to Avoid result in escalated actions, including tax lien filings or garnishment through the Sheriff’s office. Review all notices immediately upon receipt to identify required actions and timeframes.
Insurance are separate taxes administered by different agencies with different penalty rates and interest rates. Contact the correct agency for each specific tax type to avoid misdirected communications and delays. supporting employee information triggers follow-up requests and delays resolution.
Ensure all required schedules, including gross wages earned, W-2 forms, and calculations, are included before submitting any delinquent returns.
Reports, and correspondence, verifying what was paid or filed becomes difficult during payroll audits or disputes. Maintain organized records of all payroll tax transactions, communications, and submissions.
Agreement or Monthly Payment Plan can result in plan cancellation and immediate resumption of collection activity. Make all scheduled tax payments on time through ND
TAP or contact the agency immediately if payment difficulties arise.
Closing
Payroll tax penalties and interest are administrative charges that accumulate quickly under
North Dakota state law and state regulations. Responding to notices and addressing unpaid amounts promptly through tax payments, filing, or arranging payment plans prevents further escalation and potential tax lien placement. The North Dakota Office of State Tax Commissioner and Job Service North Dakota are available to answer questions about tax liability, payment options, and next steps for their respective tax types under North Dakota payroll compliance requirements.
Received a State Tax Notice?
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