Unfiled 2021 Form 945: How to File, Penalties, and Relief Options

Form 945, the Annual Return of Withheld Federal Income Tax, is a filing requirement that often catches small business owners off guard. Unlike payroll taxes reported on Form 941, Form 945 reports federal income tax withholding from nonpayroll payments such as pensions, gambling winnings, and IRA distributions. Because these payments are subject to tax but outside regular wages, failing to file Form 945 can create serious issues with the IRS.

Your return is considered delinquent if you did not file your 2021 Form 945 by the due date. An unfiled annual return can lead to penalties, interest, and potential enforcement actions. The longer the return remains unfiled, the more the balance grows, and in some cases, responsible individuals can even be held personally liable. Taking prompt steps to file Form 945 helps reduce your exposure to mounting federal tax liability.

This guide provides a step-by-step path to filing an unfiled 2021 Form 945 and addressing IRS concerns. You will learn to gather records, complete the form correctly, choose between electronic filing or a paper return, and explore resolution options if you cannot pay in full. By following these steps, business owners can move toward compliance and limit the financial and legal risks of leaving a return unfiled.

What Is Form 945, and Who Needs to File?

Form 945, officially called the Annual Return of Withheld Federal Income Tax, reports income taxes withheld from certain nonpayroll payments. These payments are not wages but are subject to federal income tax withholding. Filing this form ensures that the IRS receives the withheld federal income tax that your business collected from various sources throughout the tax year.

Purpose of Form 945

The purpose of Form 945 is to track and report tax withholding from payments outside traditional payroll. Businesses are responsible for collecting and submitting these funds, which belong to the federal government. Without proper filing, unpaid amounts become a federal tax liability, exposing the business to penalties and interest.

Types of Payments That Require Form 945

You must file Form 945 if your business withholds or is required to withhold federal income tax from:

This includes pensions and retirement plan distributions, such as 401(k), 403(b), and other tax-favored retirement plans.
Military retirement payments, which remain subject to withholding rules.
Gambling winnings and certain gambling winnings are reported on Form W-2G.
The article discusses Indian gaming profits and other gaming-related distributions.
When taxpayers elect withholding, there is a provision for voluntary income tax withholding on certain government payments, such as Social Security benefits.
We receive dividends from Alaska Native Corporations, where recipients request withholding.
Other nonpayroll payments include IRA distributions, nonqualified pension plans, and other distributions requiring tax withholding.

Form 945 vs. Form 941

A common point of confusion is the difference between Form 945 and Form 941. Form 941 reports compensation paid as regular wages and employment taxes each calendar quarter. By contrast, Form 945 is filed once a year to report withholding on non-payroll payments. Understanding this distinction helps businesses stay compliant and avoid misfiling.

Filing Deadlines and Late Filing Consequences

The due date for filing the 2021 Form 945 was January 31, 2022. Employers who made all required deposits on time and in full had to file by February 10, 2022. Because these dates have long passed, any unfiled return is considered late. The IRS treats an unfiled annual return as serious since it involves withheld federal income tax that should have been remitted.

Failing to file on time leads to escalating penalties. The failure-to-file penalty is generally 5% of the total unpaid tax for each month, or part of a month, that the return is late. This penalty can grow until it reaches 25% of the unpaid balance. Alongside this, the failure-to-pay penalty accrues at 0.5% of the monthly unpaid tax liability. In addition, businesses may face a failure-to-deposit penalty if tax deposits are not made on the correct schedule.

Beyond penalties, the IRS charges daily interest on taxes and penalties starting from the original due date. Interest is compounded and continues until the balance is paid in full. Missing deadlines also increases the likelihood of collection activity, including IRS notices or levies, particularly if noncompliance continues into future tax years. Filing immediately, even without immediate payment, helps stop additional penalties and demonstrates good faith with the IRS.

Step-by-Step Guide to Filing an Unfiled 2021 Form 945

Filing an unfiled 2021 Form 945 may feel overwhelming, but breaking the process into manageable steps makes it easier. Following these steps helps ensure accuracy, minimizes penalties, and brings your business back into compliance with the IRS.

Step 1: Gather Required Documentation

Before you begin, collect all records that reflect your withholding activity during the 2021 tax year. This includes:

There are records of nonpayroll payments such as pensions, IRA distributions, and gambling winnings.
Documentation of federal income tax withholding applied to these payments.
Copies of Forms 1099-MISC, 1099-NEC, 1099-R, and W-2G were issued.
The bank records show no deposits that have already been made.
Please provide the previous year's Form 945 to confirm your deposit schedules and filing history.

This information helps you complete the form accurately and avoid IRS processing delays.

Step 2: Obtain the Correct Form and Instructions

Always use IRS Form 945, specific to the year you are filing. For an unfiled 2021 return, you must use the 2021 version of Form 945 and its instructions. You can:

Download directly from the IRS Instructions for Form 945, which includes details on filing requirements, deposit rules, and how to correct errors with Form 945-X.
Request a copy by calling the IRS at 800-829-3676.
Visit a local IRS Taxpayer Assistance Center.
Access the form through approved tax software.

Using the wrong year’s form can cause misreporting and additional correspondence with the IRS.

Step 3: Complete the Form Line by Line

Carefully complete Form 945 by entering accurate figures for each section. Key entries include:

Line 1 – Federal income tax withheld: Enter amounts from pensions, tax-favored retirement plans, military retirement, and certain government payments subject to withholding.
Line 2 – Backup withholding: Report all amounts withheld for backup withholding, including gambling winnings and Indian gaming profits.
Line 3 – Total taxes: Add Lines 1 and 2 to calculate your total tax.
Line 4 – Total deposits: Enter all deposits made in 2021, including overpayments or corrections.
Line 5 – Balance due: If Line 3 exceeds Line 4, the difference represents your outstanding federal tax liability.
Line 6 – Overpayment: If deposits exceed tax liability, you may request a refund or apply it to the next calendar month.
Line 7 – Monthly summary: Complete this section if you were a semiweekly schedule depositor with a liability of $2,500 or more.

Be careful to double-check all calculations. Even small mistakes can lead to additional IRS correspondence and penalties.

Step 4: Choose the filing method.

You can file either electronically or on paper:

Electronic filing: Filing electronically is faster, reduces errors, and confirms that the IRS received your return. You can file electronically through approved software providers or authorized tax professionals. To learn more, visit the IRS E-file Employment Tax Forms page.
Paper return: If you choose a paper return, mail it to the correct IRS address for your business. The mailing address varies depending on whether you include payment.

Electronic filing is generally recommended, but both methods remain valid.

Step 5: Make Payment Arrangements

If you owe a balance, the IRS provides several payment options:

The Electronic Federal Tax Payment System (EFTPS) is a secure system that allows you to make federal tax deposits online.
You can make payments using a credit or debit card, though processing fees will apply to each transaction.
You may also pay by check or money order, which should be made payable to “United States Treasury” if you are submitting it with a paper return.
Electronic funds withdrawal is another option that can be used when you file your return electronically.

To avoid additional interest, submit payment promptly or contact the IRS to discuss reasonable cause relief or payment arrangements if you cannot make full payment immediately.

IRS Penalties and Interest for Unfiled Form 945

The IRS imposes penalties and interest when you fail to file a Form 945 annual return on time, which increases your overall federal tax liability. Understanding how these charges work helps you estimate what you owe and take corrective action sooner.

Failure-to-File Penalty

The failure-to-file penalty is usually 5% of the unpaid total amount due each month, or part of a month, that your return is late. This penalty can reach a maximum of 25%. Filing your return as quickly as possible stops this penalty from growing.

Failure-to-Pay Penalty

The failure-to-pay penalty is 0.5% of the unpaid balance each month after the due date. Unlike the failure-to-file penalty, this charge continues until the tax is paid in full or until it reaches 25% of the unpaid taxes.

Failure-to-Deposit Penalty

If you were required to make deposits during the tax year but failed to do so, the IRS may apply a failure-to-deposit penalty:

2% for deposits 1–5 days late.
5% for deposits 6–15 days late.
10% for deposits more than 15 days late.
15% if the payment is unpaid for more than 10 days after the IRS issues a notice.

This penalty applies when deposit schedules were not followed.

Interest Charges

Interest accrues daily on unpaid taxes and penalties starting from the original due date. Rates are determined quarterly and compound until the balance is paid. Even if penalties are reduced or abated, interest typically remains unless the IRS made an error.

Example of Penalty Growth

Suppose your business owed $10,000 in withheld federal income tax for 2021 but failed to file. The failure-to-file penalty would reach $2,500 (25%), the failure-to-pay penalty would continue monthly, and daily interest would add to your overall balance. This example shows why filing quickly, even without immediate payment, helps reduce long-term costs.

Trust Fund Recovery Penalty (TFRP): What You Need to Know

The Trust Fund Recovery Penalty (TFRP) is one of the most serious consequences businesses can face when employment or withholding taxes are not paid. It exists because specific withheld amounts, such as federal income tax withholding, are considered trust funds held on behalf of the government. When those funds are not remitted, the IRS may pursue individuals directly.

What the Penalty Is and Why It Matters

The TFRP is equal to 100% of the unpaid trust fund taxes. In other words, if your business withheld federal income tax from nonpayroll payments but did not submit it, the IRS can hold you personally responsible for the entire balance. This goes beyond normal penalties and makes the liability a personal obligation.

Who Can Be Held Personally Liable

The IRS can assess the TFRP against any “responsible person.” A responsible person is anyone with the authority to manage funds, sign checks, or make financial decisions for the business. This may include:

Business owners who oversee tax compliance can be held responsible for unpaid trust fund taxes.
Corporate officers or directors who control the company’s finances may also be liable.
Bookkeepers or accountants with signature authority can face responsibility if trust fund taxes are not remitted.
Any individual who willfully fails to remit trust fund taxes may be subject to penalties.

How to Reduce Exposure or Respond

If you are at risk of a TFRP assessment, there are steps you can take to protect yourself:

File all unfiled forms immediately. Filing reduces exposure and shows cooperation.
Pay as much as possible toward the trust fund portion of the debt. The IRS focuses most heavily on these funds.
Document reasonable cause if circumstances prevented timely payment, such as illness or natural disaster.
Seek professional representation to communicate with the IRS and negotiate on your behalf.

The Trust Fund Recovery Penalty has lasting effects, including potential wage garnishments and liens against personal assets. The best way to avoid long-term financial harm is to act quickly and with proper guidance.

Resolution Options if You Can’t Pay in Full

If your 2021 Form 945 shows a balance due that you cannot immediately pay, the IRS offers several resolution options. Each option has specific eligibility requirements but aims to help taxpayers settle their obligations while avoiding harsher collection actions.

Payment Plans (Installment Agreements)

The IRS allows businesses to set up installment agreements to pay off their federal tax liability over time.

Online Payment Agreement: Available if your liability is $25,000 or less and can be paid within 24 months. Applications can be submitted online at IRS.gov.
Full Installment Agreement: This is for larger balances requiring longer repayment terms. Financial statements and a business address are required for approval.
Partial Payment Installment Agreement: This is for taxpayers who cannot pay the entire balance but can make regular monthly payments. The IRS reviews your financials before approval.

Setting up a payment plan demonstrates good faith and prevents enforced collection actions, such as bank levies.

Penalty Relief (Abatement)

The IRS may remove penalties if you qualify under certain conditions.

First-Time Abate (FTA): Available if you have filed and paid on time for the past three years. This relief can cover failure-to-file and failure-to-pay penalties.
Reasonable Cause Relief: Granted when circumstances beyond your control prevented timely filing or payment, such as serious illness, fire, or natural disaster. Documentation is required to support your claim of reasonable cause.

While penalties may be reduced, interest generally accrues until the full payment is made.

Offer in Compromise (OIC)

An OIC allows you to settle your tax debt for less than the total owed if paying in full would cause financial hardship.

Eligibility Requirements: You must be current with all filing requirements, not in bankruptcy, and up to date on current taxes.
Application Process: Submit Form 656 with financial disclosures, a $205 application fee, and an initial payment. Low-income applicants may qualify for a fee waiver.
IRS Evaluation: The IRS reviews your income, expenses, asset equity, and overall ability to pay before deciding.

An accepted OIC can significantly reduce your total amount owed, but approval is not guaranteed.

Currently Not Collectible (CNC) Status

If paying your balance would create economic hardship, you may request CNC status.

Definition: CNC status temporarily delays collection actions when your income is insufficient to cover necessary living expenses.
Requirements: You must complete Form 433-A (for individuals) or Form 433-B (for businesses), disclosing complete financial information.
Result: While the IRS halts collection activity, the debt does not disappear. Interest and penalties continue to accrue until your financial situation improves.

CNC status is best viewed as a short-term solution that provides breathing room during financial difficulty.

Real-World Case Examples

Understanding how others have handled unfiled Form 945 issues can help you see practical solutions. The following case studies show how businesses resolved their tax problems with the IRS in different situations.

Case 1: Small Consulting Firm

A consulting firm failed to file its 2021 Form 945, which reported $15,000 in backup withholding from contractor payments. Once they discovered the oversight:

They filed the delinquent annual return immediately to bring their account current.
They calculated penalties, including the failure-to-file penalty and any interest owed.
They applied for First-Time Abate relief, which removed part of their assessed penalties.
They set up a 12-month installment agreement to pay off the remaining balance.

This resolution allowed the business to pay what it owed while avoiding further collection action.

Case 2: Gambling Establishment

A small casino withheld gambling winnings but did not file Form 945 for 2021. The owner faced hospitalization during the filing period. The IRS accepted their request for reasonable cause relief after reviewing medical documentation. With penalties abated, the business was required only to pay the taxes and interest, which it managed through a payment plan.

Case 3: Retirement Plan Administrator

A pension administrator responsible for distributions from nonqualified pension plans failed to remit $100,000 in withholding. The business faced cash flow problems and applied for an Offer in Compromise (OIC). After submitting detailed financial records and demonstrating hardship, the IRS accepted a settlement for $30,000 payable over 24 months. This provided relief while ensuring compliance going forward.

These examples show that timely action, accurate documentation, and open communication with the IRS can significantly reduce penalties and financial strain.

Frequently Asked Questions

How long do I have to file my unfiled 2021 Form 945?

There is no statute of limitations on filing an unfiled IRS Form 945, which means the IRS can demand it at any time. However, penalties and interest continue to accrue until you file. Submitting the delinquent annual return as soon as possible helps stop additional failure-to-file penalties from growing and shows good faith compliance with the IRS.

Can I file Form 945 without all my records and still complete the form accurately?

Yes, you can still complete Form 945 using the best information available. Bank records, 1099s, and prior-year filings often provide enough data for an accurate annual return of withheld federal income tax. The IRS may already possess information from payors who are reporting either backup withholding or compensation that has been disbursed. Filing promptly helps stop penalties, even if corrections are necessary later.

What happens if I missed filing for multiple years?

If you failed to file Form 945 for more than one tax year, the IRS requires you to submit each delinquent return separately, beginning with the oldest year first. Penalties are calculated individually for each calendar month missed. In cases of several unfiled years, professional help is recommended to navigate compliance, arrange payment plans, and request penalty relief where available.

Can the Trust Fund Recovery Penalty be discharged in bankruptcy?

No, the Trust Fund Recovery Penalty (TFRP) cannot be eliminated through bankruptcy. Because the TFRP involves withheld federal income tax that should have been remitted, it remains collectible even after other debts are discharged. This makes it essential to address the liability directly with the IRS, whether through installment agreements, an Offer in Compromise, or documented reasonable cause relief.

How long does it take for penalty abatement to process?

The timeline varies depending on the type of relief requested. A First-Time Abate request may take 30 to 60 days, while reasonable cause claims often take 60 to 120 days due to additional review. During this time, interest continues to accrue. Providing strong documentation, such as proof of illness or natural disaster, increases the likelihood of quicker approval by the IRS.

What happens if I can’t afford to pay even with a plan?

If you cannot afford payments under any installment agreement, you may request Currently Not Collectible (CNC) status. This stops the IRS from collecting money quickly if making payments is hard on your finances. While in CNC, the debt remains active, and interest and penalties continue to build. Submitting detailed financial records is required to qualify, and the IRS reviews eligibility periodically.

What is the right business address and EIN (Employer Identification Number) for Form 945?

When you e-file or submit a paper return, the IRS requires your business address and employer identification number (EIN). These details identify your business for the annual return and ensure that federal income tax withholding is correctly applied to your account. Accurate information prevents processing delays and helps the IRS post payments to the correct record.

Frequently Asked Questions

Unfiled 2021 Form 945: How to File, Penalties, and Relief Options

Form 945, the Annual Return of Withheld Federal Income Tax, is a filing requirement that often catches small business owners off guard. Unlike payroll taxes reported on Form 941, Form 945 reports federal income tax withholding from nonpayroll payments such as pensions, gambling winnings, and IRA distributions. Because these payments are subject to tax but outside regular wages, failing to file Form 945 can create serious issues with the IRS.

Your return is considered delinquent if you did not file your 2021 Form 945 by the due date. An unfiled annual return can lead to penalties, interest, and potential enforcement actions. The longer the return remains unfiled, the more the balance grows, and in some cases, responsible individuals can even be held personally liable. Taking prompt steps to file Form 945 helps reduce your exposure to mounting federal tax liability.

This guide provides a step-by-step path to filing an unfiled 2021 Form 945 and addressing IRS concerns. You will learn to gather records, complete the form correctly, choose between electronic filing or a paper return, and explore resolution options if you cannot pay in full. By following these steps, business owners can move toward compliance and limit the financial and legal risks of leaving a return unfiled.

What Is Form 945, and Who Needs to File?

Form 945, officially called the Annual Return of Withheld Federal Income Tax, reports income taxes withheld from certain nonpayroll payments. These payments are not wages but are subject to federal income tax withholding. Filing this form ensures that the IRS receives the withheld federal income tax that your business collected from various sources throughout the tax year.

Purpose of Form 945

The purpose of Form 945 is to track and report tax withholding from payments outside traditional payroll. Businesses are responsible for collecting and submitting these funds, which belong to the federal government. Without proper filing, unpaid amounts become a federal tax liability, exposing the business to penalties and interest.

Types of Payments That Require Form 945

You must file Form 945 if your business withholds or is required to withhold federal income tax from:

This includes pensions and retirement plan distributions, such as 401(k), 403(b), and other tax-favored retirement plans.
Military retirement payments, which remain subject to withholding rules.
Gambling winnings and certain gambling winnings are reported on Form W-2G.
The article discusses Indian gaming profits and other gaming-related distributions.
When taxpayers elect withholding, there is a provision for voluntary income tax withholding on certain government payments, such as Social Security benefits.
We receive dividends from Alaska Native Corporations, where recipients request withholding.
Other nonpayroll payments include IRA distributions, nonqualified pension plans, and other distributions requiring tax withholding.

Form 945 vs. Form 941

A common point of confusion is the difference between Form 945 and Form 941. Form 941 reports compensation paid as regular wages and employment taxes each calendar quarter. By contrast, Form 945 is filed once a year to report withholding on non-payroll payments. Understanding this distinction helps businesses stay compliant and avoid misfiling.

Filing Deadlines and Late Filing Consequences

The due date for filing the 2021 Form 945 was January 31, 2022. Employers who made all required deposits on time and in full had to file by February 10, 2022. Because these dates have long passed, any unfiled return is considered late. The IRS treats an unfiled annual return as serious since it involves withheld federal income tax that should have been remitted.

Failing to file on time leads to escalating penalties. The failure-to-file penalty is generally 5% of the total unpaid tax for each month, or part of a month, that the return is late. This penalty can grow until it reaches 25% of the unpaid balance. Alongside this, the failure-to-pay penalty accrues at 0.5% of the monthly unpaid tax liability. In addition, businesses may face a failure-to-deposit penalty if tax deposits are not made on the correct schedule.

Beyond penalties, the IRS charges daily interest on taxes and penalties starting from the original due date. Interest is compounded and continues until the balance is paid in full. Missing deadlines also increases the likelihood of collection activity, including IRS notices or levies, particularly if noncompliance continues into future tax years. Filing immediately, even without immediate payment, helps stop additional penalties and demonstrates good faith with the IRS.

Step-by-Step Guide to Filing an Unfiled 2021 Form 945

Filing an unfiled 2021 Form 945 may feel overwhelming, but breaking the process into manageable steps makes it easier. Following these steps helps ensure accuracy, minimizes penalties, and brings your business back into compliance with the IRS.

Step 1: Gather Required Documentation

Before you begin, collect all records that reflect your withholding activity during the 2021 tax year. This includes:

There are records of nonpayroll payments such as pensions, IRA distributions, and gambling winnings.
Documentation of federal income tax withholding applied to these payments.
Copies of Forms 1099-MISC, 1099-NEC, 1099-R, and W-2G were issued.
The bank records show no deposits that have already been made.
Please provide the previous year's Form 945 to confirm your deposit schedules and filing history.

This information helps you complete the form accurately and avoid IRS processing delays.

Step 2: Obtain the Correct Form and Instructions

Always use IRS Form 945, specific to the year you are filing. For an unfiled 2021 return, you must use the 2021 version of Form 945 and its instructions. You can:

Download directly from the IRS Instructions for Form 945, which includes details on filing requirements, deposit rules, and how to correct errors with Form 945-X.
Request a copy by calling the IRS at 800-829-3676.
Visit a local IRS Taxpayer Assistance Center.
Access the form through approved tax software.

Using the wrong year’s form can cause misreporting and additional correspondence with the IRS.

Step 3: Complete the Form Line by Line

Carefully complete Form 945 by entering accurate figures for each section. Key entries include:

Line 1 – Federal income tax withheld: Enter amounts from pensions, tax-favored retirement plans, military retirement, and certain government payments subject to withholding.
Line 2 – Backup withholding: Report all amounts withheld for backup withholding, including gambling winnings and Indian gaming profits.
Line 3 – Total taxes: Add Lines 1 and 2 to calculate your total tax.
Line 4 – Total deposits: Enter all deposits made in 2021, including overpayments or corrections.
Line 5 – Balance due: If Line 3 exceeds Line 4, the difference represents your outstanding federal tax liability.
Line 6 – Overpayment: If deposits exceed tax liability, you may request a refund or apply it to the next calendar month.
Line 7 – Monthly summary: Complete this section if you were a semiweekly schedule depositor with a liability of $2,500 or more.

Be careful to double-check all calculations. Even small mistakes can lead to additional IRS correspondence and penalties.

Step 4: Choose the filing method.

You can file either electronically or on paper:

Electronic filing: Filing electronically is faster, reduces errors, and confirms that the IRS received your return. You can file electronically through approved software providers or authorized tax professionals. To learn more, visit the IRS E-file Employment Tax Forms page.
Paper return: If you choose a paper return, mail it to the correct IRS address for your business. The mailing address varies depending on whether you include payment.

Electronic filing is generally recommended, but both methods remain valid.

Step 5: Make Payment Arrangements

If you owe a balance, the IRS provides several payment options:

The Electronic Federal Tax Payment System (EFTPS) is a secure system that allows you to make federal tax deposits online.
You can make payments using a credit or debit card, though processing fees will apply to each transaction.
You may also pay by check or money order, which should be made payable to “United States Treasury” if you are submitting it with a paper return.
Electronic funds withdrawal is another option that can be used when you file your return electronically.

To avoid additional interest, submit payment promptly or contact the IRS to discuss reasonable cause relief or payment arrangements if you cannot make full payment immediately.

IRS Penalties and Interest for Unfiled Form 945

The IRS imposes penalties and interest when you fail to file a Form 945 annual return on time, which increases your overall federal tax liability. Understanding how these charges work helps you estimate what you owe and take corrective action sooner.

Failure-to-File Penalty

The failure-to-file penalty is usually 5% of the unpaid total amount due each month, or part of a month, that your return is late. This penalty can reach a maximum of 25%. Filing your return as quickly as possible stops this penalty from growing.

Failure-to-Pay Penalty

The failure-to-pay penalty is 0.5% of the unpaid balance each month after the due date. Unlike the failure-to-file penalty, this charge continues until the tax is paid in full or until it reaches 25% of the unpaid taxes.

Failure-to-Deposit Penalty

If you were required to make deposits during the tax year but failed to do so, the IRS may apply a failure-to-deposit penalty:

2% for deposits 1–5 days late.
5% for deposits 6–15 days late.
10% for deposits more than 15 days late.
15% if the payment is unpaid for more than 10 days after the IRS issues a notice.

This penalty applies when deposit schedules were not followed.

Interest Charges

Interest accrues daily on unpaid taxes and penalties starting from the original due date. Rates are determined quarterly and compound until the balance is paid. Even if penalties are reduced or abated, interest typically remains unless the IRS made an error.

Example of Penalty Growth

Suppose your business owed $10,000 in withheld federal income tax for 2021 but failed to file. The failure-to-file penalty would reach $2,500 (25%), the failure-to-pay penalty would continue monthly, and daily interest would add to your overall balance. This example shows why filing quickly, even without immediate payment, helps reduce long-term costs.

Trust Fund Recovery Penalty (TFRP): What You Need to Know

The Trust Fund Recovery Penalty (TFRP) is one of the most serious consequences businesses can face when employment or withholding taxes are not paid. It exists because specific withheld amounts, such as federal income tax withholding, are considered trust funds held on behalf of the government. When those funds are not remitted, the IRS may pursue individuals directly.

What the Penalty Is and Why It Matters

The TFRP is equal to 100% of the unpaid trust fund taxes. In other words, if your business withheld federal income tax from nonpayroll payments but did not submit it, the IRS can hold you personally responsible for the entire balance. This goes beyond normal penalties and makes the liability a personal obligation.

Who Can Be Held Personally Liable

The IRS can assess the TFRP against any “responsible person.” A responsible person is anyone with the authority to manage funds, sign checks, or make financial decisions for the business. This may include:

Business owners who oversee tax compliance can be held responsible for unpaid trust fund taxes.
Corporate officers or directors who control the company’s finances may also be liable.
Bookkeepers or accountants with signature authority can face responsibility if trust fund taxes are not remitted.
Any individual who willfully fails to remit trust fund taxes may be subject to penalties.

How to Reduce Exposure or Respond

If you are at risk of a TFRP assessment, there are steps you can take to protect yourself:

File all unfiled forms immediately. Filing reduces exposure and shows cooperation.
Pay as much as possible toward the trust fund portion of the debt. The IRS focuses most heavily on these funds.
Document reasonable cause if circumstances prevented timely payment, such as illness or natural disaster.
Seek professional representation to communicate with the IRS and negotiate on your behalf.

The Trust Fund Recovery Penalty has lasting effects, including potential wage garnishments and liens against personal assets. The best way to avoid long-term financial harm is to act quickly and with proper guidance.

Resolution Options if You Can’t Pay in Full

If your 2021 Form 945 shows a balance due that you cannot immediately pay, the IRS offers several resolution options. Each option has specific eligibility requirements but aims to help taxpayers settle their obligations while avoiding harsher collection actions.

Payment Plans (Installment Agreements)

The IRS allows businesses to set up installment agreements to pay off their federal tax liability over time.

Online Payment Agreement: Available if your liability is $25,000 or less and can be paid within 24 months. Applications can be submitted online at IRS.gov.
Full Installment Agreement: This is for larger balances requiring longer repayment terms. Financial statements and a business address are required for approval.
Partial Payment Installment Agreement: This is for taxpayers who cannot pay the entire balance but can make regular monthly payments. The IRS reviews your financials before approval.

Setting up a payment plan demonstrates good faith and prevents enforced collection actions, such as bank levies.

Penalty Relief (Abatement)

The IRS may remove penalties if you qualify under certain conditions.

First-Time Abate (FTA): Available if you have filed and paid on time for the past three years. This relief can cover failure-to-file and failure-to-pay penalties.
Reasonable Cause Relief: Granted when circumstances beyond your control prevented timely filing or payment, such as serious illness, fire, or natural disaster. Documentation is required to support your claim of reasonable cause.

While penalties may be reduced, interest generally accrues until the full payment is made.

Offer in Compromise (OIC)

An OIC allows you to settle your tax debt for less than the total owed if paying in full would cause financial hardship.

Eligibility Requirements: You must be current with all filing requirements, not in bankruptcy, and up to date on current taxes.
Application Process: Submit Form 656 with financial disclosures, a $205 application fee, and an initial payment. Low-income applicants may qualify for a fee waiver.
IRS Evaluation: The IRS reviews your income, expenses, asset equity, and overall ability to pay before deciding.

An accepted OIC can significantly reduce your total amount owed, but approval is not guaranteed.

Currently Not Collectible (CNC) Status

If paying your balance would create economic hardship, you may request CNC status.

Definition: CNC status temporarily delays collection actions when your income is insufficient to cover necessary living expenses.
Requirements: You must complete Form 433-A (for individuals) or Form 433-B (for businesses), disclosing complete financial information.
Result: While the IRS halts collection activity, the debt does not disappear. Interest and penalties continue to accrue until your financial situation improves.

CNC status is best viewed as a short-term solution that provides breathing room during financial difficulty.

Real-World Case Examples

Understanding how others have handled unfiled Form 945 issues can help you see practical solutions. The following case studies show how businesses resolved their tax problems with the IRS in different situations.

Case 1: Small Consulting Firm

A consulting firm failed to file its 2021 Form 945, which reported $15,000 in backup withholding from contractor payments. Once they discovered the oversight:

They filed the delinquent annual return immediately to bring their account current.
They calculated penalties, including the failure-to-file penalty and any interest owed.
They applied for First-Time Abate relief, which removed part of their assessed penalties.
They set up a 12-month installment agreement to pay off the remaining balance.

This resolution allowed the business to pay what it owed while avoiding further collection action.

Case 2: Gambling Establishment

A small casino withheld gambling winnings but did not file Form 945 for 2021. The owner faced hospitalization during the filing period. The IRS accepted their request for reasonable cause relief after reviewing medical documentation. With penalties abated, the business was required only to pay the taxes and interest, which it managed through a payment plan.

Case 3: Retirement Plan Administrator

A pension administrator responsible for distributions from nonqualified pension plans failed to remit $100,000 in withholding. The business faced cash flow problems and applied for an Offer in Compromise (OIC). After submitting detailed financial records and demonstrating hardship, the IRS accepted a settlement for $30,000 payable over 24 months. This provided relief while ensuring compliance going forward.

These examples show that timely action, accurate documentation, and open communication with the IRS can significantly reduce penalties and financial strain.

Frequently Asked Questions

How long do I have to file my unfiled 2021 Form 945?

There is no statute of limitations on filing an unfiled IRS Form 945, which means the IRS can demand it at any time. However, penalties and interest continue to accrue until you file. Submitting the delinquent annual return as soon as possible helps stop additional failure-to-file penalties from growing and shows good faith compliance with the IRS.

Can I file Form 945 without all my records and still complete the form accurately?

Yes, you can still complete Form 945 using the best information available. Bank records, 1099s, and prior-year filings often provide enough data for an accurate annual return of withheld federal income tax. The IRS may already possess information from payors who are reporting either backup withholding or compensation that has been disbursed. Filing promptly helps stop penalties, even if corrections are necessary later.

What happens if I missed filing for multiple years?

If you failed to file Form 945 for more than one tax year, the IRS requires you to submit each delinquent return separately, beginning with the oldest year first. Penalties are calculated individually for each calendar month missed. In cases of several unfiled years, professional help is recommended to navigate compliance, arrange payment plans, and request penalty relief where available.

Can the Trust Fund Recovery Penalty be discharged in bankruptcy?

No, the Trust Fund Recovery Penalty (TFRP) cannot be eliminated through bankruptcy. Because the TFRP involves withheld federal income tax that should have been remitted, it remains collectible even after other debts are discharged. This makes it essential to address the liability directly with the IRS, whether through installment agreements, an Offer in Compromise, or documented reasonable cause relief.

How long does it take for penalty abatement to process?

The timeline varies depending on the type of relief requested. A First-Time Abate request may take 30 to 60 days, while reasonable cause claims often take 60 to 120 days due to additional review. During this time, interest continues to accrue. Providing strong documentation, such as proof of illness or natural disaster, increases the likelihood of quicker approval by the IRS.

What happens if I can’t afford to pay even with a plan?

If you cannot afford payments under any installment agreement, you may request Currently Not Collectible (CNC) status. This stops the IRS from collecting money quickly if making payments is hard on your finances. While in CNC, the debt remains active, and interest and penalties continue to build. Submitting detailed financial records is required to qualify, and the IRS reviews eligibility periodically.

What is the right business address and EIN (Employer Identification Number) for Form 945?

When you e-file or submit a paper return, the IRS requires your business address and employer identification number (EIN). These details identify your business for the annual return and ensure that federal income tax withholding is correctly applied to your account. Accurate information prevents processing delays and helps the IRS post payments to the correct record.

Frequently Asked Questions

Unfiled Returns by Year & Form Type

Unfiled 2021 Form 945: How to File, Penalties, and Relief Options

Form 945, the Annual Return of Withheld Federal Income Tax, is a filing requirement that often catches small business owners off guard. Unlike payroll taxes reported on Form 941, Form 945 reports federal income tax withholding from nonpayroll payments such as pensions, gambling winnings, and IRA distributions. Because these payments are subject to tax but outside regular wages, failing to file Form 945 can create serious issues with the IRS.

Your return is considered delinquent if you did not file your 2021 Form 945 by the due date. An unfiled annual return can lead to penalties, interest, and potential enforcement actions. The longer the return remains unfiled, the more the balance grows, and in some cases, responsible individuals can even be held personally liable. Taking prompt steps to file Form 945 helps reduce your exposure to mounting federal tax liability.

This guide provides a step-by-step path to filing an unfiled 2021 Form 945 and addressing IRS concerns. You will learn to gather records, complete the form correctly, choose between electronic filing or a paper return, and explore resolution options if you cannot pay in full. By following these steps, business owners can move toward compliance and limit the financial and legal risks of leaving a return unfiled.

What Is Form 945, and Who Needs to File?

Form 945, officially called the Annual Return of Withheld Federal Income Tax, reports income taxes withheld from certain nonpayroll payments. These payments are not wages but are subject to federal income tax withholding. Filing this form ensures that the IRS receives the withheld federal income tax that your business collected from various sources throughout the tax year.

Purpose of Form 945

The purpose of Form 945 is to track and report tax withholding from payments outside traditional payroll. Businesses are responsible for collecting and submitting these funds, which belong to the federal government. Without proper filing, unpaid amounts become a federal tax liability, exposing the business to penalties and interest.

Types of Payments That Require Form 945

You must file Form 945 if your business withholds or is required to withhold federal income tax from:

This includes pensions and retirement plan distributions, such as 401(k), 403(b), and other tax-favored retirement plans.
Military retirement payments, which remain subject to withholding rules.
Gambling winnings and certain gambling winnings are reported on Form W-2G.
The article discusses Indian gaming profits and other gaming-related distributions.
When taxpayers elect withholding, there is a provision for voluntary income tax withholding on certain government payments, such as Social Security benefits.
We receive dividends from Alaska Native Corporations, where recipients request withholding.
Other nonpayroll payments include IRA distributions, nonqualified pension plans, and other distributions requiring tax withholding.

Form 945 vs. Form 941

A common point of confusion is the difference between Form 945 and Form 941. Form 941 reports compensation paid as regular wages and employment taxes each calendar quarter. By contrast, Form 945 is filed once a year to report withholding on non-payroll payments. Understanding this distinction helps businesses stay compliant and avoid misfiling.

Filing Deadlines and Late Filing Consequences

The due date for filing the 2021 Form 945 was January 31, 2022. Employers who made all required deposits on time and in full had to file by February 10, 2022. Because these dates have long passed, any unfiled return is considered late. The IRS treats an unfiled annual return as serious since it involves withheld federal income tax that should have been remitted.

Failing to file on time leads to escalating penalties. The failure-to-file penalty is generally 5% of the total unpaid tax for each month, or part of a month, that the return is late. This penalty can grow until it reaches 25% of the unpaid balance. Alongside this, the failure-to-pay penalty accrues at 0.5% of the monthly unpaid tax liability. In addition, businesses may face a failure-to-deposit penalty if tax deposits are not made on the correct schedule.

Beyond penalties, the IRS charges daily interest on taxes and penalties starting from the original due date. Interest is compounded and continues until the balance is paid in full. Missing deadlines also increases the likelihood of collection activity, including IRS notices or levies, particularly if noncompliance continues into future tax years. Filing immediately, even without immediate payment, helps stop additional penalties and demonstrates good faith with the IRS.

Step-by-Step Guide to Filing an Unfiled 2021 Form 945

Filing an unfiled 2021 Form 945 may feel overwhelming, but breaking the process into manageable steps makes it easier. Following these steps helps ensure accuracy, minimizes penalties, and brings your business back into compliance with the IRS.

Step 1: Gather Required Documentation

Before you begin, collect all records that reflect your withholding activity during the 2021 tax year. This includes:

There are records of nonpayroll payments such as pensions, IRA distributions, and gambling winnings.
Documentation of federal income tax withholding applied to these payments.
Copies of Forms 1099-MISC, 1099-NEC, 1099-R, and W-2G were issued.
The bank records show no deposits that have already been made.
Please provide the previous year's Form 945 to confirm your deposit schedules and filing history.

This information helps you complete the form accurately and avoid IRS processing delays.

Step 2: Obtain the Correct Form and Instructions

Always use IRS Form 945, specific to the year you are filing. For an unfiled 2021 return, you must use the 2021 version of Form 945 and its instructions. You can:

Download directly from the IRS Instructions for Form 945, which includes details on filing requirements, deposit rules, and how to correct errors with Form 945-X.
Request a copy by calling the IRS at 800-829-3676.
Visit a local IRS Taxpayer Assistance Center.
Access the form through approved tax software.

Using the wrong year’s form can cause misreporting and additional correspondence with the IRS.

Step 3: Complete the Form Line by Line

Carefully complete Form 945 by entering accurate figures for each section. Key entries include:

Line 1 – Federal income tax withheld: Enter amounts from pensions, tax-favored retirement plans, military retirement, and certain government payments subject to withholding.
Line 2 – Backup withholding: Report all amounts withheld for backup withholding, including gambling winnings and Indian gaming profits.
Line 3 – Total taxes: Add Lines 1 and 2 to calculate your total tax.
Line 4 – Total deposits: Enter all deposits made in 2021, including overpayments or corrections.
Line 5 – Balance due: If Line 3 exceeds Line 4, the difference represents your outstanding federal tax liability.
Line 6 – Overpayment: If deposits exceed tax liability, you may request a refund or apply it to the next calendar month.
Line 7 – Monthly summary: Complete this section if you were a semiweekly schedule depositor with a liability of $2,500 or more.

Be careful to double-check all calculations. Even small mistakes can lead to additional IRS correspondence and penalties.

Step 4: Choose the filing method.

You can file either electronically or on paper:

Electronic filing: Filing electronically is faster, reduces errors, and confirms that the IRS received your return. You can file electronically through approved software providers or authorized tax professionals. To learn more, visit the IRS E-file Employment Tax Forms page.
Paper return: If you choose a paper return, mail it to the correct IRS address for your business. The mailing address varies depending on whether you include payment.

Electronic filing is generally recommended, but both methods remain valid.

Step 5: Make Payment Arrangements

If you owe a balance, the IRS provides several payment options:

The Electronic Federal Tax Payment System (EFTPS) is a secure system that allows you to make federal tax deposits online.
You can make payments using a credit or debit card, though processing fees will apply to each transaction.
You may also pay by check or money order, which should be made payable to “United States Treasury” if you are submitting it with a paper return.
Electronic funds withdrawal is another option that can be used when you file your return electronically.

To avoid additional interest, submit payment promptly or contact the IRS to discuss reasonable cause relief or payment arrangements if you cannot make full payment immediately.

IRS Penalties and Interest for Unfiled Form 945

The IRS imposes penalties and interest when you fail to file a Form 945 annual return on time, which increases your overall federal tax liability. Understanding how these charges work helps you estimate what you owe and take corrective action sooner.

Failure-to-File Penalty

The failure-to-file penalty is usually 5% of the unpaid total amount due each month, or part of a month, that your return is late. This penalty can reach a maximum of 25%. Filing your return as quickly as possible stops this penalty from growing.

Failure-to-Pay Penalty

The failure-to-pay penalty is 0.5% of the unpaid balance each month after the due date. Unlike the failure-to-file penalty, this charge continues until the tax is paid in full or until it reaches 25% of the unpaid taxes.

Failure-to-Deposit Penalty

If you were required to make deposits during the tax year but failed to do so, the IRS may apply a failure-to-deposit penalty:

2% for deposits 1–5 days late.
5% for deposits 6–15 days late.
10% for deposits more than 15 days late.
15% if the payment is unpaid for more than 10 days after the IRS issues a notice.

This penalty applies when deposit schedules were not followed.

Interest Charges

Interest accrues daily on unpaid taxes and penalties starting from the original due date. Rates are determined quarterly and compound until the balance is paid. Even if penalties are reduced or abated, interest typically remains unless the IRS made an error.

Example of Penalty Growth

Suppose your business owed $10,000 in withheld federal income tax for 2021 but failed to file. The failure-to-file penalty would reach $2,500 (25%), the failure-to-pay penalty would continue monthly, and daily interest would add to your overall balance. This example shows why filing quickly, even without immediate payment, helps reduce long-term costs.

Trust Fund Recovery Penalty (TFRP): What You Need to Know

The Trust Fund Recovery Penalty (TFRP) is one of the most serious consequences businesses can face when employment or withholding taxes are not paid. It exists because specific withheld amounts, such as federal income tax withholding, are considered trust funds held on behalf of the government. When those funds are not remitted, the IRS may pursue individuals directly.

What the Penalty Is and Why It Matters

The TFRP is equal to 100% of the unpaid trust fund taxes. In other words, if your business withheld federal income tax from nonpayroll payments but did not submit it, the IRS can hold you personally responsible for the entire balance. This goes beyond normal penalties and makes the liability a personal obligation.

Who Can Be Held Personally Liable

The IRS can assess the TFRP against any “responsible person.” A responsible person is anyone with the authority to manage funds, sign checks, or make financial decisions for the business. This may include:

Business owners who oversee tax compliance can be held responsible for unpaid trust fund taxes.
Corporate officers or directors who control the company’s finances may also be liable.
Bookkeepers or accountants with signature authority can face responsibility if trust fund taxes are not remitted.
Any individual who willfully fails to remit trust fund taxes may be subject to penalties.

How to Reduce Exposure or Respond

If you are at risk of a TFRP assessment, there are steps you can take to protect yourself:

File all unfiled forms immediately. Filing reduces exposure and shows cooperation.
Pay as much as possible toward the trust fund portion of the debt. The IRS focuses most heavily on these funds.
Document reasonable cause if circumstances prevented timely payment, such as illness or natural disaster.
Seek professional representation to communicate with the IRS and negotiate on your behalf.

The Trust Fund Recovery Penalty has lasting effects, including potential wage garnishments and liens against personal assets. The best way to avoid long-term financial harm is to act quickly and with proper guidance.

Resolution Options if You Can’t Pay in Full

If your 2021 Form 945 shows a balance due that you cannot immediately pay, the IRS offers several resolution options. Each option has specific eligibility requirements but aims to help taxpayers settle their obligations while avoiding harsher collection actions.

Payment Plans (Installment Agreements)

The IRS allows businesses to set up installment agreements to pay off their federal tax liability over time.

Online Payment Agreement: Available if your liability is $25,000 or less and can be paid within 24 months. Applications can be submitted online at IRS.gov.
Full Installment Agreement: This is for larger balances requiring longer repayment terms. Financial statements and a business address are required for approval.
Partial Payment Installment Agreement: This is for taxpayers who cannot pay the entire balance but can make regular monthly payments. The IRS reviews your financials before approval.

Setting up a payment plan demonstrates good faith and prevents enforced collection actions, such as bank levies.

Penalty Relief (Abatement)

The IRS may remove penalties if you qualify under certain conditions.

First-Time Abate (FTA): Available if you have filed and paid on time for the past three years. This relief can cover failure-to-file and failure-to-pay penalties.
Reasonable Cause Relief: Granted when circumstances beyond your control prevented timely filing or payment, such as serious illness, fire, or natural disaster. Documentation is required to support your claim of reasonable cause.

While penalties may be reduced, interest generally accrues until the full payment is made.

Offer in Compromise (OIC)

An OIC allows you to settle your tax debt for less than the total owed if paying in full would cause financial hardship.

Eligibility Requirements: You must be current with all filing requirements, not in bankruptcy, and up to date on current taxes.
Application Process: Submit Form 656 with financial disclosures, a $205 application fee, and an initial payment. Low-income applicants may qualify for a fee waiver.
IRS Evaluation: The IRS reviews your income, expenses, asset equity, and overall ability to pay before deciding.

An accepted OIC can significantly reduce your total amount owed, but approval is not guaranteed.

Currently Not Collectible (CNC) Status

If paying your balance would create economic hardship, you may request CNC status.

Definition: CNC status temporarily delays collection actions when your income is insufficient to cover necessary living expenses.
Requirements: You must complete Form 433-A (for individuals) or Form 433-B (for businesses), disclosing complete financial information.
Result: While the IRS halts collection activity, the debt does not disappear. Interest and penalties continue to accrue until your financial situation improves.

CNC status is best viewed as a short-term solution that provides breathing room during financial difficulty.

Real-World Case Examples

Understanding how others have handled unfiled Form 945 issues can help you see practical solutions. The following case studies show how businesses resolved their tax problems with the IRS in different situations.

Case 1: Small Consulting Firm

A consulting firm failed to file its 2021 Form 945, which reported $15,000 in backup withholding from contractor payments. Once they discovered the oversight:

They filed the delinquent annual return immediately to bring their account current.
They calculated penalties, including the failure-to-file penalty and any interest owed.
They applied for First-Time Abate relief, which removed part of their assessed penalties.
They set up a 12-month installment agreement to pay off the remaining balance.

This resolution allowed the business to pay what it owed while avoiding further collection action.

Case 2: Gambling Establishment

A small casino withheld gambling winnings but did not file Form 945 for 2021. The owner faced hospitalization during the filing period. The IRS accepted their request for reasonable cause relief after reviewing medical documentation. With penalties abated, the business was required only to pay the taxes and interest, which it managed through a payment plan.

Case 3: Retirement Plan Administrator

A pension administrator responsible for distributions from nonqualified pension plans failed to remit $100,000 in withholding. The business faced cash flow problems and applied for an Offer in Compromise (OIC). After submitting detailed financial records and demonstrating hardship, the IRS accepted a settlement for $30,000 payable over 24 months. This provided relief while ensuring compliance going forward.

These examples show that timely action, accurate documentation, and open communication with the IRS can significantly reduce penalties and financial strain.

Frequently Asked Questions

How long do I have to file my unfiled 2021 Form 945?

There is no statute of limitations on filing an unfiled IRS Form 945, which means the IRS can demand it at any time. However, penalties and interest continue to accrue until you file. Submitting the delinquent annual return as soon as possible helps stop additional failure-to-file penalties from growing and shows good faith compliance with the IRS.

Can I file Form 945 without all my records and still complete the form accurately?

Yes, you can still complete Form 945 using the best information available. Bank records, 1099s, and prior-year filings often provide enough data for an accurate annual return of withheld federal income tax. The IRS may already possess information from payors who are reporting either backup withholding or compensation that has been disbursed. Filing promptly helps stop penalties, even if corrections are necessary later.

What happens if I missed filing for multiple years?

If you failed to file Form 945 for more than one tax year, the IRS requires you to submit each delinquent return separately, beginning with the oldest year first. Penalties are calculated individually for each calendar month missed. In cases of several unfiled years, professional help is recommended to navigate compliance, arrange payment plans, and request penalty relief where available.

Can the Trust Fund Recovery Penalty be discharged in bankruptcy?

No, the Trust Fund Recovery Penalty (TFRP) cannot be eliminated through bankruptcy. Because the TFRP involves withheld federal income tax that should have been remitted, it remains collectible even after other debts are discharged. This makes it essential to address the liability directly with the IRS, whether through installment agreements, an Offer in Compromise, or documented reasonable cause relief.

How long does it take for penalty abatement to process?

The timeline varies depending on the type of relief requested. A First-Time Abate request may take 30 to 60 days, while reasonable cause claims often take 60 to 120 days due to additional review. During this time, interest continues to accrue. Providing strong documentation, such as proof of illness or natural disaster, increases the likelihood of quicker approval by the IRS.

What happens if I can’t afford to pay even with a plan?

If you cannot afford payments under any installment agreement, you may request Currently Not Collectible (CNC) status. This stops the IRS from collecting money quickly if making payments is hard on your finances. While in CNC, the debt remains active, and interest and penalties continue to build. Submitting detailed financial records is required to qualify, and the IRS reviews eligibility periodically.

What is the right business address and EIN (Employer Identification Number) for Form 945?

When you e-file or submit a paper return, the IRS requires your business address and employer identification number (EIN). These details identify your business for the annual return and ensure that federal income tax withholding is correctly applied to your account. Accurate information prevents processing delays and helps the IRS post payments to the correct record.

Frequently Asked Questions

Unfiled 2021 Form 945: How to File, Penalties, and Relief Options

Form 945, the Annual Return of Withheld Federal Income Tax, is a filing requirement that often catches small business owners off guard. Unlike payroll taxes reported on Form 941, Form 945 reports federal income tax withholding from nonpayroll payments such as pensions, gambling winnings, and IRA distributions. Because these payments are subject to tax but outside regular wages, failing to file Form 945 can create serious issues with the IRS.

Your return is considered delinquent if you did not file your 2021 Form 945 by the due date. An unfiled annual return can lead to penalties, interest, and potential enforcement actions. The longer the return remains unfiled, the more the balance grows, and in some cases, responsible individuals can even be held personally liable. Taking prompt steps to file Form 945 helps reduce your exposure to mounting federal tax liability.

This guide provides a step-by-step path to filing an unfiled 2021 Form 945 and addressing IRS concerns. You will learn to gather records, complete the form correctly, choose between electronic filing or a paper return, and explore resolution options if you cannot pay in full. By following these steps, business owners can move toward compliance and limit the financial and legal risks of leaving a return unfiled.

What Is Form 945, and Who Needs to File?

Form 945, officially called the Annual Return of Withheld Federal Income Tax, reports income taxes withheld from certain nonpayroll payments. These payments are not wages but are subject to federal income tax withholding. Filing this form ensures that the IRS receives the withheld federal income tax that your business collected from various sources throughout the tax year.

Purpose of Form 945

The purpose of Form 945 is to track and report tax withholding from payments outside traditional payroll. Businesses are responsible for collecting and submitting these funds, which belong to the federal government. Without proper filing, unpaid amounts become a federal tax liability, exposing the business to penalties and interest.

Types of Payments That Require Form 945

You must file Form 945 if your business withholds or is required to withhold federal income tax from:

This includes pensions and retirement plan distributions, such as 401(k), 403(b), and other tax-favored retirement plans.
Military retirement payments, which remain subject to withholding rules.
Gambling winnings and certain gambling winnings are reported on Form W-2G.
The article discusses Indian gaming profits and other gaming-related distributions.
When taxpayers elect withholding, there is a provision for voluntary income tax withholding on certain government payments, such as Social Security benefits.
We receive dividends from Alaska Native Corporations, where recipients request withholding.
Other nonpayroll payments include IRA distributions, nonqualified pension plans, and other distributions requiring tax withholding.

Form 945 vs. Form 941

A common point of confusion is the difference between Form 945 and Form 941. Form 941 reports compensation paid as regular wages and employment taxes each calendar quarter. By contrast, Form 945 is filed once a year to report withholding on non-payroll payments. Understanding this distinction helps businesses stay compliant and avoid misfiling.

Filing Deadlines and Late Filing Consequences

The due date for filing the 2021 Form 945 was January 31, 2022. Employers who made all required deposits on time and in full had to file by February 10, 2022. Because these dates have long passed, any unfiled return is considered late. The IRS treats an unfiled annual return as serious since it involves withheld federal income tax that should have been remitted.

Failing to file on time leads to escalating penalties. The failure-to-file penalty is generally 5% of the total unpaid tax for each month, or part of a month, that the return is late. This penalty can grow until it reaches 25% of the unpaid balance. Alongside this, the failure-to-pay penalty accrues at 0.5% of the monthly unpaid tax liability. In addition, businesses may face a failure-to-deposit penalty if tax deposits are not made on the correct schedule.

Beyond penalties, the IRS charges daily interest on taxes and penalties starting from the original due date. Interest is compounded and continues until the balance is paid in full. Missing deadlines also increases the likelihood of collection activity, including IRS notices or levies, particularly if noncompliance continues into future tax years. Filing immediately, even without immediate payment, helps stop additional penalties and demonstrates good faith with the IRS.

Step-by-Step Guide to Filing an Unfiled 2021 Form 945

Filing an unfiled 2021 Form 945 may feel overwhelming, but breaking the process into manageable steps makes it easier. Following these steps helps ensure accuracy, minimizes penalties, and brings your business back into compliance with the IRS.

Step 1: Gather Required Documentation

Before you begin, collect all records that reflect your withholding activity during the 2021 tax year. This includes:

There are records of nonpayroll payments such as pensions, IRA distributions, and gambling winnings.
Documentation of federal income tax withholding applied to these payments.
Copies of Forms 1099-MISC, 1099-NEC, 1099-R, and W-2G were issued.
The bank records show no deposits that have already been made.
Please provide the previous year's Form 945 to confirm your deposit schedules and filing history.

This information helps you complete the form accurately and avoid IRS processing delays.

Step 2: Obtain the Correct Form and Instructions

Always use IRS Form 945, specific to the year you are filing. For an unfiled 2021 return, you must use the 2021 version of Form 945 and its instructions. You can:

Download directly from the IRS Instructions for Form 945, which includes details on filing requirements, deposit rules, and how to correct errors with Form 945-X.
Request a copy by calling the IRS at 800-829-3676.
Visit a local IRS Taxpayer Assistance Center.
Access the form through approved tax software.

Using the wrong year’s form can cause misreporting and additional correspondence with the IRS.

Step 3: Complete the Form Line by Line

Carefully complete Form 945 by entering accurate figures for each section. Key entries include:

Line 1 – Federal income tax withheld: Enter amounts from pensions, tax-favored retirement plans, military retirement, and certain government payments subject to withholding.
Line 2 – Backup withholding: Report all amounts withheld for backup withholding, including gambling winnings and Indian gaming profits.
Line 3 – Total taxes: Add Lines 1 and 2 to calculate your total tax.
Line 4 – Total deposits: Enter all deposits made in 2021, including overpayments or corrections.
Line 5 – Balance due: If Line 3 exceeds Line 4, the difference represents your outstanding federal tax liability.
Line 6 – Overpayment: If deposits exceed tax liability, you may request a refund or apply it to the next calendar month.
Line 7 – Monthly summary: Complete this section if you were a semiweekly schedule depositor with a liability of $2,500 or more.

Be careful to double-check all calculations. Even small mistakes can lead to additional IRS correspondence and penalties.

Step 4: Choose the filing method.

You can file either electronically or on paper:

Electronic filing: Filing electronically is faster, reduces errors, and confirms that the IRS received your return. You can file electronically through approved software providers or authorized tax professionals. To learn more, visit the IRS E-file Employment Tax Forms page.
Paper return: If you choose a paper return, mail it to the correct IRS address for your business. The mailing address varies depending on whether you include payment.

Electronic filing is generally recommended, but both methods remain valid.

Step 5: Make Payment Arrangements

If you owe a balance, the IRS provides several payment options:

The Electronic Federal Tax Payment System (EFTPS) is a secure system that allows you to make federal tax deposits online.
You can make payments using a credit or debit card, though processing fees will apply to each transaction.
You may also pay by check or money order, which should be made payable to “United States Treasury” if you are submitting it with a paper return.
Electronic funds withdrawal is another option that can be used when you file your return electronically.

To avoid additional interest, submit payment promptly or contact the IRS to discuss reasonable cause relief or payment arrangements if you cannot make full payment immediately.

IRS Penalties and Interest for Unfiled Form 945

The IRS imposes penalties and interest when you fail to file a Form 945 annual return on time, which increases your overall federal tax liability. Understanding how these charges work helps you estimate what you owe and take corrective action sooner.

Failure-to-File Penalty

The failure-to-file penalty is usually 5% of the unpaid total amount due each month, or part of a month, that your return is late. This penalty can reach a maximum of 25%. Filing your return as quickly as possible stops this penalty from growing.

Failure-to-Pay Penalty

The failure-to-pay penalty is 0.5% of the unpaid balance each month after the due date. Unlike the failure-to-file penalty, this charge continues until the tax is paid in full or until it reaches 25% of the unpaid taxes.

Failure-to-Deposit Penalty

If you were required to make deposits during the tax year but failed to do so, the IRS may apply a failure-to-deposit penalty:

2% for deposits 1–5 days late.
5% for deposits 6–15 days late.
10% for deposits more than 15 days late.
15% if the payment is unpaid for more than 10 days after the IRS issues a notice.

This penalty applies when deposit schedules were not followed.

Interest Charges

Interest accrues daily on unpaid taxes and penalties starting from the original due date. Rates are determined quarterly and compound until the balance is paid. Even if penalties are reduced or abated, interest typically remains unless the IRS made an error.

Example of Penalty Growth

Suppose your business owed $10,000 in withheld federal income tax for 2021 but failed to file. The failure-to-file penalty would reach $2,500 (25%), the failure-to-pay penalty would continue monthly, and daily interest would add to your overall balance. This example shows why filing quickly, even without immediate payment, helps reduce long-term costs.

Trust Fund Recovery Penalty (TFRP): What You Need to Know

The Trust Fund Recovery Penalty (TFRP) is one of the most serious consequences businesses can face when employment or withholding taxes are not paid. It exists because specific withheld amounts, such as federal income tax withholding, are considered trust funds held on behalf of the government. When those funds are not remitted, the IRS may pursue individuals directly.

What the Penalty Is and Why It Matters

The TFRP is equal to 100% of the unpaid trust fund taxes. In other words, if your business withheld federal income tax from nonpayroll payments but did not submit it, the IRS can hold you personally responsible for the entire balance. This goes beyond normal penalties and makes the liability a personal obligation.

Who Can Be Held Personally Liable

The IRS can assess the TFRP against any “responsible person.” A responsible person is anyone with the authority to manage funds, sign checks, or make financial decisions for the business. This may include:

Business owners who oversee tax compliance can be held responsible for unpaid trust fund taxes.
Corporate officers or directors who control the company’s finances may also be liable.
Bookkeepers or accountants with signature authority can face responsibility if trust fund taxes are not remitted.
Any individual who willfully fails to remit trust fund taxes may be subject to penalties.

How to Reduce Exposure or Respond

If you are at risk of a TFRP assessment, there are steps you can take to protect yourself:

File all unfiled forms immediately. Filing reduces exposure and shows cooperation.
Pay as much as possible toward the trust fund portion of the debt. The IRS focuses most heavily on these funds.
Document reasonable cause if circumstances prevented timely payment, such as illness or natural disaster.
Seek professional representation to communicate with the IRS and negotiate on your behalf.

The Trust Fund Recovery Penalty has lasting effects, including potential wage garnishments and liens against personal assets. The best way to avoid long-term financial harm is to act quickly and with proper guidance.

Resolution Options if You Can’t Pay in Full

If your 2021 Form 945 shows a balance due that you cannot immediately pay, the IRS offers several resolution options. Each option has specific eligibility requirements but aims to help taxpayers settle their obligations while avoiding harsher collection actions.

Payment Plans (Installment Agreements)

The IRS allows businesses to set up installment agreements to pay off their federal tax liability over time.

Online Payment Agreement: Available if your liability is $25,000 or less and can be paid within 24 months. Applications can be submitted online at IRS.gov.
Full Installment Agreement: This is for larger balances requiring longer repayment terms. Financial statements and a business address are required for approval.
Partial Payment Installment Agreement: This is for taxpayers who cannot pay the entire balance but can make regular monthly payments. The IRS reviews your financials before approval.

Setting up a payment plan demonstrates good faith and prevents enforced collection actions, such as bank levies.

Penalty Relief (Abatement)

The IRS may remove penalties if you qualify under certain conditions.

First-Time Abate (FTA): Available if you have filed and paid on time for the past three years. This relief can cover failure-to-file and failure-to-pay penalties.
Reasonable Cause Relief: Granted when circumstances beyond your control prevented timely filing or payment, such as serious illness, fire, or natural disaster. Documentation is required to support your claim of reasonable cause.

While penalties may be reduced, interest generally accrues until the full payment is made.

Offer in Compromise (OIC)

An OIC allows you to settle your tax debt for less than the total owed if paying in full would cause financial hardship.

Eligibility Requirements: You must be current with all filing requirements, not in bankruptcy, and up to date on current taxes.
Application Process: Submit Form 656 with financial disclosures, a $205 application fee, and an initial payment. Low-income applicants may qualify for a fee waiver.
IRS Evaluation: The IRS reviews your income, expenses, asset equity, and overall ability to pay before deciding.

An accepted OIC can significantly reduce your total amount owed, but approval is not guaranteed.

Currently Not Collectible (CNC) Status

If paying your balance would create economic hardship, you may request CNC status.

Definition: CNC status temporarily delays collection actions when your income is insufficient to cover necessary living expenses.
Requirements: You must complete Form 433-A (for individuals) or Form 433-B (for businesses), disclosing complete financial information.
Result: While the IRS halts collection activity, the debt does not disappear. Interest and penalties continue to accrue until your financial situation improves.

CNC status is best viewed as a short-term solution that provides breathing room during financial difficulty.

Real-World Case Examples

Understanding how others have handled unfiled Form 945 issues can help you see practical solutions. The following case studies show how businesses resolved their tax problems with the IRS in different situations.

Case 1: Small Consulting Firm

A consulting firm failed to file its 2021 Form 945, which reported $15,000 in backup withholding from contractor payments. Once they discovered the oversight:

They filed the delinquent annual return immediately to bring their account current.
They calculated penalties, including the failure-to-file penalty and any interest owed.
They applied for First-Time Abate relief, which removed part of their assessed penalties.
They set up a 12-month installment agreement to pay off the remaining balance.

This resolution allowed the business to pay what it owed while avoiding further collection action.

Case 2: Gambling Establishment

A small casino withheld gambling winnings but did not file Form 945 for 2021. The owner faced hospitalization during the filing period. The IRS accepted their request for reasonable cause relief after reviewing medical documentation. With penalties abated, the business was required only to pay the taxes and interest, which it managed through a payment plan.

Case 3: Retirement Plan Administrator

A pension administrator responsible for distributions from nonqualified pension plans failed to remit $100,000 in withholding. The business faced cash flow problems and applied for an Offer in Compromise (OIC). After submitting detailed financial records and demonstrating hardship, the IRS accepted a settlement for $30,000 payable over 24 months. This provided relief while ensuring compliance going forward.

These examples show that timely action, accurate documentation, and open communication with the IRS can significantly reduce penalties and financial strain.

Frequently Asked Questions

How long do I have to file my unfiled 2021 Form 945?

There is no statute of limitations on filing an unfiled IRS Form 945, which means the IRS can demand it at any time. However, penalties and interest continue to accrue until you file. Submitting the delinquent annual return as soon as possible helps stop additional failure-to-file penalties from growing and shows good faith compliance with the IRS.

Can I file Form 945 without all my records and still complete the form accurately?

Yes, you can still complete Form 945 using the best information available. Bank records, 1099s, and prior-year filings often provide enough data for an accurate annual return of withheld federal income tax. The IRS may already possess information from payors who are reporting either backup withholding or compensation that has been disbursed. Filing promptly helps stop penalties, even if corrections are necessary later.

What happens if I missed filing for multiple years?

If you failed to file Form 945 for more than one tax year, the IRS requires you to submit each delinquent return separately, beginning with the oldest year first. Penalties are calculated individually for each calendar month missed. In cases of several unfiled years, professional help is recommended to navigate compliance, arrange payment plans, and request penalty relief where available.

Can the Trust Fund Recovery Penalty be discharged in bankruptcy?

No, the Trust Fund Recovery Penalty (TFRP) cannot be eliminated through bankruptcy. Because the TFRP involves withheld federal income tax that should have been remitted, it remains collectible even after other debts are discharged. This makes it essential to address the liability directly with the IRS, whether through installment agreements, an Offer in Compromise, or documented reasonable cause relief.

How long does it take for penalty abatement to process?

The timeline varies depending on the type of relief requested. A First-Time Abate request may take 30 to 60 days, while reasonable cause claims often take 60 to 120 days due to additional review. During this time, interest continues to accrue. Providing strong documentation, such as proof of illness or natural disaster, increases the likelihood of quicker approval by the IRS.

What happens if I can’t afford to pay even with a plan?

If you cannot afford payments under any installment agreement, you may request Currently Not Collectible (CNC) status. This stops the IRS from collecting money quickly if making payments is hard on your finances. While in CNC, the debt remains active, and interest and penalties continue to build. Submitting detailed financial records is required to qualify, and the IRS reviews eligibility periodically.

What is the right business address and EIN (Employer Identification Number) for Form 945?

When you e-file or submit a paper return, the IRS requires your business address and employer identification number (EIN). These details identify your business for the annual return and ensure that federal income tax withholding is correctly applied to your account. Accurate information prevents processing delays and helps the IRS post payments to the correct record.

Frequently Asked Questions

Unfiled 2021 Form 945: How to File, Penalties, and Relief Options

Heading

Form 945, the Annual Return of Withheld Federal Income Tax, is a filing requirement that often catches small business owners off guard. Unlike payroll taxes reported on Form 941, Form 945 reports federal income tax withholding from nonpayroll payments such as pensions, gambling winnings, and IRA distributions. Because these payments are subject to tax but outside regular wages, failing to file Form 945 can create serious issues with the IRS.

Your return is considered delinquent if you did not file your 2021 Form 945 by the due date. An unfiled annual return can lead to penalties, interest, and potential enforcement actions. The longer the return remains unfiled, the more the balance grows, and in some cases, responsible individuals can even be held personally liable. Taking prompt steps to file Form 945 helps reduce your exposure to mounting federal tax liability.

This guide provides a step-by-step path to filing an unfiled 2021 Form 945 and addressing IRS concerns. You will learn to gather records, complete the form correctly, choose between electronic filing or a paper return, and explore resolution options if you cannot pay in full. By following these steps, business owners can move toward compliance and limit the financial and legal risks of leaving a return unfiled.

What Is Form 945, and Who Needs to File?

Form 945, officially called the Annual Return of Withheld Federal Income Tax, reports income taxes withheld from certain nonpayroll payments. These payments are not wages but are subject to federal income tax withholding. Filing this form ensures that the IRS receives the withheld federal income tax that your business collected from various sources throughout the tax year.

Purpose of Form 945

The purpose of Form 945 is to track and report tax withholding from payments outside traditional payroll. Businesses are responsible for collecting and submitting these funds, which belong to the federal government. Without proper filing, unpaid amounts become a federal tax liability, exposing the business to penalties and interest.

Types of Payments That Require Form 945

You must file Form 945 if your business withholds or is required to withhold federal income tax from:

This includes pensions and retirement plan distributions, such as 401(k), 403(b), and other tax-favored retirement plans.
Military retirement payments, which remain subject to withholding rules.
Gambling winnings and certain gambling winnings are reported on Form W-2G.
The article discusses Indian gaming profits and other gaming-related distributions.
When taxpayers elect withholding, there is a provision for voluntary income tax withholding on certain government payments, such as Social Security benefits.
We receive dividends from Alaska Native Corporations, where recipients request withholding.
Other nonpayroll payments include IRA distributions, nonqualified pension plans, and other distributions requiring tax withholding.

Form 945 vs. Form 941

A common point of confusion is the difference between Form 945 and Form 941. Form 941 reports compensation paid as regular wages and employment taxes each calendar quarter. By contrast, Form 945 is filed once a year to report withholding on non-payroll payments. Understanding this distinction helps businesses stay compliant and avoid misfiling.

Filing Deadlines and Late Filing Consequences

The due date for filing the 2021 Form 945 was January 31, 2022. Employers who made all required deposits on time and in full had to file by February 10, 2022. Because these dates have long passed, any unfiled return is considered late. The IRS treats an unfiled annual return as serious since it involves withheld federal income tax that should have been remitted.

Failing to file on time leads to escalating penalties. The failure-to-file penalty is generally 5% of the total unpaid tax for each month, or part of a month, that the return is late. This penalty can grow until it reaches 25% of the unpaid balance. Alongside this, the failure-to-pay penalty accrues at 0.5% of the monthly unpaid tax liability. In addition, businesses may face a failure-to-deposit penalty if tax deposits are not made on the correct schedule.

Beyond penalties, the IRS charges daily interest on taxes and penalties starting from the original due date. Interest is compounded and continues until the balance is paid in full. Missing deadlines also increases the likelihood of collection activity, including IRS notices or levies, particularly if noncompliance continues into future tax years. Filing immediately, even without immediate payment, helps stop additional penalties and demonstrates good faith with the IRS.

Step-by-Step Guide to Filing an Unfiled 2021 Form 945

Filing an unfiled 2021 Form 945 may feel overwhelming, but breaking the process into manageable steps makes it easier. Following these steps helps ensure accuracy, minimizes penalties, and brings your business back into compliance with the IRS.

Step 1: Gather Required Documentation

Before you begin, collect all records that reflect your withholding activity during the 2021 tax year. This includes:

There are records of nonpayroll payments such as pensions, IRA distributions, and gambling winnings.
Documentation of federal income tax withholding applied to these payments.
Copies of Forms 1099-MISC, 1099-NEC, 1099-R, and W-2G were issued.
The bank records show no deposits that have already been made.
Please provide the previous year's Form 945 to confirm your deposit schedules and filing history.

This information helps you complete the form accurately and avoid IRS processing delays.

Step 2: Obtain the Correct Form and Instructions

Always use IRS Form 945, specific to the year you are filing. For an unfiled 2021 return, you must use the 2021 version of Form 945 and its instructions. You can:

Download directly from the IRS Instructions for Form 945, which includes details on filing requirements, deposit rules, and how to correct errors with Form 945-X.
Request a copy by calling the IRS at 800-829-3676.
Visit a local IRS Taxpayer Assistance Center.
Access the form through approved tax software.

Using the wrong year’s form can cause misreporting and additional correspondence with the IRS.

Step 3: Complete the Form Line by Line

Carefully complete Form 945 by entering accurate figures for each section. Key entries include:

Line 1 – Federal income tax withheld: Enter amounts from pensions, tax-favored retirement plans, military retirement, and certain government payments subject to withholding.
Line 2 – Backup withholding: Report all amounts withheld for backup withholding, including gambling winnings and Indian gaming profits.
Line 3 – Total taxes: Add Lines 1 and 2 to calculate your total tax.
Line 4 – Total deposits: Enter all deposits made in 2021, including overpayments or corrections.
Line 5 – Balance due: If Line 3 exceeds Line 4, the difference represents your outstanding federal tax liability.
Line 6 – Overpayment: If deposits exceed tax liability, you may request a refund or apply it to the next calendar month.
Line 7 – Monthly summary: Complete this section if you were a semiweekly schedule depositor with a liability of $2,500 or more.

Be careful to double-check all calculations. Even small mistakes can lead to additional IRS correspondence and penalties.

Step 4: Choose the filing method.

You can file either electronically or on paper:

Electronic filing: Filing electronically is faster, reduces errors, and confirms that the IRS received your return. You can file electronically through approved software providers or authorized tax professionals. To learn more, visit the IRS E-file Employment Tax Forms page.
Paper return: If you choose a paper return, mail it to the correct IRS address for your business. The mailing address varies depending on whether you include payment.

Electronic filing is generally recommended, but both methods remain valid.

Step 5: Make Payment Arrangements

If you owe a balance, the IRS provides several payment options:

The Electronic Federal Tax Payment System (EFTPS) is a secure system that allows you to make federal tax deposits online.
You can make payments using a credit or debit card, though processing fees will apply to each transaction.
You may also pay by check or money order, which should be made payable to “United States Treasury” if you are submitting it with a paper return.
Electronic funds withdrawal is another option that can be used when you file your return electronically.

To avoid additional interest, submit payment promptly or contact the IRS to discuss reasonable cause relief or payment arrangements if you cannot make full payment immediately.

IRS Penalties and Interest for Unfiled Form 945

The IRS imposes penalties and interest when you fail to file a Form 945 annual return on time, which increases your overall federal tax liability. Understanding how these charges work helps you estimate what you owe and take corrective action sooner.

Failure-to-File Penalty

The failure-to-file penalty is usually 5% of the unpaid total amount due each month, or part of a month, that your return is late. This penalty can reach a maximum of 25%. Filing your return as quickly as possible stops this penalty from growing.

Failure-to-Pay Penalty

The failure-to-pay penalty is 0.5% of the unpaid balance each month after the due date. Unlike the failure-to-file penalty, this charge continues until the tax is paid in full or until it reaches 25% of the unpaid taxes.

Failure-to-Deposit Penalty

If you were required to make deposits during the tax year but failed to do so, the IRS may apply a failure-to-deposit penalty:

2% for deposits 1–5 days late.
5% for deposits 6–15 days late.
10% for deposits more than 15 days late.
15% if the payment is unpaid for more than 10 days after the IRS issues a notice.

This penalty applies when deposit schedules were not followed.

Interest Charges

Interest accrues daily on unpaid taxes and penalties starting from the original due date. Rates are determined quarterly and compound until the balance is paid. Even if penalties are reduced or abated, interest typically remains unless the IRS made an error.

Example of Penalty Growth

Suppose your business owed $10,000 in withheld federal income tax for 2021 but failed to file. The failure-to-file penalty would reach $2,500 (25%), the failure-to-pay penalty would continue monthly, and daily interest would add to your overall balance. This example shows why filing quickly, even without immediate payment, helps reduce long-term costs.

Trust Fund Recovery Penalty (TFRP): What You Need to Know

The Trust Fund Recovery Penalty (TFRP) is one of the most serious consequences businesses can face when employment or withholding taxes are not paid. It exists because specific withheld amounts, such as federal income tax withholding, are considered trust funds held on behalf of the government. When those funds are not remitted, the IRS may pursue individuals directly.

What the Penalty Is and Why It Matters

The TFRP is equal to 100% of the unpaid trust fund taxes. In other words, if your business withheld federal income tax from nonpayroll payments but did not submit it, the IRS can hold you personally responsible for the entire balance. This goes beyond normal penalties and makes the liability a personal obligation.

Who Can Be Held Personally Liable

The IRS can assess the TFRP against any “responsible person.” A responsible person is anyone with the authority to manage funds, sign checks, or make financial decisions for the business. This may include:

Business owners who oversee tax compliance can be held responsible for unpaid trust fund taxes.
Corporate officers or directors who control the company’s finances may also be liable.
Bookkeepers or accountants with signature authority can face responsibility if trust fund taxes are not remitted.
Any individual who willfully fails to remit trust fund taxes may be subject to penalties.

How to Reduce Exposure or Respond

If you are at risk of a TFRP assessment, there are steps you can take to protect yourself:

File all unfiled forms immediately. Filing reduces exposure and shows cooperation.
Pay as much as possible toward the trust fund portion of the debt. The IRS focuses most heavily on these funds.
Document reasonable cause if circumstances prevented timely payment, such as illness or natural disaster.
Seek professional representation to communicate with the IRS and negotiate on your behalf.

The Trust Fund Recovery Penalty has lasting effects, including potential wage garnishments and liens against personal assets. The best way to avoid long-term financial harm is to act quickly and with proper guidance.

Resolution Options if You Can’t Pay in Full

If your 2021 Form 945 shows a balance due that you cannot immediately pay, the IRS offers several resolution options. Each option has specific eligibility requirements but aims to help taxpayers settle their obligations while avoiding harsher collection actions.

Payment Plans (Installment Agreements)

The IRS allows businesses to set up installment agreements to pay off their federal tax liability over time.

Online Payment Agreement: Available if your liability is $25,000 or less and can be paid within 24 months. Applications can be submitted online at IRS.gov.
Full Installment Agreement: This is for larger balances requiring longer repayment terms. Financial statements and a business address are required for approval.
Partial Payment Installment Agreement: This is for taxpayers who cannot pay the entire balance but can make regular monthly payments. The IRS reviews your financials before approval.

Setting up a payment plan demonstrates good faith and prevents enforced collection actions, such as bank levies.

Penalty Relief (Abatement)

The IRS may remove penalties if you qualify under certain conditions.

First-Time Abate (FTA): Available if you have filed and paid on time for the past three years. This relief can cover failure-to-file and failure-to-pay penalties.
Reasonable Cause Relief: Granted when circumstances beyond your control prevented timely filing or payment, such as serious illness, fire, or natural disaster. Documentation is required to support your claim of reasonable cause.

While penalties may be reduced, interest generally accrues until the full payment is made.

Offer in Compromise (OIC)

An OIC allows you to settle your tax debt for less than the total owed if paying in full would cause financial hardship.

Eligibility Requirements: You must be current with all filing requirements, not in bankruptcy, and up to date on current taxes.
Application Process: Submit Form 656 with financial disclosures, a $205 application fee, and an initial payment. Low-income applicants may qualify for a fee waiver.
IRS Evaluation: The IRS reviews your income, expenses, asset equity, and overall ability to pay before deciding.

An accepted OIC can significantly reduce your total amount owed, but approval is not guaranteed.

Currently Not Collectible (CNC) Status

If paying your balance would create economic hardship, you may request CNC status.

Definition: CNC status temporarily delays collection actions when your income is insufficient to cover necessary living expenses.
Requirements: You must complete Form 433-A (for individuals) or Form 433-B (for businesses), disclosing complete financial information.
Result: While the IRS halts collection activity, the debt does not disappear. Interest and penalties continue to accrue until your financial situation improves.

CNC status is best viewed as a short-term solution that provides breathing room during financial difficulty.

Real-World Case Examples

Understanding how others have handled unfiled Form 945 issues can help you see practical solutions. The following case studies show how businesses resolved their tax problems with the IRS in different situations.

Case 1: Small Consulting Firm

A consulting firm failed to file its 2021 Form 945, which reported $15,000 in backup withholding from contractor payments. Once they discovered the oversight:

They filed the delinquent annual return immediately to bring their account current.
They calculated penalties, including the failure-to-file penalty and any interest owed.
They applied for First-Time Abate relief, which removed part of their assessed penalties.
They set up a 12-month installment agreement to pay off the remaining balance.

This resolution allowed the business to pay what it owed while avoiding further collection action.

Case 2: Gambling Establishment

A small casino withheld gambling winnings but did not file Form 945 for 2021. The owner faced hospitalization during the filing period. The IRS accepted their request for reasonable cause relief after reviewing medical documentation. With penalties abated, the business was required only to pay the taxes and interest, which it managed through a payment plan.

Case 3: Retirement Plan Administrator

A pension administrator responsible for distributions from nonqualified pension plans failed to remit $100,000 in withholding. The business faced cash flow problems and applied for an Offer in Compromise (OIC). After submitting detailed financial records and demonstrating hardship, the IRS accepted a settlement for $30,000 payable over 24 months. This provided relief while ensuring compliance going forward.

These examples show that timely action, accurate documentation, and open communication with the IRS can significantly reduce penalties and financial strain.

Frequently Asked Questions

How long do I have to file my unfiled 2021 Form 945?

There is no statute of limitations on filing an unfiled IRS Form 945, which means the IRS can demand it at any time. However, penalties and interest continue to accrue until you file. Submitting the delinquent annual return as soon as possible helps stop additional failure-to-file penalties from growing and shows good faith compliance with the IRS.

Can I file Form 945 without all my records and still complete the form accurately?

Yes, you can still complete Form 945 using the best information available. Bank records, 1099s, and prior-year filings often provide enough data for an accurate annual return of withheld federal income tax. The IRS may already possess information from payors who are reporting either backup withholding or compensation that has been disbursed. Filing promptly helps stop penalties, even if corrections are necessary later.

What happens if I missed filing for multiple years?

If you failed to file Form 945 for more than one tax year, the IRS requires you to submit each delinquent return separately, beginning with the oldest year first. Penalties are calculated individually for each calendar month missed. In cases of several unfiled years, professional help is recommended to navigate compliance, arrange payment plans, and request penalty relief where available.

Can the Trust Fund Recovery Penalty be discharged in bankruptcy?

No, the Trust Fund Recovery Penalty (TFRP) cannot be eliminated through bankruptcy. Because the TFRP involves withheld federal income tax that should have been remitted, it remains collectible even after other debts are discharged. This makes it essential to address the liability directly with the IRS, whether through installment agreements, an Offer in Compromise, or documented reasonable cause relief.

How long does it take for penalty abatement to process?

The timeline varies depending on the type of relief requested. A First-Time Abate request may take 30 to 60 days, while reasonable cause claims often take 60 to 120 days due to additional review. During this time, interest continues to accrue. Providing strong documentation, such as proof of illness or natural disaster, increases the likelihood of quicker approval by the IRS.

What happens if I can’t afford to pay even with a plan?

If you cannot afford payments under any installment agreement, you may request Currently Not Collectible (CNC) status. This stops the IRS from collecting money quickly if making payments is hard on your finances. While in CNC, the debt remains active, and interest and penalties continue to build. Submitting detailed financial records is required to qualify, and the IRS reviews eligibility periodically.

What is the right business address and EIN (Employer Identification Number) for Form 945?

When you e-file or submit a paper return, the IRS requires your business address and employer identification number (EIN). These details identify your business for the annual return and ensure that federal income tax withholding is correctly applied to your account. Accurate information prevents processing delays and helps the IRS post payments to the correct record.

Unfiled 2021 Form 945: How to File, Penalties, and Relief Options

Frequently Asked Questions

Unfiled 2021 Form 945: How to File, Penalties, and Relief Options

Form 945, the Annual Return of Withheld Federal Income Tax, is a filing requirement that often catches small business owners off guard. Unlike payroll taxes reported on Form 941, Form 945 reports federal income tax withholding from nonpayroll payments such as pensions, gambling winnings, and IRA distributions. Because these payments are subject to tax but outside regular wages, failing to file Form 945 can create serious issues with the IRS.

Your return is considered delinquent if you did not file your 2021 Form 945 by the due date. An unfiled annual return can lead to penalties, interest, and potential enforcement actions. The longer the return remains unfiled, the more the balance grows, and in some cases, responsible individuals can even be held personally liable. Taking prompt steps to file Form 945 helps reduce your exposure to mounting federal tax liability.

This guide provides a step-by-step path to filing an unfiled 2021 Form 945 and addressing IRS concerns. You will learn to gather records, complete the form correctly, choose between electronic filing or a paper return, and explore resolution options if you cannot pay in full. By following these steps, business owners can move toward compliance and limit the financial and legal risks of leaving a return unfiled.

What Is Form 945, and Who Needs to File?

Form 945, officially called the Annual Return of Withheld Federal Income Tax, reports income taxes withheld from certain nonpayroll payments. These payments are not wages but are subject to federal income tax withholding. Filing this form ensures that the IRS receives the withheld federal income tax that your business collected from various sources throughout the tax year.

Purpose of Form 945

The purpose of Form 945 is to track and report tax withholding from payments outside traditional payroll. Businesses are responsible for collecting and submitting these funds, which belong to the federal government. Without proper filing, unpaid amounts become a federal tax liability, exposing the business to penalties and interest.

Types of Payments That Require Form 945

You must file Form 945 if your business withholds or is required to withhold federal income tax from:

This includes pensions and retirement plan distributions, such as 401(k), 403(b), and other tax-favored retirement plans.
Military retirement payments, which remain subject to withholding rules.
Gambling winnings and certain gambling winnings are reported on Form W-2G.
The article discusses Indian gaming profits and other gaming-related distributions.
When taxpayers elect withholding, there is a provision for voluntary income tax withholding on certain government payments, such as Social Security benefits.
We receive dividends from Alaska Native Corporations, where recipients request withholding.
Other nonpayroll payments include IRA distributions, nonqualified pension plans, and other distributions requiring tax withholding.

Form 945 vs. Form 941

A common point of confusion is the difference between Form 945 and Form 941. Form 941 reports compensation paid as regular wages and employment taxes each calendar quarter. By contrast, Form 945 is filed once a year to report withholding on non-payroll payments. Understanding this distinction helps businesses stay compliant and avoid misfiling.

Filing Deadlines and Late Filing Consequences

The due date for filing the 2021 Form 945 was January 31, 2022. Employers who made all required deposits on time and in full had to file by February 10, 2022. Because these dates have long passed, any unfiled return is considered late. The IRS treats an unfiled annual return as serious since it involves withheld federal income tax that should have been remitted.

Failing to file on time leads to escalating penalties. The failure-to-file penalty is generally 5% of the total unpaid tax for each month, or part of a month, that the return is late. This penalty can grow until it reaches 25% of the unpaid balance. Alongside this, the failure-to-pay penalty accrues at 0.5% of the monthly unpaid tax liability. In addition, businesses may face a failure-to-deposit penalty if tax deposits are not made on the correct schedule.

Beyond penalties, the IRS charges daily interest on taxes and penalties starting from the original due date. Interest is compounded and continues until the balance is paid in full. Missing deadlines also increases the likelihood of collection activity, including IRS notices or levies, particularly if noncompliance continues into future tax years. Filing immediately, even without immediate payment, helps stop additional penalties and demonstrates good faith with the IRS.

Step-by-Step Guide to Filing an Unfiled 2021 Form 945

Filing an unfiled 2021 Form 945 may feel overwhelming, but breaking the process into manageable steps makes it easier. Following these steps helps ensure accuracy, minimizes penalties, and brings your business back into compliance with the IRS.

Step 1: Gather Required Documentation

Before you begin, collect all records that reflect your withholding activity during the 2021 tax year. This includes:

There are records of nonpayroll payments such as pensions, IRA distributions, and gambling winnings.
Documentation of federal income tax withholding applied to these payments.
Copies of Forms 1099-MISC, 1099-NEC, 1099-R, and W-2G were issued.
The bank records show no deposits that have already been made.
Please provide the previous year's Form 945 to confirm your deposit schedules and filing history.

This information helps you complete the form accurately and avoid IRS processing delays.

Step 2: Obtain the Correct Form and Instructions

Always use IRS Form 945, specific to the year you are filing. For an unfiled 2021 return, you must use the 2021 version of Form 945 and its instructions. You can:

Download directly from the IRS Instructions for Form 945, which includes details on filing requirements, deposit rules, and how to correct errors with Form 945-X.
Request a copy by calling the IRS at 800-829-3676.
Visit a local IRS Taxpayer Assistance Center.
Access the form through approved tax software.

Using the wrong year’s form can cause misreporting and additional correspondence with the IRS.

Step 3: Complete the Form Line by Line

Carefully complete Form 945 by entering accurate figures for each section. Key entries include:

Line 1 – Federal income tax withheld: Enter amounts from pensions, tax-favored retirement plans, military retirement, and certain government payments subject to withholding.
Line 2 – Backup withholding: Report all amounts withheld for backup withholding, including gambling winnings and Indian gaming profits.
Line 3 – Total taxes: Add Lines 1 and 2 to calculate your total tax.
Line 4 – Total deposits: Enter all deposits made in 2021, including overpayments or corrections.
Line 5 – Balance due: If Line 3 exceeds Line 4, the difference represents your outstanding federal tax liability.
Line 6 – Overpayment: If deposits exceed tax liability, you may request a refund or apply it to the next calendar month.
Line 7 – Monthly summary: Complete this section if you were a semiweekly schedule depositor with a liability of $2,500 or more.

Be careful to double-check all calculations. Even small mistakes can lead to additional IRS correspondence and penalties.

Step 4: Choose the filing method.

You can file either electronically or on paper:

Electronic filing: Filing electronically is faster, reduces errors, and confirms that the IRS received your return. You can file electronically through approved software providers or authorized tax professionals. To learn more, visit the IRS E-file Employment Tax Forms page.
Paper return: If you choose a paper return, mail it to the correct IRS address for your business. The mailing address varies depending on whether you include payment.

Electronic filing is generally recommended, but both methods remain valid.

Step 5: Make Payment Arrangements

If you owe a balance, the IRS provides several payment options:

The Electronic Federal Tax Payment System (EFTPS) is a secure system that allows you to make federal tax deposits online.
You can make payments using a credit or debit card, though processing fees will apply to each transaction.
You may also pay by check or money order, which should be made payable to “United States Treasury” if you are submitting it with a paper return.
Electronic funds withdrawal is another option that can be used when you file your return electronically.

To avoid additional interest, submit payment promptly or contact the IRS to discuss reasonable cause relief or payment arrangements if you cannot make full payment immediately.

IRS Penalties and Interest for Unfiled Form 945

The IRS imposes penalties and interest when you fail to file a Form 945 annual return on time, which increases your overall federal tax liability. Understanding how these charges work helps you estimate what you owe and take corrective action sooner.

Failure-to-File Penalty

The failure-to-file penalty is usually 5% of the unpaid total amount due each month, or part of a month, that your return is late. This penalty can reach a maximum of 25%. Filing your return as quickly as possible stops this penalty from growing.

Failure-to-Pay Penalty

The failure-to-pay penalty is 0.5% of the unpaid balance each month after the due date. Unlike the failure-to-file penalty, this charge continues until the tax is paid in full or until it reaches 25% of the unpaid taxes.

Failure-to-Deposit Penalty

If you were required to make deposits during the tax year but failed to do so, the IRS may apply a failure-to-deposit penalty:

2% for deposits 1–5 days late.
5% for deposits 6–15 days late.
10% for deposits more than 15 days late.
15% if the payment is unpaid for more than 10 days after the IRS issues a notice.

This penalty applies when deposit schedules were not followed.

Interest Charges

Interest accrues daily on unpaid taxes and penalties starting from the original due date. Rates are determined quarterly and compound until the balance is paid. Even if penalties are reduced or abated, interest typically remains unless the IRS made an error.

Example of Penalty Growth

Suppose your business owed $10,000 in withheld federal income tax for 2021 but failed to file. The failure-to-file penalty would reach $2,500 (25%), the failure-to-pay penalty would continue monthly, and daily interest would add to your overall balance. This example shows why filing quickly, even without immediate payment, helps reduce long-term costs.

Trust Fund Recovery Penalty (TFRP): What You Need to Know

The Trust Fund Recovery Penalty (TFRP) is one of the most serious consequences businesses can face when employment or withholding taxes are not paid. It exists because specific withheld amounts, such as federal income tax withholding, are considered trust funds held on behalf of the government. When those funds are not remitted, the IRS may pursue individuals directly.

What the Penalty Is and Why It Matters

The TFRP is equal to 100% of the unpaid trust fund taxes. In other words, if your business withheld federal income tax from nonpayroll payments but did not submit it, the IRS can hold you personally responsible for the entire balance. This goes beyond normal penalties and makes the liability a personal obligation.

Who Can Be Held Personally Liable

The IRS can assess the TFRP against any “responsible person.” A responsible person is anyone with the authority to manage funds, sign checks, or make financial decisions for the business. This may include:

Business owners who oversee tax compliance can be held responsible for unpaid trust fund taxes.
Corporate officers or directors who control the company’s finances may also be liable.
Bookkeepers or accountants with signature authority can face responsibility if trust fund taxes are not remitted.
Any individual who willfully fails to remit trust fund taxes may be subject to penalties.

How to Reduce Exposure or Respond

If you are at risk of a TFRP assessment, there are steps you can take to protect yourself:

File all unfiled forms immediately. Filing reduces exposure and shows cooperation.
Pay as much as possible toward the trust fund portion of the debt. The IRS focuses most heavily on these funds.
Document reasonable cause if circumstances prevented timely payment, such as illness or natural disaster.
Seek professional representation to communicate with the IRS and negotiate on your behalf.

The Trust Fund Recovery Penalty has lasting effects, including potential wage garnishments and liens against personal assets. The best way to avoid long-term financial harm is to act quickly and with proper guidance.

Resolution Options if You Can’t Pay in Full

If your 2021 Form 945 shows a balance due that you cannot immediately pay, the IRS offers several resolution options. Each option has specific eligibility requirements but aims to help taxpayers settle their obligations while avoiding harsher collection actions.

Payment Plans (Installment Agreements)

The IRS allows businesses to set up installment agreements to pay off their federal tax liability over time.

Online Payment Agreement: Available if your liability is $25,000 or less and can be paid within 24 months. Applications can be submitted online at IRS.gov.
Full Installment Agreement: This is for larger balances requiring longer repayment terms. Financial statements and a business address are required for approval.
Partial Payment Installment Agreement: This is for taxpayers who cannot pay the entire balance but can make regular monthly payments. The IRS reviews your financials before approval.

Setting up a payment plan demonstrates good faith and prevents enforced collection actions, such as bank levies.

Penalty Relief (Abatement)

The IRS may remove penalties if you qualify under certain conditions.

First-Time Abate (FTA): Available if you have filed and paid on time for the past three years. This relief can cover failure-to-file and failure-to-pay penalties.
Reasonable Cause Relief: Granted when circumstances beyond your control prevented timely filing or payment, such as serious illness, fire, or natural disaster. Documentation is required to support your claim of reasonable cause.

While penalties may be reduced, interest generally accrues until the full payment is made.

Offer in Compromise (OIC)

An OIC allows you to settle your tax debt for less than the total owed if paying in full would cause financial hardship.

Eligibility Requirements: You must be current with all filing requirements, not in bankruptcy, and up to date on current taxes.
Application Process: Submit Form 656 with financial disclosures, a $205 application fee, and an initial payment. Low-income applicants may qualify for a fee waiver.
IRS Evaluation: The IRS reviews your income, expenses, asset equity, and overall ability to pay before deciding.

An accepted OIC can significantly reduce your total amount owed, but approval is not guaranteed.

Currently Not Collectible (CNC) Status

If paying your balance would create economic hardship, you may request CNC status.

Definition: CNC status temporarily delays collection actions when your income is insufficient to cover necessary living expenses.
Requirements: You must complete Form 433-A (for individuals) or Form 433-B (for businesses), disclosing complete financial information.
Result: While the IRS halts collection activity, the debt does not disappear. Interest and penalties continue to accrue until your financial situation improves.

CNC status is best viewed as a short-term solution that provides breathing room during financial difficulty.

Real-World Case Examples

Understanding how others have handled unfiled Form 945 issues can help you see practical solutions. The following case studies show how businesses resolved their tax problems with the IRS in different situations.

Case 1: Small Consulting Firm

A consulting firm failed to file its 2021 Form 945, which reported $15,000 in backup withholding from contractor payments. Once they discovered the oversight:

They filed the delinquent annual return immediately to bring their account current.
They calculated penalties, including the failure-to-file penalty and any interest owed.
They applied for First-Time Abate relief, which removed part of their assessed penalties.
They set up a 12-month installment agreement to pay off the remaining balance.

This resolution allowed the business to pay what it owed while avoiding further collection action.

Case 2: Gambling Establishment

A small casino withheld gambling winnings but did not file Form 945 for 2021. The owner faced hospitalization during the filing period. The IRS accepted their request for reasonable cause relief after reviewing medical documentation. With penalties abated, the business was required only to pay the taxes and interest, which it managed through a payment plan.

Case 3: Retirement Plan Administrator

A pension administrator responsible for distributions from nonqualified pension plans failed to remit $100,000 in withholding. The business faced cash flow problems and applied for an Offer in Compromise (OIC). After submitting detailed financial records and demonstrating hardship, the IRS accepted a settlement for $30,000 payable over 24 months. This provided relief while ensuring compliance going forward.

These examples show that timely action, accurate documentation, and open communication with the IRS can significantly reduce penalties and financial strain.

Frequently Asked Questions

How long do I have to file my unfiled 2021 Form 945?

There is no statute of limitations on filing an unfiled IRS Form 945, which means the IRS can demand it at any time. However, penalties and interest continue to accrue until you file. Submitting the delinquent annual return as soon as possible helps stop additional failure-to-file penalties from growing and shows good faith compliance with the IRS.

Can I file Form 945 without all my records and still complete the form accurately?

Yes, you can still complete Form 945 using the best information available. Bank records, 1099s, and prior-year filings often provide enough data for an accurate annual return of withheld federal income tax. The IRS may already possess information from payors who are reporting either backup withholding or compensation that has been disbursed. Filing promptly helps stop penalties, even if corrections are necessary later.

What happens if I missed filing for multiple years?

If you failed to file Form 945 for more than one tax year, the IRS requires you to submit each delinquent return separately, beginning with the oldest year first. Penalties are calculated individually for each calendar month missed. In cases of several unfiled years, professional help is recommended to navigate compliance, arrange payment plans, and request penalty relief where available.

Can the Trust Fund Recovery Penalty be discharged in bankruptcy?

No, the Trust Fund Recovery Penalty (TFRP) cannot be eliminated through bankruptcy. Because the TFRP involves withheld federal income tax that should have been remitted, it remains collectible even after other debts are discharged. This makes it essential to address the liability directly with the IRS, whether through installment agreements, an Offer in Compromise, or documented reasonable cause relief.

How long does it take for penalty abatement to process?

The timeline varies depending on the type of relief requested. A First-Time Abate request may take 30 to 60 days, while reasonable cause claims often take 60 to 120 days due to additional review. During this time, interest continues to accrue. Providing strong documentation, such as proof of illness or natural disaster, increases the likelihood of quicker approval by the IRS.

What happens if I can’t afford to pay even with a plan?

If you cannot afford payments under any installment agreement, you may request Currently Not Collectible (CNC) status. This stops the IRS from collecting money quickly if making payments is hard on your finances. While in CNC, the debt remains active, and interest and penalties continue to build. Submitting detailed financial records is required to qualify, and the IRS reviews eligibility periodically.

What is the right business address and EIN (Employer Identification Number) for Form 945?

When you e-file or submit a paper return, the IRS requires your business address and employer identification number (EIN). These details identify your business for the annual return and ensure that federal income tax withholding is correctly applied to your account. Accurate information prevents processing delays and helps the IRS post payments to the correct record.

Frequently Asked Questions

Unfiled 2021 Form 945: How to File, Penalties, and Relief Options

Form 945, the Annual Return of Withheld Federal Income Tax, is a filing requirement that often catches small business owners off guard. Unlike payroll taxes reported on Form 941, Form 945 reports federal income tax withholding from nonpayroll payments such as pensions, gambling winnings, and IRA distributions. Because these payments are subject to tax but outside regular wages, failing to file Form 945 can create serious issues with the IRS.

Your return is considered delinquent if you did not file your 2021 Form 945 by the due date. An unfiled annual return can lead to penalties, interest, and potential enforcement actions. The longer the return remains unfiled, the more the balance grows, and in some cases, responsible individuals can even be held personally liable. Taking prompt steps to file Form 945 helps reduce your exposure to mounting federal tax liability.

This guide provides a step-by-step path to filing an unfiled 2021 Form 945 and addressing IRS concerns. You will learn to gather records, complete the form correctly, choose between electronic filing or a paper return, and explore resolution options if you cannot pay in full. By following these steps, business owners can move toward compliance and limit the financial and legal risks of leaving a return unfiled.

What Is Form 945, and Who Needs to File?

Form 945, officially called the Annual Return of Withheld Federal Income Tax, reports income taxes withheld from certain nonpayroll payments. These payments are not wages but are subject to federal income tax withholding. Filing this form ensures that the IRS receives the withheld federal income tax that your business collected from various sources throughout the tax year.

Purpose of Form 945

The purpose of Form 945 is to track and report tax withholding from payments outside traditional payroll. Businesses are responsible for collecting and submitting these funds, which belong to the federal government. Without proper filing, unpaid amounts become a federal tax liability, exposing the business to penalties and interest.

Types of Payments That Require Form 945

You must file Form 945 if your business withholds or is required to withhold federal income tax from:

This includes pensions and retirement plan distributions, such as 401(k), 403(b), and other tax-favored retirement plans.
Military retirement payments, which remain subject to withholding rules.
Gambling winnings and certain gambling winnings are reported on Form W-2G.
The article discusses Indian gaming profits and other gaming-related distributions.
When taxpayers elect withholding, there is a provision for voluntary income tax withholding on certain government payments, such as Social Security benefits.
We receive dividends from Alaska Native Corporations, where recipients request withholding.
Other nonpayroll payments include IRA distributions, nonqualified pension plans, and other distributions requiring tax withholding.

Form 945 vs. Form 941

A common point of confusion is the difference between Form 945 and Form 941. Form 941 reports compensation paid as regular wages and employment taxes each calendar quarter. By contrast, Form 945 is filed once a year to report withholding on non-payroll payments. Understanding this distinction helps businesses stay compliant and avoid misfiling.

Filing Deadlines and Late Filing Consequences

The due date for filing the 2021 Form 945 was January 31, 2022. Employers who made all required deposits on time and in full had to file by February 10, 2022. Because these dates have long passed, any unfiled return is considered late. The IRS treats an unfiled annual return as serious since it involves withheld federal income tax that should have been remitted.

Failing to file on time leads to escalating penalties. The failure-to-file penalty is generally 5% of the total unpaid tax for each month, or part of a month, that the return is late. This penalty can grow until it reaches 25% of the unpaid balance. Alongside this, the failure-to-pay penalty accrues at 0.5% of the monthly unpaid tax liability. In addition, businesses may face a failure-to-deposit penalty if tax deposits are not made on the correct schedule.

Beyond penalties, the IRS charges daily interest on taxes and penalties starting from the original due date. Interest is compounded and continues until the balance is paid in full. Missing deadlines also increases the likelihood of collection activity, including IRS notices or levies, particularly if noncompliance continues into future tax years. Filing immediately, even without immediate payment, helps stop additional penalties and demonstrates good faith with the IRS.

Step-by-Step Guide to Filing an Unfiled 2021 Form 945

Filing an unfiled 2021 Form 945 may feel overwhelming, but breaking the process into manageable steps makes it easier. Following these steps helps ensure accuracy, minimizes penalties, and brings your business back into compliance with the IRS.

Step 1: Gather Required Documentation

Before you begin, collect all records that reflect your withholding activity during the 2021 tax year. This includes:

There are records of nonpayroll payments such as pensions, IRA distributions, and gambling winnings.
Documentation of federal income tax withholding applied to these payments.
Copies of Forms 1099-MISC, 1099-NEC, 1099-R, and W-2G were issued.
The bank records show no deposits that have already been made.
Please provide the previous year's Form 945 to confirm your deposit schedules and filing history.

This information helps you complete the form accurately and avoid IRS processing delays.

Step 2: Obtain the Correct Form and Instructions

Always use IRS Form 945, specific to the year you are filing. For an unfiled 2021 return, you must use the 2021 version of Form 945 and its instructions. You can:

Download directly from the IRS Instructions for Form 945, which includes details on filing requirements, deposit rules, and how to correct errors with Form 945-X.
Request a copy by calling the IRS at 800-829-3676.
Visit a local IRS Taxpayer Assistance Center.
Access the form through approved tax software.

Using the wrong year’s form can cause misreporting and additional correspondence with the IRS.

Step 3: Complete the Form Line by Line

Carefully complete Form 945 by entering accurate figures for each section. Key entries include:

Line 1 – Federal income tax withheld: Enter amounts from pensions, tax-favored retirement plans, military retirement, and certain government payments subject to withholding.
Line 2 – Backup withholding: Report all amounts withheld for backup withholding, including gambling winnings and Indian gaming profits.
Line 3 – Total taxes: Add Lines 1 and 2 to calculate your total tax.
Line 4 – Total deposits: Enter all deposits made in 2021, including overpayments or corrections.
Line 5 – Balance due: If Line 3 exceeds Line 4, the difference represents your outstanding federal tax liability.
Line 6 – Overpayment: If deposits exceed tax liability, you may request a refund or apply it to the next calendar month.
Line 7 – Monthly summary: Complete this section if you were a semiweekly schedule depositor with a liability of $2,500 or more.

Be careful to double-check all calculations. Even small mistakes can lead to additional IRS correspondence and penalties.

Step 4: Choose the filing method.

You can file either electronically or on paper:

Electronic filing: Filing electronically is faster, reduces errors, and confirms that the IRS received your return. You can file electronically through approved software providers or authorized tax professionals. To learn more, visit the IRS E-file Employment Tax Forms page.
Paper return: If you choose a paper return, mail it to the correct IRS address for your business. The mailing address varies depending on whether you include payment.

Electronic filing is generally recommended, but both methods remain valid.

Step 5: Make Payment Arrangements

If you owe a balance, the IRS provides several payment options:

The Electronic Federal Tax Payment System (EFTPS) is a secure system that allows you to make federal tax deposits online.
You can make payments using a credit or debit card, though processing fees will apply to each transaction.
You may also pay by check or money order, which should be made payable to “United States Treasury” if you are submitting it with a paper return.
Electronic funds withdrawal is another option that can be used when you file your return electronically.

To avoid additional interest, submit payment promptly or contact the IRS to discuss reasonable cause relief or payment arrangements if you cannot make full payment immediately.

IRS Penalties and Interest for Unfiled Form 945

The IRS imposes penalties and interest when you fail to file a Form 945 annual return on time, which increases your overall federal tax liability. Understanding how these charges work helps you estimate what you owe and take corrective action sooner.

Failure-to-File Penalty

The failure-to-file penalty is usually 5% of the unpaid total amount due each month, or part of a month, that your return is late. This penalty can reach a maximum of 25%. Filing your return as quickly as possible stops this penalty from growing.

Failure-to-Pay Penalty

The failure-to-pay penalty is 0.5% of the unpaid balance each month after the due date. Unlike the failure-to-file penalty, this charge continues until the tax is paid in full or until it reaches 25% of the unpaid taxes.

Failure-to-Deposit Penalty

If you were required to make deposits during the tax year but failed to do so, the IRS may apply a failure-to-deposit penalty:

2% for deposits 1–5 days late.
5% for deposits 6–15 days late.
10% for deposits more than 15 days late.
15% if the payment is unpaid for more than 10 days after the IRS issues a notice.

This penalty applies when deposit schedules were not followed.

Interest Charges

Interest accrues daily on unpaid taxes and penalties starting from the original due date. Rates are determined quarterly and compound until the balance is paid. Even if penalties are reduced or abated, interest typically remains unless the IRS made an error.

Example of Penalty Growth

Suppose your business owed $10,000 in withheld federal income tax for 2021 but failed to file. The failure-to-file penalty would reach $2,500 (25%), the failure-to-pay penalty would continue monthly, and daily interest would add to your overall balance. This example shows why filing quickly, even without immediate payment, helps reduce long-term costs.

Trust Fund Recovery Penalty (TFRP): What You Need to Know

The Trust Fund Recovery Penalty (TFRP) is one of the most serious consequences businesses can face when employment or withholding taxes are not paid. It exists because specific withheld amounts, such as federal income tax withholding, are considered trust funds held on behalf of the government. When those funds are not remitted, the IRS may pursue individuals directly.

What the Penalty Is and Why It Matters

The TFRP is equal to 100% of the unpaid trust fund taxes. In other words, if your business withheld federal income tax from nonpayroll payments but did not submit it, the IRS can hold you personally responsible for the entire balance. This goes beyond normal penalties and makes the liability a personal obligation.

Who Can Be Held Personally Liable

The IRS can assess the TFRP against any “responsible person.” A responsible person is anyone with the authority to manage funds, sign checks, or make financial decisions for the business. This may include:

Business owners who oversee tax compliance can be held responsible for unpaid trust fund taxes.
Corporate officers or directors who control the company’s finances may also be liable.
Bookkeepers or accountants with signature authority can face responsibility if trust fund taxes are not remitted.
Any individual who willfully fails to remit trust fund taxes may be subject to penalties.

How to Reduce Exposure or Respond

If you are at risk of a TFRP assessment, there are steps you can take to protect yourself:

File all unfiled forms immediately. Filing reduces exposure and shows cooperation.
Pay as much as possible toward the trust fund portion of the debt. The IRS focuses most heavily on these funds.
Document reasonable cause if circumstances prevented timely payment, such as illness or natural disaster.
Seek professional representation to communicate with the IRS and negotiate on your behalf.

The Trust Fund Recovery Penalty has lasting effects, including potential wage garnishments and liens against personal assets. The best way to avoid long-term financial harm is to act quickly and with proper guidance.

Resolution Options if You Can’t Pay in Full

If your 2021 Form 945 shows a balance due that you cannot immediately pay, the IRS offers several resolution options. Each option has specific eligibility requirements but aims to help taxpayers settle their obligations while avoiding harsher collection actions.

Payment Plans (Installment Agreements)

The IRS allows businesses to set up installment agreements to pay off their federal tax liability over time.

Online Payment Agreement: Available if your liability is $25,000 or less and can be paid within 24 months. Applications can be submitted online at IRS.gov.
Full Installment Agreement: This is for larger balances requiring longer repayment terms. Financial statements and a business address are required for approval.
Partial Payment Installment Agreement: This is for taxpayers who cannot pay the entire balance but can make regular monthly payments. The IRS reviews your financials before approval.

Setting up a payment plan demonstrates good faith and prevents enforced collection actions, such as bank levies.

Penalty Relief (Abatement)

The IRS may remove penalties if you qualify under certain conditions.

First-Time Abate (FTA): Available if you have filed and paid on time for the past three years. This relief can cover failure-to-file and failure-to-pay penalties.
Reasonable Cause Relief: Granted when circumstances beyond your control prevented timely filing or payment, such as serious illness, fire, or natural disaster. Documentation is required to support your claim of reasonable cause.

While penalties may be reduced, interest generally accrues until the full payment is made.

Offer in Compromise (OIC)

An OIC allows you to settle your tax debt for less than the total owed if paying in full would cause financial hardship.

Eligibility Requirements: You must be current with all filing requirements, not in bankruptcy, and up to date on current taxes.
Application Process: Submit Form 656 with financial disclosures, a $205 application fee, and an initial payment. Low-income applicants may qualify for a fee waiver.
IRS Evaluation: The IRS reviews your income, expenses, asset equity, and overall ability to pay before deciding.

An accepted OIC can significantly reduce your total amount owed, but approval is not guaranteed.

Currently Not Collectible (CNC) Status

If paying your balance would create economic hardship, you may request CNC status.

Definition: CNC status temporarily delays collection actions when your income is insufficient to cover necessary living expenses.
Requirements: You must complete Form 433-A (for individuals) or Form 433-B (for businesses), disclosing complete financial information.
Result: While the IRS halts collection activity, the debt does not disappear. Interest and penalties continue to accrue until your financial situation improves.

CNC status is best viewed as a short-term solution that provides breathing room during financial difficulty.

Real-World Case Examples

Understanding how others have handled unfiled Form 945 issues can help you see practical solutions. The following case studies show how businesses resolved their tax problems with the IRS in different situations.

Case 1: Small Consulting Firm

A consulting firm failed to file its 2021 Form 945, which reported $15,000 in backup withholding from contractor payments. Once they discovered the oversight:

They filed the delinquent annual return immediately to bring their account current.
They calculated penalties, including the failure-to-file penalty and any interest owed.
They applied for First-Time Abate relief, which removed part of their assessed penalties.
They set up a 12-month installment agreement to pay off the remaining balance.

This resolution allowed the business to pay what it owed while avoiding further collection action.

Case 2: Gambling Establishment

A small casino withheld gambling winnings but did not file Form 945 for 2021. The owner faced hospitalization during the filing period. The IRS accepted their request for reasonable cause relief after reviewing medical documentation. With penalties abated, the business was required only to pay the taxes and interest, which it managed through a payment plan.

Case 3: Retirement Plan Administrator

A pension administrator responsible for distributions from nonqualified pension plans failed to remit $100,000 in withholding. The business faced cash flow problems and applied for an Offer in Compromise (OIC). After submitting detailed financial records and demonstrating hardship, the IRS accepted a settlement for $30,000 payable over 24 months. This provided relief while ensuring compliance going forward.

These examples show that timely action, accurate documentation, and open communication with the IRS can significantly reduce penalties and financial strain.

Frequently Asked Questions

How long do I have to file my unfiled 2021 Form 945?

There is no statute of limitations on filing an unfiled IRS Form 945, which means the IRS can demand it at any time. However, penalties and interest continue to accrue until you file. Submitting the delinquent annual return as soon as possible helps stop additional failure-to-file penalties from growing and shows good faith compliance with the IRS.

Can I file Form 945 without all my records and still complete the form accurately?

Yes, you can still complete Form 945 using the best information available. Bank records, 1099s, and prior-year filings often provide enough data for an accurate annual return of withheld federal income tax. The IRS may already possess information from payors who are reporting either backup withholding or compensation that has been disbursed. Filing promptly helps stop penalties, even if corrections are necessary later.

What happens if I missed filing for multiple years?

If you failed to file Form 945 for more than one tax year, the IRS requires you to submit each delinquent return separately, beginning with the oldest year first. Penalties are calculated individually for each calendar month missed. In cases of several unfiled years, professional help is recommended to navigate compliance, arrange payment plans, and request penalty relief where available.

Can the Trust Fund Recovery Penalty be discharged in bankruptcy?

No, the Trust Fund Recovery Penalty (TFRP) cannot be eliminated through bankruptcy. Because the TFRP involves withheld federal income tax that should have been remitted, it remains collectible even after other debts are discharged. This makes it essential to address the liability directly with the IRS, whether through installment agreements, an Offer in Compromise, or documented reasonable cause relief.

How long does it take for penalty abatement to process?

The timeline varies depending on the type of relief requested. A First-Time Abate request may take 30 to 60 days, while reasonable cause claims often take 60 to 120 days due to additional review. During this time, interest continues to accrue. Providing strong documentation, such as proof of illness or natural disaster, increases the likelihood of quicker approval by the IRS.

What happens if I can’t afford to pay even with a plan?

If you cannot afford payments under any installment agreement, you may request Currently Not Collectible (CNC) status. This stops the IRS from collecting money quickly if making payments is hard on your finances. While in CNC, the debt remains active, and interest and penalties continue to build. Submitting detailed financial records is required to qualify, and the IRS reviews eligibility periodically.

What is the right business address and EIN (Employer Identification Number) for Form 945?

When you e-file or submit a paper return, the IRS requires your business address and employer identification number (EIN). These details identify your business for the annual return and ensure that federal income tax withholding is correctly applied to your account. Accurate information prevents processing delays and helps the IRS post payments to the correct record.

Frequently Asked Questions

Unfiled 2021 Form 945: How to File, Penalties, and Relief Options

Form 945, the Annual Return of Withheld Federal Income Tax, is a filing requirement that often catches small business owners off guard. Unlike payroll taxes reported on Form 941, Form 945 reports federal income tax withholding from nonpayroll payments such as pensions, gambling winnings, and IRA distributions. Because these payments are subject to tax but outside regular wages, failing to file Form 945 can create serious issues with the IRS.

Your return is considered delinquent if you did not file your 2021 Form 945 by the due date. An unfiled annual return can lead to penalties, interest, and potential enforcement actions. The longer the return remains unfiled, the more the balance grows, and in some cases, responsible individuals can even be held personally liable. Taking prompt steps to file Form 945 helps reduce your exposure to mounting federal tax liability.

This guide provides a step-by-step path to filing an unfiled 2021 Form 945 and addressing IRS concerns. You will learn to gather records, complete the form correctly, choose between electronic filing or a paper return, and explore resolution options if you cannot pay in full. By following these steps, business owners can move toward compliance and limit the financial and legal risks of leaving a return unfiled.

What Is Form 945, and Who Needs to File?

Form 945, officially called the Annual Return of Withheld Federal Income Tax, reports income taxes withheld from certain nonpayroll payments. These payments are not wages but are subject to federal income tax withholding. Filing this form ensures that the IRS receives the withheld federal income tax that your business collected from various sources throughout the tax year.

Purpose of Form 945

The purpose of Form 945 is to track and report tax withholding from payments outside traditional payroll. Businesses are responsible for collecting and submitting these funds, which belong to the federal government. Without proper filing, unpaid amounts become a federal tax liability, exposing the business to penalties and interest.

Types of Payments That Require Form 945

You must file Form 945 if your business withholds or is required to withhold federal income tax from:

This includes pensions and retirement plan distributions, such as 401(k), 403(b), and other tax-favored retirement plans.
Military retirement payments, which remain subject to withholding rules.
Gambling winnings and certain gambling winnings are reported on Form W-2G.
The article discusses Indian gaming profits and other gaming-related distributions.
When taxpayers elect withholding, there is a provision for voluntary income tax withholding on certain government payments, such as Social Security benefits.
We receive dividends from Alaska Native Corporations, where recipients request withholding.
Other nonpayroll payments include IRA distributions, nonqualified pension plans, and other distributions requiring tax withholding.

Form 945 vs. Form 941

A common point of confusion is the difference between Form 945 and Form 941. Form 941 reports compensation paid as regular wages and employment taxes each calendar quarter. By contrast, Form 945 is filed once a year to report withholding on non-payroll payments. Understanding this distinction helps businesses stay compliant and avoid misfiling.

Filing Deadlines and Late Filing Consequences

The due date for filing the 2021 Form 945 was January 31, 2022. Employers who made all required deposits on time and in full had to file by February 10, 2022. Because these dates have long passed, any unfiled return is considered late. The IRS treats an unfiled annual return as serious since it involves withheld federal income tax that should have been remitted.

Failing to file on time leads to escalating penalties. The failure-to-file penalty is generally 5% of the total unpaid tax for each month, or part of a month, that the return is late. This penalty can grow until it reaches 25% of the unpaid balance. Alongside this, the failure-to-pay penalty accrues at 0.5% of the monthly unpaid tax liability. In addition, businesses may face a failure-to-deposit penalty if tax deposits are not made on the correct schedule.

Beyond penalties, the IRS charges daily interest on taxes and penalties starting from the original due date. Interest is compounded and continues until the balance is paid in full. Missing deadlines also increases the likelihood of collection activity, including IRS notices or levies, particularly if noncompliance continues into future tax years. Filing immediately, even without immediate payment, helps stop additional penalties and demonstrates good faith with the IRS.

Step-by-Step Guide to Filing an Unfiled 2021 Form 945

Filing an unfiled 2021 Form 945 may feel overwhelming, but breaking the process into manageable steps makes it easier. Following these steps helps ensure accuracy, minimizes penalties, and brings your business back into compliance with the IRS.

Step 1: Gather Required Documentation

Before you begin, collect all records that reflect your withholding activity during the 2021 tax year. This includes:

There are records of nonpayroll payments such as pensions, IRA distributions, and gambling winnings.
Documentation of federal income tax withholding applied to these payments.
Copies of Forms 1099-MISC, 1099-NEC, 1099-R, and W-2G were issued.
The bank records show no deposits that have already been made.
Please provide the previous year's Form 945 to confirm your deposit schedules and filing history.

This information helps you complete the form accurately and avoid IRS processing delays.

Step 2: Obtain the Correct Form and Instructions

Always use IRS Form 945, specific to the year you are filing. For an unfiled 2021 return, you must use the 2021 version of Form 945 and its instructions. You can:

Download directly from the IRS Instructions for Form 945, which includes details on filing requirements, deposit rules, and how to correct errors with Form 945-X.
Request a copy by calling the IRS at 800-829-3676.
Visit a local IRS Taxpayer Assistance Center.
Access the form through approved tax software.

Using the wrong year’s form can cause misreporting and additional correspondence with the IRS.

Step 3: Complete the Form Line by Line

Carefully complete Form 945 by entering accurate figures for each section. Key entries include:

Line 1 – Federal income tax withheld: Enter amounts from pensions, tax-favored retirement plans, military retirement, and certain government payments subject to withholding.
Line 2 – Backup withholding: Report all amounts withheld for backup withholding, including gambling winnings and Indian gaming profits.
Line 3 – Total taxes: Add Lines 1 and 2 to calculate your total tax.
Line 4 – Total deposits: Enter all deposits made in 2021, including overpayments or corrections.
Line 5 – Balance due: If Line 3 exceeds Line 4, the difference represents your outstanding federal tax liability.
Line 6 – Overpayment: If deposits exceed tax liability, you may request a refund or apply it to the next calendar month.
Line 7 – Monthly summary: Complete this section if you were a semiweekly schedule depositor with a liability of $2,500 or more.

Be careful to double-check all calculations. Even small mistakes can lead to additional IRS correspondence and penalties.

Step 4: Choose the filing method.

You can file either electronically or on paper:

Electronic filing: Filing electronically is faster, reduces errors, and confirms that the IRS received your return. You can file electronically through approved software providers or authorized tax professionals. To learn more, visit the IRS E-file Employment Tax Forms page.
Paper return: If you choose a paper return, mail it to the correct IRS address for your business. The mailing address varies depending on whether you include payment.

Electronic filing is generally recommended, but both methods remain valid.

Step 5: Make Payment Arrangements

If you owe a balance, the IRS provides several payment options:

The Electronic Federal Tax Payment System (EFTPS) is a secure system that allows you to make federal tax deposits online.
You can make payments using a credit or debit card, though processing fees will apply to each transaction.
You may also pay by check or money order, which should be made payable to “United States Treasury” if you are submitting it with a paper return.
Electronic funds withdrawal is another option that can be used when you file your return electronically.

To avoid additional interest, submit payment promptly or contact the IRS to discuss reasonable cause relief or payment arrangements if you cannot make full payment immediately.

IRS Penalties and Interest for Unfiled Form 945

The IRS imposes penalties and interest when you fail to file a Form 945 annual return on time, which increases your overall federal tax liability. Understanding how these charges work helps you estimate what you owe and take corrective action sooner.

Failure-to-File Penalty

The failure-to-file penalty is usually 5% of the unpaid total amount due each month, or part of a month, that your return is late. This penalty can reach a maximum of 25%. Filing your return as quickly as possible stops this penalty from growing.

Failure-to-Pay Penalty

The failure-to-pay penalty is 0.5% of the unpaid balance each month after the due date. Unlike the failure-to-file penalty, this charge continues until the tax is paid in full or until it reaches 25% of the unpaid taxes.

Failure-to-Deposit Penalty

If you were required to make deposits during the tax year but failed to do so, the IRS may apply a failure-to-deposit penalty:

2% for deposits 1–5 days late.
5% for deposits 6–15 days late.
10% for deposits more than 15 days late.
15% if the payment is unpaid for more than 10 days after the IRS issues a notice.

This penalty applies when deposit schedules were not followed.

Interest Charges

Interest accrues daily on unpaid taxes and penalties starting from the original due date. Rates are determined quarterly and compound until the balance is paid. Even if penalties are reduced or abated, interest typically remains unless the IRS made an error.

Example of Penalty Growth

Suppose your business owed $10,000 in withheld federal income tax for 2021 but failed to file. The failure-to-file penalty would reach $2,500 (25%), the failure-to-pay penalty would continue monthly, and daily interest would add to your overall balance. This example shows why filing quickly, even without immediate payment, helps reduce long-term costs.

Trust Fund Recovery Penalty (TFRP): What You Need to Know

The Trust Fund Recovery Penalty (TFRP) is one of the most serious consequences businesses can face when employment or withholding taxes are not paid. It exists because specific withheld amounts, such as federal income tax withholding, are considered trust funds held on behalf of the government. When those funds are not remitted, the IRS may pursue individuals directly.

What the Penalty Is and Why It Matters

The TFRP is equal to 100% of the unpaid trust fund taxes. In other words, if your business withheld federal income tax from nonpayroll payments but did not submit it, the IRS can hold you personally responsible for the entire balance. This goes beyond normal penalties and makes the liability a personal obligation.

Who Can Be Held Personally Liable

The IRS can assess the TFRP against any “responsible person.” A responsible person is anyone with the authority to manage funds, sign checks, or make financial decisions for the business. This may include:

Business owners who oversee tax compliance can be held responsible for unpaid trust fund taxes.
Corporate officers or directors who control the company’s finances may also be liable.
Bookkeepers or accountants with signature authority can face responsibility if trust fund taxes are not remitted.
Any individual who willfully fails to remit trust fund taxes may be subject to penalties.

How to Reduce Exposure or Respond

If you are at risk of a TFRP assessment, there are steps you can take to protect yourself:

File all unfiled forms immediately. Filing reduces exposure and shows cooperation.
Pay as much as possible toward the trust fund portion of the debt. The IRS focuses most heavily on these funds.
Document reasonable cause if circumstances prevented timely payment, such as illness or natural disaster.
Seek professional representation to communicate with the IRS and negotiate on your behalf.

The Trust Fund Recovery Penalty has lasting effects, including potential wage garnishments and liens against personal assets. The best way to avoid long-term financial harm is to act quickly and with proper guidance.

Resolution Options if You Can’t Pay in Full

If your 2021 Form 945 shows a balance due that you cannot immediately pay, the IRS offers several resolution options. Each option has specific eligibility requirements but aims to help taxpayers settle their obligations while avoiding harsher collection actions.

Payment Plans (Installment Agreements)

The IRS allows businesses to set up installment agreements to pay off their federal tax liability over time.

Online Payment Agreement: Available if your liability is $25,000 or less and can be paid within 24 months. Applications can be submitted online at IRS.gov.
Full Installment Agreement: This is for larger balances requiring longer repayment terms. Financial statements and a business address are required for approval.
Partial Payment Installment Agreement: This is for taxpayers who cannot pay the entire balance but can make regular monthly payments. The IRS reviews your financials before approval.

Setting up a payment plan demonstrates good faith and prevents enforced collection actions, such as bank levies.

Penalty Relief (Abatement)

The IRS may remove penalties if you qualify under certain conditions.

First-Time Abate (FTA): Available if you have filed and paid on time for the past three years. This relief can cover failure-to-file and failure-to-pay penalties.
Reasonable Cause Relief: Granted when circumstances beyond your control prevented timely filing or payment, such as serious illness, fire, or natural disaster. Documentation is required to support your claim of reasonable cause.

While penalties may be reduced, interest generally accrues until the full payment is made.

Offer in Compromise (OIC)

An OIC allows you to settle your tax debt for less than the total owed if paying in full would cause financial hardship.

Eligibility Requirements: You must be current with all filing requirements, not in bankruptcy, and up to date on current taxes.
Application Process: Submit Form 656 with financial disclosures, a $205 application fee, and an initial payment. Low-income applicants may qualify for a fee waiver.
IRS Evaluation: The IRS reviews your income, expenses, asset equity, and overall ability to pay before deciding.

An accepted OIC can significantly reduce your total amount owed, but approval is not guaranteed.

Currently Not Collectible (CNC) Status

If paying your balance would create economic hardship, you may request CNC status.

Definition: CNC status temporarily delays collection actions when your income is insufficient to cover necessary living expenses.
Requirements: You must complete Form 433-A (for individuals) or Form 433-B (for businesses), disclosing complete financial information.
Result: While the IRS halts collection activity, the debt does not disappear. Interest and penalties continue to accrue until your financial situation improves.

CNC status is best viewed as a short-term solution that provides breathing room during financial difficulty.

Real-World Case Examples

Understanding how others have handled unfiled Form 945 issues can help you see practical solutions. The following case studies show how businesses resolved their tax problems with the IRS in different situations.

Case 1: Small Consulting Firm

A consulting firm failed to file its 2021 Form 945, which reported $15,000 in backup withholding from contractor payments. Once they discovered the oversight:

They filed the delinquent annual return immediately to bring their account current.
They calculated penalties, including the failure-to-file penalty and any interest owed.
They applied for First-Time Abate relief, which removed part of their assessed penalties.
They set up a 12-month installment agreement to pay off the remaining balance.

This resolution allowed the business to pay what it owed while avoiding further collection action.

Case 2: Gambling Establishment

A small casino withheld gambling winnings but did not file Form 945 for 2021. The owner faced hospitalization during the filing period. The IRS accepted their request for reasonable cause relief after reviewing medical documentation. With penalties abated, the business was required only to pay the taxes and interest, which it managed through a payment plan.

Case 3: Retirement Plan Administrator

A pension administrator responsible for distributions from nonqualified pension plans failed to remit $100,000 in withholding. The business faced cash flow problems and applied for an Offer in Compromise (OIC). After submitting detailed financial records and demonstrating hardship, the IRS accepted a settlement for $30,000 payable over 24 months. This provided relief while ensuring compliance going forward.

These examples show that timely action, accurate documentation, and open communication with the IRS can significantly reduce penalties and financial strain.

Frequently Asked Questions

How long do I have to file my unfiled 2021 Form 945?

There is no statute of limitations on filing an unfiled IRS Form 945, which means the IRS can demand it at any time. However, penalties and interest continue to accrue until you file. Submitting the delinquent annual return as soon as possible helps stop additional failure-to-file penalties from growing and shows good faith compliance with the IRS.

Can I file Form 945 without all my records and still complete the form accurately?

Yes, you can still complete Form 945 using the best information available. Bank records, 1099s, and prior-year filings often provide enough data for an accurate annual return of withheld federal income tax. The IRS may already possess information from payors who are reporting either backup withholding or compensation that has been disbursed. Filing promptly helps stop penalties, even if corrections are necessary later.

What happens if I missed filing for multiple years?

If you failed to file Form 945 for more than one tax year, the IRS requires you to submit each delinquent return separately, beginning with the oldest year first. Penalties are calculated individually for each calendar month missed. In cases of several unfiled years, professional help is recommended to navigate compliance, arrange payment plans, and request penalty relief where available.

Can the Trust Fund Recovery Penalty be discharged in bankruptcy?

No, the Trust Fund Recovery Penalty (TFRP) cannot be eliminated through bankruptcy. Because the TFRP involves withheld federal income tax that should have been remitted, it remains collectible even after other debts are discharged. This makes it essential to address the liability directly with the IRS, whether through installment agreements, an Offer in Compromise, or documented reasonable cause relief.

How long does it take for penalty abatement to process?

The timeline varies depending on the type of relief requested. A First-Time Abate request may take 30 to 60 days, while reasonable cause claims often take 60 to 120 days due to additional review. During this time, interest continues to accrue. Providing strong documentation, such as proof of illness or natural disaster, increases the likelihood of quicker approval by the IRS.

What happens if I can’t afford to pay even with a plan?

If you cannot afford payments under any installment agreement, you may request Currently Not Collectible (CNC) status. This stops the IRS from collecting money quickly if making payments is hard on your finances. While in CNC, the debt remains active, and interest and penalties continue to build. Submitting detailed financial records is required to qualify, and the IRS reviews eligibility periodically.

What is the right business address and EIN (Employer Identification Number) for Form 945?

When you e-file or submit a paper return, the IRS requires your business address and employer identification number (EIN). These details identify your business for the annual return and ensure that federal income tax withholding is correctly applied to your account. Accurate information prevents processing delays and helps the IRS post payments to the correct record.

Frequently Asked Questions

Unfiled 2021 Form 945: How to File, Penalties, and Relief Options

Form 945, the Annual Return of Withheld Federal Income Tax, is a filing requirement that often catches small business owners off guard. Unlike payroll taxes reported on Form 941, Form 945 reports federal income tax withholding from nonpayroll payments such as pensions, gambling winnings, and IRA distributions. Because these payments are subject to tax but outside regular wages, failing to file Form 945 can create serious issues with the IRS.

Your return is considered delinquent if you did not file your 2021 Form 945 by the due date. An unfiled annual return can lead to penalties, interest, and potential enforcement actions. The longer the return remains unfiled, the more the balance grows, and in some cases, responsible individuals can even be held personally liable. Taking prompt steps to file Form 945 helps reduce your exposure to mounting federal tax liability.

This guide provides a step-by-step path to filing an unfiled 2021 Form 945 and addressing IRS concerns. You will learn to gather records, complete the form correctly, choose between electronic filing or a paper return, and explore resolution options if you cannot pay in full. By following these steps, business owners can move toward compliance and limit the financial and legal risks of leaving a return unfiled.

What Is Form 945, and Who Needs to File?

Form 945, officially called the Annual Return of Withheld Federal Income Tax, reports income taxes withheld from certain nonpayroll payments. These payments are not wages but are subject to federal income tax withholding. Filing this form ensures that the IRS receives the withheld federal income tax that your business collected from various sources throughout the tax year.

Purpose of Form 945

The purpose of Form 945 is to track and report tax withholding from payments outside traditional payroll. Businesses are responsible for collecting and submitting these funds, which belong to the federal government. Without proper filing, unpaid amounts become a federal tax liability, exposing the business to penalties and interest.

Types of Payments That Require Form 945

You must file Form 945 if your business withholds or is required to withhold federal income tax from:

This includes pensions and retirement plan distributions, such as 401(k), 403(b), and other tax-favored retirement plans.
Military retirement payments, which remain subject to withholding rules.
Gambling winnings and certain gambling winnings are reported on Form W-2G.
The article discusses Indian gaming profits and other gaming-related distributions.
When taxpayers elect withholding, there is a provision for voluntary income tax withholding on certain government payments, such as Social Security benefits.
We receive dividends from Alaska Native Corporations, where recipients request withholding.
Other nonpayroll payments include IRA distributions, nonqualified pension plans, and other distributions requiring tax withholding.

Form 945 vs. Form 941

A common point of confusion is the difference between Form 945 and Form 941. Form 941 reports compensation paid as regular wages and employment taxes each calendar quarter. By contrast, Form 945 is filed once a year to report withholding on non-payroll payments. Understanding this distinction helps businesses stay compliant and avoid misfiling.

Filing Deadlines and Late Filing Consequences

The due date for filing the 2021 Form 945 was January 31, 2022. Employers who made all required deposits on time and in full had to file by February 10, 2022. Because these dates have long passed, any unfiled return is considered late. The IRS treats an unfiled annual return as serious since it involves withheld federal income tax that should have been remitted.

Failing to file on time leads to escalating penalties. The failure-to-file penalty is generally 5% of the total unpaid tax for each month, or part of a month, that the return is late. This penalty can grow until it reaches 25% of the unpaid balance. Alongside this, the failure-to-pay penalty accrues at 0.5% of the monthly unpaid tax liability. In addition, businesses may face a failure-to-deposit penalty if tax deposits are not made on the correct schedule.

Beyond penalties, the IRS charges daily interest on taxes and penalties starting from the original due date. Interest is compounded and continues until the balance is paid in full. Missing deadlines also increases the likelihood of collection activity, including IRS notices or levies, particularly if noncompliance continues into future tax years. Filing immediately, even without immediate payment, helps stop additional penalties and demonstrates good faith with the IRS.

Step-by-Step Guide to Filing an Unfiled 2021 Form 945

Filing an unfiled 2021 Form 945 may feel overwhelming, but breaking the process into manageable steps makes it easier. Following these steps helps ensure accuracy, minimizes penalties, and brings your business back into compliance with the IRS.

Step 1: Gather Required Documentation

Before you begin, collect all records that reflect your withholding activity during the 2021 tax year. This includes:

There are records of nonpayroll payments such as pensions, IRA distributions, and gambling winnings.
Documentation of federal income tax withholding applied to these payments.
Copies of Forms 1099-MISC, 1099-NEC, 1099-R, and W-2G were issued.
The bank records show no deposits that have already been made.
Please provide the previous year's Form 945 to confirm your deposit schedules and filing history.

This information helps you complete the form accurately and avoid IRS processing delays.

Step 2: Obtain the Correct Form and Instructions

Always use IRS Form 945, specific to the year you are filing. For an unfiled 2021 return, you must use the 2021 version of Form 945 and its instructions. You can:

Download directly from the IRS Instructions for Form 945, which includes details on filing requirements, deposit rules, and how to correct errors with Form 945-X.
Request a copy by calling the IRS at 800-829-3676.
Visit a local IRS Taxpayer Assistance Center.
Access the form through approved tax software.

Using the wrong year’s form can cause misreporting and additional correspondence with the IRS.

Step 3: Complete the Form Line by Line

Carefully complete Form 945 by entering accurate figures for each section. Key entries include:

Line 1 – Federal income tax withheld: Enter amounts from pensions, tax-favored retirement plans, military retirement, and certain government payments subject to withholding.
Line 2 – Backup withholding: Report all amounts withheld for backup withholding, including gambling winnings and Indian gaming profits.
Line 3 – Total taxes: Add Lines 1 and 2 to calculate your total tax.
Line 4 – Total deposits: Enter all deposits made in 2021, including overpayments or corrections.
Line 5 – Balance due: If Line 3 exceeds Line 4, the difference represents your outstanding federal tax liability.
Line 6 – Overpayment: If deposits exceed tax liability, you may request a refund or apply it to the next calendar month.
Line 7 – Monthly summary: Complete this section if you were a semiweekly schedule depositor with a liability of $2,500 or more.

Be careful to double-check all calculations. Even small mistakes can lead to additional IRS correspondence and penalties.

Step 4: Choose the filing method.

You can file either electronically or on paper:

Electronic filing: Filing electronically is faster, reduces errors, and confirms that the IRS received your return. You can file electronically through approved software providers or authorized tax professionals. To learn more, visit the IRS E-file Employment Tax Forms page.
Paper return: If you choose a paper return, mail it to the correct IRS address for your business. The mailing address varies depending on whether you include payment.

Electronic filing is generally recommended, but both methods remain valid.

Step 5: Make Payment Arrangements

If you owe a balance, the IRS provides several payment options:

The Electronic Federal Tax Payment System (EFTPS) is a secure system that allows you to make federal tax deposits online.
You can make payments using a credit or debit card, though processing fees will apply to each transaction.
You may also pay by check or money order, which should be made payable to “United States Treasury” if you are submitting it with a paper return.
Electronic funds withdrawal is another option that can be used when you file your return electronically.

To avoid additional interest, submit payment promptly or contact the IRS to discuss reasonable cause relief or payment arrangements if you cannot make full payment immediately.

IRS Penalties and Interest for Unfiled Form 945

The IRS imposes penalties and interest when you fail to file a Form 945 annual return on time, which increases your overall federal tax liability. Understanding how these charges work helps you estimate what you owe and take corrective action sooner.

Failure-to-File Penalty

The failure-to-file penalty is usually 5% of the unpaid total amount due each month, or part of a month, that your return is late. This penalty can reach a maximum of 25%. Filing your return as quickly as possible stops this penalty from growing.

Failure-to-Pay Penalty

The failure-to-pay penalty is 0.5% of the unpaid balance each month after the due date. Unlike the failure-to-file penalty, this charge continues until the tax is paid in full or until it reaches 25% of the unpaid taxes.

Failure-to-Deposit Penalty

If you were required to make deposits during the tax year but failed to do so, the IRS may apply a failure-to-deposit penalty:

2% for deposits 1–5 days late.
5% for deposits 6–15 days late.
10% for deposits more than 15 days late.
15% if the payment is unpaid for more than 10 days after the IRS issues a notice.

This penalty applies when deposit schedules were not followed.

Interest Charges

Interest accrues daily on unpaid taxes and penalties starting from the original due date. Rates are determined quarterly and compound until the balance is paid. Even if penalties are reduced or abated, interest typically remains unless the IRS made an error.

Example of Penalty Growth

Suppose your business owed $10,000 in withheld federal income tax for 2021 but failed to file. The failure-to-file penalty would reach $2,500 (25%), the failure-to-pay penalty would continue monthly, and daily interest would add to your overall balance. This example shows why filing quickly, even without immediate payment, helps reduce long-term costs.

Trust Fund Recovery Penalty (TFRP): What You Need to Know

The Trust Fund Recovery Penalty (TFRP) is one of the most serious consequences businesses can face when employment or withholding taxes are not paid. It exists because specific withheld amounts, such as federal income tax withholding, are considered trust funds held on behalf of the government. When those funds are not remitted, the IRS may pursue individuals directly.

What the Penalty Is and Why It Matters

The TFRP is equal to 100% of the unpaid trust fund taxes. In other words, if your business withheld federal income tax from nonpayroll payments but did not submit it, the IRS can hold you personally responsible for the entire balance. This goes beyond normal penalties and makes the liability a personal obligation.

Who Can Be Held Personally Liable

The IRS can assess the TFRP against any “responsible person.” A responsible person is anyone with the authority to manage funds, sign checks, or make financial decisions for the business. This may include:

Business owners who oversee tax compliance can be held responsible for unpaid trust fund taxes.
Corporate officers or directors who control the company’s finances may also be liable.
Bookkeepers or accountants with signature authority can face responsibility if trust fund taxes are not remitted.
Any individual who willfully fails to remit trust fund taxes may be subject to penalties.

How to Reduce Exposure or Respond

If you are at risk of a TFRP assessment, there are steps you can take to protect yourself:

File all unfiled forms immediately. Filing reduces exposure and shows cooperation.
Pay as much as possible toward the trust fund portion of the debt. The IRS focuses most heavily on these funds.
Document reasonable cause if circumstances prevented timely payment, such as illness or natural disaster.
Seek professional representation to communicate with the IRS and negotiate on your behalf.

The Trust Fund Recovery Penalty has lasting effects, including potential wage garnishments and liens against personal assets. The best way to avoid long-term financial harm is to act quickly and with proper guidance.

Resolution Options if You Can’t Pay in Full

If your 2021 Form 945 shows a balance due that you cannot immediately pay, the IRS offers several resolution options. Each option has specific eligibility requirements but aims to help taxpayers settle their obligations while avoiding harsher collection actions.

Payment Plans (Installment Agreements)

The IRS allows businesses to set up installment agreements to pay off their federal tax liability over time.

Online Payment Agreement: Available if your liability is $25,000 or less and can be paid within 24 months. Applications can be submitted online at IRS.gov.
Full Installment Agreement: This is for larger balances requiring longer repayment terms. Financial statements and a business address are required for approval.
Partial Payment Installment Agreement: This is for taxpayers who cannot pay the entire balance but can make regular monthly payments. The IRS reviews your financials before approval.

Setting up a payment plan demonstrates good faith and prevents enforced collection actions, such as bank levies.

Penalty Relief (Abatement)

The IRS may remove penalties if you qualify under certain conditions.

First-Time Abate (FTA): Available if you have filed and paid on time for the past three years. This relief can cover failure-to-file and failure-to-pay penalties.
Reasonable Cause Relief: Granted when circumstances beyond your control prevented timely filing or payment, such as serious illness, fire, or natural disaster. Documentation is required to support your claim of reasonable cause.

While penalties may be reduced, interest generally accrues until the full payment is made.

Offer in Compromise (OIC)

An OIC allows you to settle your tax debt for less than the total owed if paying in full would cause financial hardship.

Eligibility Requirements: You must be current with all filing requirements, not in bankruptcy, and up to date on current taxes.
Application Process: Submit Form 656 with financial disclosures, a $205 application fee, and an initial payment. Low-income applicants may qualify for a fee waiver.
IRS Evaluation: The IRS reviews your income, expenses, asset equity, and overall ability to pay before deciding.

An accepted OIC can significantly reduce your total amount owed, but approval is not guaranteed.

Currently Not Collectible (CNC) Status

If paying your balance would create economic hardship, you may request CNC status.

Definition: CNC status temporarily delays collection actions when your income is insufficient to cover necessary living expenses.
Requirements: You must complete Form 433-A (for individuals) or Form 433-B (for businesses), disclosing complete financial information.
Result: While the IRS halts collection activity, the debt does not disappear. Interest and penalties continue to accrue until your financial situation improves.

CNC status is best viewed as a short-term solution that provides breathing room during financial difficulty.

Real-World Case Examples

Understanding how others have handled unfiled Form 945 issues can help you see practical solutions. The following case studies show how businesses resolved their tax problems with the IRS in different situations.

Case 1: Small Consulting Firm

A consulting firm failed to file its 2021 Form 945, which reported $15,000 in backup withholding from contractor payments. Once they discovered the oversight:

They filed the delinquent annual return immediately to bring their account current.
They calculated penalties, including the failure-to-file penalty and any interest owed.
They applied for First-Time Abate relief, which removed part of their assessed penalties.
They set up a 12-month installment agreement to pay off the remaining balance.

This resolution allowed the business to pay what it owed while avoiding further collection action.

Case 2: Gambling Establishment

A small casino withheld gambling winnings but did not file Form 945 for 2021. The owner faced hospitalization during the filing period. The IRS accepted their request for reasonable cause relief after reviewing medical documentation. With penalties abated, the business was required only to pay the taxes and interest, which it managed through a payment plan.

Case 3: Retirement Plan Administrator

A pension administrator responsible for distributions from nonqualified pension plans failed to remit $100,000 in withholding. The business faced cash flow problems and applied for an Offer in Compromise (OIC). After submitting detailed financial records and demonstrating hardship, the IRS accepted a settlement for $30,000 payable over 24 months. This provided relief while ensuring compliance going forward.

These examples show that timely action, accurate documentation, and open communication with the IRS can significantly reduce penalties and financial strain.

Frequently Asked Questions

How long do I have to file my unfiled 2021 Form 945?

There is no statute of limitations on filing an unfiled IRS Form 945, which means the IRS can demand it at any time. However, penalties and interest continue to accrue until you file. Submitting the delinquent annual return as soon as possible helps stop additional failure-to-file penalties from growing and shows good faith compliance with the IRS.

Can I file Form 945 without all my records and still complete the form accurately?

Yes, you can still complete Form 945 using the best information available. Bank records, 1099s, and prior-year filings often provide enough data for an accurate annual return of withheld federal income tax. The IRS may already possess information from payors who are reporting either backup withholding or compensation that has been disbursed. Filing promptly helps stop penalties, even if corrections are necessary later.

What happens if I missed filing for multiple years?

If you failed to file Form 945 for more than one tax year, the IRS requires you to submit each delinquent return separately, beginning with the oldest year first. Penalties are calculated individually for each calendar month missed. In cases of several unfiled years, professional help is recommended to navigate compliance, arrange payment plans, and request penalty relief where available.

Can the Trust Fund Recovery Penalty be discharged in bankruptcy?

No, the Trust Fund Recovery Penalty (TFRP) cannot be eliminated through bankruptcy. Because the TFRP involves withheld federal income tax that should have been remitted, it remains collectible even after other debts are discharged. This makes it essential to address the liability directly with the IRS, whether through installment agreements, an Offer in Compromise, or documented reasonable cause relief.

How long does it take for penalty abatement to process?

The timeline varies depending on the type of relief requested. A First-Time Abate request may take 30 to 60 days, while reasonable cause claims often take 60 to 120 days due to additional review. During this time, interest continues to accrue. Providing strong documentation, such as proof of illness or natural disaster, increases the likelihood of quicker approval by the IRS.

What happens if I can’t afford to pay even with a plan?

If you cannot afford payments under any installment agreement, you may request Currently Not Collectible (CNC) status. This stops the IRS from collecting money quickly if making payments is hard on your finances. While in CNC, the debt remains active, and interest and penalties continue to build. Submitting detailed financial records is required to qualify, and the IRS reviews eligibility periodically.

What is the right business address and EIN (Employer Identification Number) for Form 945?

When you e-file or submit a paper return, the IRS requires your business address and employer identification number (EIN). These details identify your business for the annual return and ensure that federal income tax withholding is correctly applied to your account. Accurate information prevents processing delays and helps the IRS post payments to the correct record.

Frequently Asked Questions

Unfiled 2021 Form 945: How to File, Penalties, and Relief Options

Form 945, the Annual Return of Withheld Federal Income Tax, is a filing requirement that often catches small business owners off guard. Unlike payroll taxes reported on Form 941, Form 945 reports federal income tax withholding from nonpayroll payments such as pensions, gambling winnings, and IRA distributions. Because these payments are subject to tax but outside regular wages, failing to file Form 945 can create serious issues with the IRS.

Your return is considered delinquent if you did not file your 2021 Form 945 by the due date. An unfiled annual return can lead to penalties, interest, and potential enforcement actions. The longer the return remains unfiled, the more the balance grows, and in some cases, responsible individuals can even be held personally liable. Taking prompt steps to file Form 945 helps reduce your exposure to mounting federal tax liability.

This guide provides a step-by-step path to filing an unfiled 2021 Form 945 and addressing IRS concerns. You will learn to gather records, complete the form correctly, choose between electronic filing or a paper return, and explore resolution options if you cannot pay in full. By following these steps, business owners can move toward compliance and limit the financial and legal risks of leaving a return unfiled.

What Is Form 945, and Who Needs to File?

Form 945, officially called the Annual Return of Withheld Federal Income Tax, reports income taxes withheld from certain nonpayroll payments. These payments are not wages but are subject to federal income tax withholding. Filing this form ensures that the IRS receives the withheld federal income tax that your business collected from various sources throughout the tax year.

Purpose of Form 945

The purpose of Form 945 is to track and report tax withholding from payments outside traditional payroll. Businesses are responsible for collecting and submitting these funds, which belong to the federal government. Without proper filing, unpaid amounts become a federal tax liability, exposing the business to penalties and interest.

Types of Payments That Require Form 945

You must file Form 945 if your business withholds or is required to withhold federal income tax from:

This includes pensions and retirement plan distributions, such as 401(k), 403(b), and other tax-favored retirement plans.
Military retirement payments, which remain subject to withholding rules.
Gambling winnings and certain gambling winnings are reported on Form W-2G.
The article discusses Indian gaming profits and other gaming-related distributions.
When taxpayers elect withholding, there is a provision for voluntary income tax withholding on certain government payments, such as Social Security benefits.
We receive dividends from Alaska Native Corporations, where recipients request withholding.
Other nonpayroll payments include IRA distributions, nonqualified pension plans, and other distributions requiring tax withholding.

Form 945 vs. Form 941

A common point of confusion is the difference between Form 945 and Form 941. Form 941 reports compensation paid as regular wages and employment taxes each calendar quarter. By contrast, Form 945 is filed once a year to report withholding on non-payroll payments. Understanding this distinction helps businesses stay compliant and avoid misfiling.

Filing Deadlines and Late Filing Consequences

The due date for filing the 2021 Form 945 was January 31, 2022. Employers who made all required deposits on time and in full had to file by February 10, 2022. Because these dates have long passed, any unfiled return is considered late. The IRS treats an unfiled annual return as serious since it involves withheld federal income tax that should have been remitted.

Failing to file on time leads to escalating penalties. The failure-to-file penalty is generally 5% of the total unpaid tax for each month, or part of a month, that the return is late. This penalty can grow until it reaches 25% of the unpaid balance. Alongside this, the failure-to-pay penalty accrues at 0.5% of the monthly unpaid tax liability. In addition, businesses may face a failure-to-deposit penalty if tax deposits are not made on the correct schedule.

Beyond penalties, the IRS charges daily interest on taxes and penalties starting from the original due date. Interest is compounded and continues until the balance is paid in full. Missing deadlines also increases the likelihood of collection activity, including IRS notices or levies, particularly if noncompliance continues into future tax years. Filing immediately, even without immediate payment, helps stop additional penalties and demonstrates good faith with the IRS.

Step-by-Step Guide to Filing an Unfiled 2021 Form 945

Filing an unfiled 2021 Form 945 may feel overwhelming, but breaking the process into manageable steps makes it easier. Following these steps helps ensure accuracy, minimizes penalties, and brings your business back into compliance with the IRS.

Step 1: Gather Required Documentation

Before you begin, collect all records that reflect your withholding activity during the 2021 tax year. This includes:

There are records of nonpayroll payments such as pensions, IRA distributions, and gambling winnings.
Documentation of federal income tax withholding applied to these payments.
Copies of Forms 1099-MISC, 1099-NEC, 1099-R, and W-2G were issued.
The bank records show no deposits that have already been made.
Please provide the previous year's Form 945 to confirm your deposit schedules and filing history.

This information helps you complete the form accurately and avoid IRS processing delays.

Step 2: Obtain the Correct Form and Instructions

Always use IRS Form 945, specific to the year you are filing. For an unfiled 2021 return, you must use the 2021 version of Form 945 and its instructions. You can:

Download directly from the IRS Instructions for Form 945, which includes details on filing requirements, deposit rules, and how to correct errors with Form 945-X.
Request a copy by calling the IRS at 800-829-3676.
Visit a local IRS Taxpayer Assistance Center.
Access the form through approved tax software.

Using the wrong year’s form can cause misreporting and additional correspondence with the IRS.

Step 3: Complete the Form Line by Line

Carefully complete Form 945 by entering accurate figures for each section. Key entries include:

Line 1 – Federal income tax withheld: Enter amounts from pensions, tax-favored retirement plans, military retirement, and certain government payments subject to withholding.
Line 2 – Backup withholding: Report all amounts withheld for backup withholding, including gambling winnings and Indian gaming profits.
Line 3 – Total taxes: Add Lines 1 and 2 to calculate your total tax.
Line 4 – Total deposits: Enter all deposits made in 2021, including overpayments or corrections.
Line 5 – Balance due: If Line 3 exceeds Line 4, the difference represents your outstanding federal tax liability.
Line 6 – Overpayment: If deposits exceed tax liability, you may request a refund or apply it to the next calendar month.
Line 7 – Monthly summary: Complete this section if you were a semiweekly schedule depositor with a liability of $2,500 or more.

Be careful to double-check all calculations. Even small mistakes can lead to additional IRS correspondence and penalties.

Step 4: Choose the filing method.

You can file either electronically or on paper:

Electronic filing: Filing electronically is faster, reduces errors, and confirms that the IRS received your return. You can file electronically through approved software providers or authorized tax professionals. To learn more, visit the IRS E-file Employment Tax Forms page.
Paper return: If you choose a paper return, mail it to the correct IRS address for your business. The mailing address varies depending on whether you include payment.

Electronic filing is generally recommended, but both methods remain valid.

Step 5: Make Payment Arrangements

If you owe a balance, the IRS provides several payment options:

The Electronic Federal Tax Payment System (EFTPS) is a secure system that allows you to make federal tax deposits online.
You can make payments using a credit or debit card, though processing fees will apply to each transaction.
You may also pay by check or money order, which should be made payable to “United States Treasury” if you are submitting it with a paper return.
Electronic funds withdrawal is another option that can be used when you file your return electronically.

To avoid additional interest, submit payment promptly or contact the IRS to discuss reasonable cause relief or payment arrangements if you cannot make full payment immediately.

IRS Penalties and Interest for Unfiled Form 945

The IRS imposes penalties and interest when you fail to file a Form 945 annual return on time, which increases your overall federal tax liability. Understanding how these charges work helps you estimate what you owe and take corrective action sooner.

Failure-to-File Penalty

The failure-to-file penalty is usually 5% of the unpaid total amount due each month, or part of a month, that your return is late. This penalty can reach a maximum of 25%. Filing your return as quickly as possible stops this penalty from growing.

Failure-to-Pay Penalty

The failure-to-pay penalty is 0.5% of the unpaid balance each month after the due date. Unlike the failure-to-file penalty, this charge continues until the tax is paid in full or until it reaches 25% of the unpaid taxes.

Failure-to-Deposit Penalty

If you were required to make deposits during the tax year but failed to do so, the IRS may apply a failure-to-deposit penalty:

2% for deposits 1–5 days late.
5% for deposits 6–15 days late.
10% for deposits more than 15 days late.
15% if the payment is unpaid for more than 10 days after the IRS issues a notice.

This penalty applies when deposit schedules were not followed.

Interest Charges

Interest accrues daily on unpaid taxes and penalties starting from the original due date. Rates are determined quarterly and compound until the balance is paid. Even if penalties are reduced or abated, interest typically remains unless the IRS made an error.

Example of Penalty Growth

Suppose your business owed $10,000 in withheld federal income tax for 2021 but failed to file. The failure-to-file penalty would reach $2,500 (25%), the failure-to-pay penalty would continue monthly, and daily interest would add to your overall balance. This example shows why filing quickly, even without immediate payment, helps reduce long-term costs.

Trust Fund Recovery Penalty (TFRP): What You Need to Know

The Trust Fund Recovery Penalty (TFRP) is one of the most serious consequences businesses can face when employment or withholding taxes are not paid. It exists because specific withheld amounts, such as federal income tax withholding, are considered trust funds held on behalf of the government. When those funds are not remitted, the IRS may pursue individuals directly.

What the Penalty Is and Why It Matters

The TFRP is equal to 100% of the unpaid trust fund taxes. In other words, if your business withheld federal income tax from nonpayroll payments but did not submit it, the IRS can hold you personally responsible for the entire balance. This goes beyond normal penalties and makes the liability a personal obligation.

Who Can Be Held Personally Liable

The IRS can assess the TFRP against any “responsible person.” A responsible person is anyone with the authority to manage funds, sign checks, or make financial decisions for the business. This may include:

Business owners who oversee tax compliance can be held responsible for unpaid trust fund taxes.
Corporate officers or directors who control the company’s finances may also be liable.
Bookkeepers or accountants with signature authority can face responsibility if trust fund taxes are not remitted.
Any individual who willfully fails to remit trust fund taxes may be subject to penalties.

How to Reduce Exposure or Respond

If you are at risk of a TFRP assessment, there are steps you can take to protect yourself:

File all unfiled forms immediately. Filing reduces exposure and shows cooperation.
Pay as much as possible toward the trust fund portion of the debt. The IRS focuses most heavily on these funds.
Document reasonable cause if circumstances prevented timely payment, such as illness or natural disaster.
Seek professional representation to communicate with the IRS and negotiate on your behalf.

The Trust Fund Recovery Penalty has lasting effects, including potential wage garnishments and liens against personal assets. The best way to avoid long-term financial harm is to act quickly and with proper guidance.

Resolution Options if You Can’t Pay in Full

If your 2021 Form 945 shows a balance due that you cannot immediately pay, the IRS offers several resolution options. Each option has specific eligibility requirements but aims to help taxpayers settle their obligations while avoiding harsher collection actions.

Payment Plans (Installment Agreements)

The IRS allows businesses to set up installment agreements to pay off their federal tax liability over time.

Online Payment Agreement: Available if your liability is $25,000 or less and can be paid within 24 months. Applications can be submitted online at IRS.gov.
Full Installment Agreement: This is for larger balances requiring longer repayment terms. Financial statements and a business address are required for approval.
Partial Payment Installment Agreement: This is for taxpayers who cannot pay the entire balance but can make regular monthly payments. The IRS reviews your financials before approval.

Setting up a payment plan demonstrates good faith and prevents enforced collection actions, such as bank levies.

Penalty Relief (Abatement)

The IRS may remove penalties if you qualify under certain conditions.

First-Time Abate (FTA): Available if you have filed and paid on time for the past three years. This relief can cover failure-to-file and failure-to-pay penalties.
Reasonable Cause Relief: Granted when circumstances beyond your control prevented timely filing or payment, such as serious illness, fire, or natural disaster. Documentation is required to support your claim of reasonable cause.

While penalties may be reduced, interest generally accrues until the full payment is made.

Offer in Compromise (OIC)

An OIC allows you to settle your tax debt for less than the total owed if paying in full would cause financial hardship.

Eligibility Requirements: You must be current with all filing requirements, not in bankruptcy, and up to date on current taxes.
Application Process: Submit Form 656 with financial disclosures, a $205 application fee, and an initial payment. Low-income applicants may qualify for a fee waiver.
IRS Evaluation: The IRS reviews your income, expenses, asset equity, and overall ability to pay before deciding.

An accepted OIC can significantly reduce your total amount owed, but approval is not guaranteed.

Currently Not Collectible (CNC) Status

If paying your balance would create economic hardship, you may request CNC status.

Definition: CNC status temporarily delays collection actions when your income is insufficient to cover necessary living expenses.
Requirements: You must complete Form 433-A (for individuals) or Form 433-B (for businesses), disclosing complete financial information.
Result: While the IRS halts collection activity, the debt does not disappear. Interest and penalties continue to accrue until your financial situation improves.

CNC status is best viewed as a short-term solution that provides breathing room during financial difficulty.

Real-World Case Examples

Understanding how others have handled unfiled Form 945 issues can help you see practical solutions. The following case studies show how businesses resolved their tax problems with the IRS in different situations.

Case 1: Small Consulting Firm

A consulting firm failed to file its 2021 Form 945, which reported $15,000 in backup withholding from contractor payments. Once they discovered the oversight:

They filed the delinquent annual return immediately to bring their account current.
They calculated penalties, including the failure-to-file penalty and any interest owed.
They applied for First-Time Abate relief, which removed part of their assessed penalties.
They set up a 12-month installment agreement to pay off the remaining balance.

This resolution allowed the business to pay what it owed while avoiding further collection action.

Case 2: Gambling Establishment

A small casino withheld gambling winnings but did not file Form 945 for 2021. The owner faced hospitalization during the filing period. The IRS accepted their request for reasonable cause relief after reviewing medical documentation. With penalties abated, the business was required only to pay the taxes and interest, which it managed through a payment plan.

Case 3: Retirement Plan Administrator

A pension administrator responsible for distributions from nonqualified pension plans failed to remit $100,000 in withholding. The business faced cash flow problems and applied for an Offer in Compromise (OIC). After submitting detailed financial records and demonstrating hardship, the IRS accepted a settlement for $30,000 payable over 24 months. This provided relief while ensuring compliance going forward.

These examples show that timely action, accurate documentation, and open communication with the IRS can significantly reduce penalties and financial strain.

Frequently Asked Questions

How long do I have to file my unfiled 2021 Form 945?

There is no statute of limitations on filing an unfiled IRS Form 945, which means the IRS can demand it at any time. However, penalties and interest continue to accrue until you file. Submitting the delinquent annual return as soon as possible helps stop additional failure-to-file penalties from growing and shows good faith compliance with the IRS.

Can I file Form 945 without all my records and still complete the form accurately?

Yes, you can still complete Form 945 using the best information available. Bank records, 1099s, and prior-year filings often provide enough data for an accurate annual return of withheld federal income tax. The IRS may already possess information from payors who are reporting either backup withholding or compensation that has been disbursed. Filing promptly helps stop penalties, even if corrections are necessary later.

What happens if I missed filing for multiple years?

If you failed to file Form 945 for more than one tax year, the IRS requires you to submit each delinquent return separately, beginning with the oldest year first. Penalties are calculated individually for each calendar month missed. In cases of several unfiled years, professional help is recommended to navigate compliance, arrange payment plans, and request penalty relief where available.

Can the Trust Fund Recovery Penalty be discharged in bankruptcy?

No, the Trust Fund Recovery Penalty (TFRP) cannot be eliminated through bankruptcy. Because the TFRP involves withheld federal income tax that should have been remitted, it remains collectible even after other debts are discharged. This makes it essential to address the liability directly with the IRS, whether through installment agreements, an Offer in Compromise, or documented reasonable cause relief.

How long does it take for penalty abatement to process?

The timeline varies depending on the type of relief requested. A First-Time Abate request may take 30 to 60 days, while reasonable cause claims often take 60 to 120 days due to additional review. During this time, interest continues to accrue. Providing strong documentation, such as proof of illness or natural disaster, increases the likelihood of quicker approval by the IRS.

What happens if I can’t afford to pay even with a plan?

If you cannot afford payments under any installment agreement, you may request Currently Not Collectible (CNC) status. This stops the IRS from collecting money quickly if making payments is hard on your finances. While in CNC, the debt remains active, and interest and penalties continue to build. Submitting detailed financial records is required to qualify, and the IRS reviews eligibility periodically.

What is the right business address and EIN (Employer Identification Number) for Form 945?

When you e-file or submit a paper return, the IRS requires your business address and employer identification number (EIN). These details identify your business for the annual return and ensure that federal income tax withholding is correctly applied to your account. Accurate information prevents processing delays and helps the IRS post payments to the correct record.

Frequently Asked Questions

Unfiled 2021 Form 945: How to File, Penalties, and Relief Options

Form 945, the Annual Return of Withheld Federal Income Tax, is a filing requirement that often catches small business owners off guard. Unlike payroll taxes reported on Form 941, Form 945 reports federal income tax withholding from nonpayroll payments such as pensions, gambling winnings, and IRA distributions. Because these payments are subject to tax but outside regular wages, failing to file Form 945 can create serious issues with the IRS.

Your return is considered delinquent if you did not file your 2021 Form 945 by the due date. An unfiled annual return can lead to penalties, interest, and potential enforcement actions. The longer the return remains unfiled, the more the balance grows, and in some cases, responsible individuals can even be held personally liable. Taking prompt steps to file Form 945 helps reduce your exposure to mounting federal tax liability.

This guide provides a step-by-step path to filing an unfiled 2021 Form 945 and addressing IRS concerns. You will learn to gather records, complete the form correctly, choose between electronic filing or a paper return, and explore resolution options if you cannot pay in full. By following these steps, business owners can move toward compliance and limit the financial and legal risks of leaving a return unfiled.

What Is Form 945, and Who Needs to File?

Form 945, officially called the Annual Return of Withheld Federal Income Tax, reports income taxes withheld from certain nonpayroll payments. These payments are not wages but are subject to federal income tax withholding. Filing this form ensures that the IRS receives the withheld federal income tax that your business collected from various sources throughout the tax year.

Purpose of Form 945

The purpose of Form 945 is to track and report tax withholding from payments outside traditional payroll. Businesses are responsible for collecting and submitting these funds, which belong to the federal government. Without proper filing, unpaid amounts become a federal tax liability, exposing the business to penalties and interest.

Types of Payments That Require Form 945

You must file Form 945 if your business withholds or is required to withhold federal income tax from:

This includes pensions and retirement plan distributions, such as 401(k), 403(b), and other tax-favored retirement plans.
Military retirement payments, which remain subject to withholding rules.
Gambling winnings and certain gambling winnings are reported on Form W-2G.
The article discusses Indian gaming profits and other gaming-related distributions.
When taxpayers elect withholding, there is a provision for voluntary income tax withholding on certain government payments, such as Social Security benefits.
We receive dividends from Alaska Native Corporations, where recipients request withholding.
Other nonpayroll payments include IRA distributions, nonqualified pension plans, and other distributions requiring tax withholding.

Form 945 vs. Form 941

A common point of confusion is the difference between Form 945 and Form 941. Form 941 reports compensation paid as regular wages and employment taxes each calendar quarter. By contrast, Form 945 is filed once a year to report withholding on non-payroll payments. Understanding this distinction helps businesses stay compliant and avoid misfiling.

Filing Deadlines and Late Filing Consequences

The due date for filing the 2021 Form 945 was January 31, 2022. Employers who made all required deposits on time and in full had to file by February 10, 2022. Because these dates have long passed, any unfiled return is considered late. The IRS treats an unfiled annual return as serious since it involves withheld federal income tax that should have been remitted.

Failing to file on time leads to escalating penalties. The failure-to-file penalty is generally 5% of the total unpaid tax for each month, or part of a month, that the return is late. This penalty can grow until it reaches 25% of the unpaid balance. Alongside this, the failure-to-pay penalty accrues at 0.5% of the monthly unpaid tax liability. In addition, businesses may face a failure-to-deposit penalty if tax deposits are not made on the correct schedule.

Beyond penalties, the IRS charges daily interest on taxes and penalties starting from the original due date. Interest is compounded and continues until the balance is paid in full. Missing deadlines also increases the likelihood of collection activity, including IRS notices or levies, particularly if noncompliance continues into future tax years. Filing immediately, even without immediate payment, helps stop additional penalties and demonstrates good faith with the IRS.

Step-by-Step Guide to Filing an Unfiled 2021 Form 945

Filing an unfiled 2021 Form 945 may feel overwhelming, but breaking the process into manageable steps makes it easier. Following these steps helps ensure accuracy, minimizes penalties, and brings your business back into compliance with the IRS.

Step 1: Gather Required Documentation

Before you begin, collect all records that reflect your withholding activity during the 2021 tax year. This includes:

There are records of nonpayroll payments such as pensions, IRA distributions, and gambling winnings.
Documentation of federal income tax withholding applied to these payments.
Copies of Forms 1099-MISC, 1099-NEC, 1099-R, and W-2G were issued.
The bank records show no deposits that have already been made.
Please provide the previous year's Form 945 to confirm your deposit schedules and filing history.

This information helps you complete the form accurately and avoid IRS processing delays.

Step 2: Obtain the Correct Form and Instructions

Always use IRS Form 945, specific to the year you are filing. For an unfiled 2021 return, you must use the 2021 version of Form 945 and its instructions. You can:

Download directly from the IRS Instructions for Form 945, which includes details on filing requirements, deposit rules, and how to correct errors with Form 945-X.
Request a copy by calling the IRS at 800-829-3676.
Visit a local IRS Taxpayer Assistance Center.
Access the form through approved tax software.

Using the wrong year’s form can cause misreporting and additional correspondence with the IRS.

Step 3: Complete the Form Line by Line

Carefully complete Form 945 by entering accurate figures for each section. Key entries include:

Line 1 – Federal income tax withheld: Enter amounts from pensions, tax-favored retirement plans, military retirement, and certain government payments subject to withholding.
Line 2 – Backup withholding: Report all amounts withheld for backup withholding, including gambling winnings and Indian gaming profits.
Line 3 – Total taxes: Add Lines 1 and 2 to calculate your total tax.
Line 4 – Total deposits: Enter all deposits made in 2021, including overpayments or corrections.
Line 5 – Balance due: If Line 3 exceeds Line 4, the difference represents your outstanding federal tax liability.
Line 6 – Overpayment: If deposits exceed tax liability, you may request a refund or apply it to the next calendar month.
Line 7 – Monthly summary: Complete this section if you were a semiweekly schedule depositor with a liability of $2,500 or more.

Be careful to double-check all calculations. Even small mistakes can lead to additional IRS correspondence and penalties.

Step 4: Choose the filing method.

You can file either electronically or on paper:

Electronic filing: Filing electronically is faster, reduces errors, and confirms that the IRS received your return. You can file electronically through approved software providers or authorized tax professionals. To learn more, visit the IRS E-file Employment Tax Forms page.
Paper return: If you choose a paper return, mail it to the correct IRS address for your business. The mailing address varies depending on whether you include payment.

Electronic filing is generally recommended, but both methods remain valid.

Step 5: Make Payment Arrangements

If you owe a balance, the IRS provides several payment options:

The Electronic Federal Tax Payment System (EFTPS) is a secure system that allows you to make federal tax deposits online.
You can make payments using a credit or debit card, though processing fees will apply to each transaction.
You may also pay by check or money order, which should be made payable to “United States Treasury” if you are submitting it with a paper return.
Electronic funds withdrawal is another option that can be used when you file your return electronically.

To avoid additional interest, submit payment promptly or contact the IRS to discuss reasonable cause relief or payment arrangements if you cannot make full payment immediately.

IRS Penalties and Interest for Unfiled Form 945

The IRS imposes penalties and interest when you fail to file a Form 945 annual return on time, which increases your overall federal tax liability. Understanding how these charges work helps you estimate what you owe and take corrective action sooner.

Failure-to-File Penalty

The failure-to-file penalty is usually 5% of the unpaid total amount due each month, or part of a month, that your return is late. This penalty can reach a maximum of 25%. Filing your return as quickly as possible stops this penalty from growing.

Failure-to-Pay Penalty

The failure-to-pay penalty is 0.5% of the unpaid balance each month after the due date. Unlike the failure-to-file penalty, this charge continues until the tax is paid in full or until it reaches 25% of the unpaid taxes.

Failure-to-Deposit Penalty

If you were required to make deposits during the tax year but failed to do so, the IRS may apply a failure-to-deposit penalty:

2% for deposits 1–5 days late.
5% for deposits 6–15 days late.
10% for deposits more than 15 days late.
15% if the payment is unpaid for more than 10 days after the IRS issues a notice.

This penalty applies when deposit schedules were not followed.

Interest Charges

Interest accrues daily on unpaid taxes and penalties starting from the original due date. Rates are determined quarterly and compound until the balance is paid. Even if penalties are reduced or abated, interest typically remains unless the IRS made an error.

Example of Penalty Growth

Suppose your business owed $10,000 in withheld federal income tax for 2021 but failed to file. The failure-to-file penalty would reach $2,500 (25%), the failure-to-pay penalty would continue monthly, and daily interest would add to your overall balance. This example shows why filing quickly, even without immediate payment, helps reduce long-term costs.

Trust Fund Recovery Penalty (TFRP): What You Need to Know

The Trust Fund Recovery Penalty (TFRP) is one of the most serious consequences businesses can face when employment or withholding taxes are not paid. It exists because specific withheld amounts, such as federal income tax withholding, are considered trust funds held on behalf of the government. When those funds are not remitted, the IRS may pursue individuals directly.

What the Penalty Is and Why It Matters

The TFRP is equal to 100% of the unpaid trust fund taxes. In other words, if your business withheld federal income tax from nonpayroll payments but did not submit it, the IRS can hold you personally responsible for the entire balance. This goes beyond normal penalties and makes the liability a personal obligation.

Who Can Be Held Personally Liable

The IRS can assess the TFRP against any “responsible person.” A responsible person is anyone with the authority to manage funds, sign checks, or make financial decisions for the business. This may include:

Business owners who oversee tax compliance can be held responsible for unpaid trust fund taxes.
Corporate officers or directors who control the company’s finances may also be liable.
Bookkeepers or accountants with signature authority can face responsibility if trust fund taxes are not remitted.
Any individual who willfully fails to remit trust fund taxes may be subject to penalties.

How to Reduce Exposure or Respond

If you are at risk of a TFRP assessment, there are steps you can take to protect yourself:

File all unfiled forms immediately. Filing reduces exposure and shows cooperation.
Pay as much as possible toward the trust fund portion of the debt. The IRS focuses most heavily on these funds.
Document reasonable cause if circumstances prevented timely payment, such as illness or natural disaster.
Seek professional representation to communicate with the IRS and negotiate on your behalf.

The Trust Fund Recovery Penalty has lasting effects, including potential wage garnishments and liens against personal assets. The best way to avoid long-term financial harm is to act quickly and with proper guidance.

Resolution Options if You Can’t Pay in Full

If your 2021 Form 945 shows a balance due that you cannot immediately pay, the IRS offers several resolution options. Each option has specific eligibility requirements but aims to help taxpayers settle their obligations while avoiding harsher collection actions.

Payment Plans (Installment Agreements)

The IRS allows businesses to set up installment agreements to pay off their federal tax liability over time.

Online Payment Agreement: Available if your liability is $25,000 or less and can be paid within 24 months. Applications can be submitted online at IRS.gov.
Full Installment Agreement: This is for larger balances requiring longer repayment terms. Financial statements and a business address are required for approval.
Partial Payment Installment Agreement: This is for taxpayers who cannot pay the entire balance but can make regular monthly payments. The IRS reviews your financials before approval.

Setting up a payment plan demonstrates good faith and prevents enforced collection actions, such as bank levies.

Penalty Relief (Abatement)

The IRS may remove penalties if you qualify under certain conditions.

First-Time Abate (FTA): Available if you have filed and paid on time for the past three years. This relief can cover failure-to-file and failure-to-pay penalties.
Reasonable Cause Relief: Granted when circumstances beyond your control prevented timely filing or payment, such as serious illness, fire, or natural disaster. Documentation is required to support your claim of reasonable cause.

While penalties may be reduced, interest generally accrues until the full payment is made.

Offer in Compromise (OIC)

An OIC allows you to settle your tax debt for less than the total owed if paying in full would cause financial hardship.

Eligibility Requirements: You must be current with all filing requirements, not in bankruptcy, and up to date on current taxes.
Application Process: Submit Form 656 with financial disclosures, a $205 application fee, and an initial payment. Low-income applicants may qualify for a fee waiver.
IRS Evaluation: The IRS reviews your income, expenses, asset equity, and overall ability to pay before deciding.

An accepted OIC can significantly reduce your total amount owed, but approval is not guaranteed.

Currently Not Collectible (CNC) Status

If paying your balance would create economic hardship, you may request CNC status.

Definition: CNC status temporarily delays collection actions when your income is insufficient to cover necessary living expenses.
Requirements: You must complete Form 433-A (for individuals) or Form 433-B (for businesses), disclosing complete financial information.
Result: While the IRS halts collection activity, the debt does not disappear. Interest and penalties continue to accrue until your financial situation improves.

CNC status is best viewed as a short-term solution that provides breathing room during financial difficulty.

Real-World Case Examples

Understanding how others have handled unfiled Form 945 issues can help you see practical solutions. The following case studies show how businesses resolved their tax problems with the IRS in different situations.

Case 1: Small Consulting Firm

A consulting firm failed to file its 2021 Form 945, which reported $15,000 in backup withholding from contractor payments. Once they discovered the oversight:

They filed the delinquent annual return immediately to bring their account current.
They calculated penalties, including the failure-to-file penalty and any interest owed.
They applied for First-Time Abate relief, which removed part of their assessed penalties.
They set up a 12-month installment agreement to pay off the remaining balance.

This resolution allowed the business to pay what it owed while avoiding further collection action.

Case 2: Gambling Establishment

A small casino withheld gambling winnings but did not file Form 945 for 2021. The owner faced hospitalization during the filing period. The IRS accepted their request for reasonable cause relief after reviewing medical documentation. With penalties abated, the business was required only to pay the taxes and interest, which it managed through a payment plan.

Case 3: Retirement Plan Administrator

A pension administrator responsible for distributions from nonqualified pension plans failed to remit $100,000 in withholding. The business faced cash flow problems and applied for an Offer in Compromise (OIC). After submitting detailed financial records and demonstrating hardship, the IRS accepted a settlement for $30,000 payable over 24 months. This provided relief while ensuring compliance going forward.

These examples show that timely action, accurate documentation, and open communication with the IRS can significantly reduce penalties and financial strain.

Frequently Asked Questions

How long do I have to file my unfiled 2021 Form 945?

There is no statute of limitations on filing an unfiled IRS Form 945, which means the IRS can demand it at any time. However, penalties and interest continue to accrue until you file. Submitting the delinquent annual return as soon as possible helps stop additional failure-to-file penalties from growing and shows good faith compliance with the IRS.

Can I file Form 945 without all my records and still complete the form accurately?

Yes, you can still complete Form 945 using the best information available. Bank records, 1099s, and prior-year filings often provide enough data for an accurate annual return of withheld federal income tax. The IRS may already possess information from payors who are reporting either backup withholding or compensation that has been disbursed. Filing promptly helps stop penalties, even if corrections are necessary later.

What happens if I missed filing for multiple years?

If you failed to file Form 945 for more than one tax year, the IRS requires you to submit each delinquent return separately, beginning with the oldest year first. Penalties are calculated individually for each calendar month missed. In cases of several unfiled years, professional help is recommended to navigate compliance, arrange payment plans, and request penalty relief where available.

Can the Trust Fund Recovery Penalty be discharged in bankruptcy?

No, the Trust Fund Recovery Penalty (TFRP) cannot be eliminated through bankruptcy. Because the TFRP involves withheld federal income tax that should have been remitted, it remains collectible even after other debts are discharged. This makes it essential to address the liability directly with the IRS, whether through installment agreements, an Offer in Compromise, or documented reasonable cause relief.

How long does it take for penalty abatement to process?

The timeline varies depending on the type of relief requested. A First-Time Abate request may take 30 to 60 days, while reasonable cause claims often take 60 to 120 days due to additional review. During this time, interest continues to accrue. Providing strong documentation, such as proof of illness or natural disaster, increases the likelihood of quicker approval by the IRS.

What happens if I can’t afford to pay even with a plan?

If you cannot afford payments under any installment agreement, you may request Currently Not Collectible (CNC) status. This stops the IRS from collecting money quickly if making payments is hard on your finances. While in CNC, the debt remains active, and interest and penalties continue to build. Submitting detailed financial records is required to qualify, and the IRS reviews eligibility periodically.

What is the right business address and EIN (Employer Identification Number) for Form 945?

When you e-file or submit a paper return, the IRS requires your business address and employer identification number (EIN). These details identify your business for the annual return and ensure that federal income tax withholding is correctly applied to your account. Accurate information prevents processing delays and helps the IRS post payments to the correct record.

Unfiled 2021 Form 945: How to File, Penalties, and Relief Options

What Is Form 945, and Who Needs to File?

Purpose of Form 945

Types of Payments That Require Form 945

Form 945 vs. Form 941

Filing Deadlines and Late Filing Consequences

Step-by-Step Guide to Filing an Unfiled 2021 Form 945

Step 1: Gather Required Documentation

Step 2: Obtain the Correct Form and Instructions

Step 3: Complete the Form Line by Line

Step 4: Choose the filing method.

Step 5: Make Payment Arrangements

IRS Penalties and Interest for Unfiled Form 945

Failure-to-File Penalty

Failure-to-Pay Penalty

Failure-to-Deposit Penalty

Interest Charges

Example of Penalty Growth

Trust Fund Recovery Penalty (TFRP): What You Need to Know

What the Penalty Is and Why It Matters

Who Can Be Held Personally Liable

How to Reduce Exposure or Respond

Resolution Options if You Can’t Pay in Full

Payment Plans (Installment Agreements)

Penalty Relief (Abatement)

Offer in Compromise (OIC)

Currently Not Collectible (CNC) Status

Real-World Case Examples

Case 1: Small Consulting Firm

Case 2: Gambling Establishment

Case 3: Retirement Plan Administrator

Frequently Asked Questions

How long do I have to file my unfiled 2021 Form 945?

Can I file Form 945 without all my records and still complete the form accurately?

What happens if I missed filing for multiple years?

Can the Trust Fund Recovery Penalty be discharged in bankruptcy?

How long does it take for penalty abatement to process?

What happens if I can’t afford to pay even with a plan?

What is the right business address and EIN (Employer Identification Number) for Form 945?

Frequently Asked Questions

Related Articles

Unfiled 2021 Form 945: How to File, Penalties, and Relief Options

What Is Form 945, and Who Needs to File?

Purpose of Form 945

Types of Payments That Require Form 945

Form 945 vs. Form 941

Filing Deadlines and Late Filing Consequences

Step-by-Step Guide to Filing an Unfiled 2021 Form 945

Step 1: Gather Required Documentation

Step 2: Obtain the Correct Form and Instructions

Step 3: Complete the Form Line by Line

Step 4: Choose the filing method.

Step 5: Make Payment Arrangements

IRS Penalties and Interest for Unfiled Form 945

Failure-to-File Penalty

Failure-to-Pay Penalty

Failure-to-Deposit Penalty

Interest Charges

Example of Penalty Growth

Trust Fund Recovery Penalty (TFRP): What You Need to Know

What the Penalty Is and Why It Matters

Who Can Be Held Personally Liable

How to Reduce Exposure or Respond

Resolution Options if You Can’t Pay in Full

Payment Plans (Installment Agreements)

Penalty Relief (Abatement)

Offer in Compromise (OIC)

Currently Not Collectible (CNC) Status

Real-World Case Examples

Case 1: Small Consulting Firm

Case 2: Gambling Establishment

Case 3: Retirement Plan Administrator

Frequently Asked Questions

How long do I have to file my unfiled 2021 Form 945?

Can I file Form 945 without all my records and still complete the form accurately?

What happens if I missed filing for multiple years?

Can the Trust Fund Recovery Penalty be discharged in bankruptcy?

How long does it take for penalty abatement to process?

What happens if I can’t afford to pay even with a plan?

What is the right business address and EIN (Employer Identification Number) for Form 945?