IRS CP276B Notice – Federal Tax Deposit Penalty

Getting a CP276B notice from the IRS can cause immediate concern. This notice means the IRS identified an issue with your employment tax deposits, usually related to payroll taxes such as federal income tax, social security, or Medicare taxes withheld from employees. While it often arrives as a first notice with the penalty waived, it signals that your deposits were not made correctly or on time.

The notice matters because it serves as a warning about your deposit practices. Even though the penalty may not apply this time, future mistakes can trigger serious consequences. These range from a deposit penalty and failure to pay penalty to additional charges where interest compounds daily on any outstanding balance. Left unresolved, unpaid tax amounts may proliferate and create larger problems for your business or personal account.

Understanding the CP276B notice is essential for taxpayers who want to avoid penalties and interest. Reviewing your payment history, tax liability, and due dates helps ensure deposits are correctly made. Taking steps now, such as setting up a payment plan or installment agreement, can help you pay taxes on time and reduce the risk of further IRS notices.
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What is a CP276B Notice?

The CP276B notice is a formal letter from the IRS alerting taxpayers to problems with employment tax deposits. It typically applies to payroll tax deposits covering federal income tax withholdings, social security, and Medicare taxes. The notice is not always immediately tied to a penalty, but it signals that the IRS monitors your account closely.

Important details taxpayers should know:

• Courtesy warning: The IRS often issues this type of notice as an initial warning to alert you that a deposit mistake occurred. In many cases, the agency chooses to waive the penalty this time, but the notice serves as a reminder to correct errors before they become costly.
  
  
• Employment tax deposits: This warning applies to payroll taxes that employers legally must withhold from employee wages and deposit on schedule. Since these funds belong to employees, the IRS monitors them closely and seriously treats missed deposits.
  
  
• Deposit errors: The problem noted in the notice could stem from a late deposit, a short payment, or even using the wrong deposit method. These errors can trigger a compliance flag even if the amount owed is small.
  
  
• Future consequences: If the issue occurs again, the IRS may assess a deposit penalty ranging from 2% to 15% of the unpaid amount. Interest then compounds daily until the full balance is paid, making the cost of repeated mistakes much higher.
  
  
• Record keeping: Taxpayers should keep the notice on file as part of their compliance history and review all prior deposits for accuracy. Confirming that deposits are being scheduled and processed correctly is also wise to avoid repeated errors.

[Related IRS Form Pages]

Why the CP276B Notice Matters

Ignoring a CP276B notice can lead to escalating problems with the IRS. Even if no penalty was assessed this time, the notice signals your account is being watched and that future mistakes could trigger serious financial consequences.

Consequences of not addressing the notice:

• Deposit penalty: If payroll or other required deposits are late or missed, the IRS can impose penalties ranging from 2% to 15% of the unpaid tax. The exact percentage depends on how many business days have passed since the deposit deadline, so even small delays can become costly. Repeated late deposits can signal non-compliance and invite closer scrutiny.
  
  
• Failure to pay penalty: If the tax balance is not fully resolved, the IRS adds a “failure to pay” penalty that grows with every month of nonpayment. This penalty continues until the balance is satisfied, creating a growing financial burden for your business.
  
  
• Penalties and interest: In addition to fixed penalties, interest accrues daily on unpaid tax and penalties. This compounding effect means a relatively small unpaid balance can snowball into a much larger debt if not addressed promptly.
  
  
• Liens and levies: The IRS has broad authority to secure payment through liens and levies. A lien may be placed against business or personal property, which becomes a public record and damages creditworthiness. A levy can freeze bank accounts, seize cash, or redirect incoming payments, making it difficult to manage operations.
  
  
• Locked padlock icon: In extreme cases, the IRS may take the drastic step of padlocking a business, seizing assets, and halting operations. This action effectively shuts the doors until debts are resolved, jeopardizing the company’s survival and employee livelihoods.
  
  
• Audit risk: Businesses that repeatedly miss deposits or underpay payroll taxes may be flagged for additional review. This increases the likelihood of an IRS audit, more frequent notices, and heightened monitoring of future filings and deposits.

Step-by-Step Relief Options

Taxpayers who receive a CP276B notice still have several ways to resolve issues and prevent penalties from growing. Acting quickly helps reduce the risk of additional IRS notices, higher penalty amounts, and compounding interest.

Step 1: Review your IRS account and payment history

• Request transcripts: Taxpayers can request transcripts online, by mail, or by phone to see detailed records of deposits, penalties, and interest.
  
  
• Check payment history: Reviewing your past deposits shows whether tax deposits were applied correctly and if any unpaid tax remains.
  
  
• Confirm tax liability: Comparing transcripts with payroll records ensures the tax owed matches payroll activity.
  
  
• Look for errors: Mistakes in reporting or late filing can trigger incorrect penalty assessments.

Step 2: Establish a payment plan or installment agreement

• Short-term payment plan: This option covers balances that can be paid in 120 calendar days or less, often without setup fees.
  
  
• Long-term installment agreement: The IRS allows monthly scheduled payments with fees based on how you pay for larger tax owed balances.
  
  
• Partial payment agreement: If you cannot pay the full amount, the IRS may accept reduced payments over time, though interest compounds daily.
  
  
• Eligibility factors: Your outstanding balance, income, and payment history affect which plan you can qualify for.

Step 3: Consider an offer in compromise for financial hardship

• Settle for less: An Offer in Compromise gives taxpayers experiencing genuine financial hardship the chance to settle their tax debt for less than the full amount owed. This program is a last-resort option for those who cannot realistically pay in full.
  
  
• Eligibility tests: The IRS carefully reviews your income, necessary living expenses, assets, and overall ability to pay taxes before deciding on approval. Only taxpayers who demonstrate that full payment is unlikely or impossible will qualify.
  
  
• Reasonable cause: Applicants must show that paying the balance would cause unfair or unreasonable financial strain. This includes situations where collecting the full amount would prevent taxpayers from meeting basic living needs.
  
  
• Application process: Submitting Form 656 and all required supporting documentation and application fees officially starts the process. Reviews may take several months, and the IRS may request additional information before making a final decision.

Step 4: Request penalty relief and first-time penalty abatement

• Penalty abatement: The IRS may remove penalties if you show reasonable cause, such as a natural disaster, serious illness, or inability to access funds.
  
  
• First-time penalty abatement: Taxpayers with a clean compliance record may qualify for one-time penalty relief without proving reasonable cause.
  
  
• Supporting documents: Records such as medical notes, disaster declarations, or IRS correspondence strengthen requests.
  
  
• Form submission: Filing Form 843 is the standard way to request penalty relief.

Step 5: Seek professional guidance

• Tax professional help: Enrolled agents, CPAs, and tax attorneys can negotiate with the IRS and guide you through complex cases.
  
  
• Handle multiple years: Professionals are invaluable if penalties cover more than one quarter or calendar year.
  
  
• Address IRS notices: A representative can confirm the correct IRS address for correspondence and manage deadlines on your behalf.
  
  
• Avoid errors: Guidance from a professional helps ensure payments, forms, and filings are completed correctly the first time.

Preventing Future CP276B Notices

Once a taxpayer receives a CP276B notice, strengthening payroll tax procedures is essential to avoid another warning or penalty. Preventive steps help reduce the chance of new IRS notices, keep tax deposits accurate, and prevent penalties and interest from accumulating.

Ways to improve compliance and avoid penalties:

• Accurate record keeping: Employers should track wages, tax withholdings, and every deposit to confirm payments match actual payroll tax liability.
  
  
• Timely tax deposits: Deposits must be made by the due date or the next business day when a legal holiday falls on the deadline.
  
  
• Use the EFTPS system: Making deposits through the Electronic Federal Tax Payment System provides confirmation and helps avoid late filing.
  
  
• Set reminders: Using calendar days, email notifications, or accounting software ensures payroll tax deposits are not missed.
  
  
• Reconcile quarterly: Comparing payroll records with IRS transcripts each quarter helps confirm deposits are applied correctly.
  
  
• Check estimated payments: Verifying schedules reduces the risk of unpaid tax or penalties for taxpayers who make estimated tax or income tax payments.
  
  
• Monitor your IRS account: Logging in regularly allows taxpayers to check balances, confirm payments, and identify issues early.

Frequently Asked Questions

Do I need to respond to a CP276B notice?

No immediate response is required because the IRS usually waives the penalty the first time. However, taxpayers should review payroll tax deposits, payment history, and tax liability to confirm compliance. Keeping the notice on file and adjusting now helps avoid penalties and interest if future deposits are late or inaccurate.

What happens if I don’t have enough money to pay?

If you cannot pay the full amount, you may qualify for a payment plan or installment agreement. The IRS allows taxpayers to schedule payments based on financial hardship. Acting quickly helps avoid penalties and interest since interest compounds daily until the balance is satisfied. Always contact the IRS before missing a due date.

Will penalties keep growing if I don’t pay the full amount?

If the balance remains unpaid, penalties and interest continue to add up. Interest compounds daily, and the IRS charges additional fees, such as a failure-to-pay penalty. Even a small outstanding balance can grow into a significant debt if ignored. For this reason, requesting relief options or scheduling payments is crucial.

Can I qualify for first-time penalty abatement?

Taxpayers with a clean compliance record may qualify for first-time penalty abatement. This one-time relief option can remove penalties without needing to prove reasonable cause. It applies when prior tax returns were filed on time and all other payments are current. Requesting an abatement promptly helps reduce the penalty and avoid unnecessary financial stress.

What if my tax return was filed late because of a natural disaster?

The IRS considers events like natural disasters, illnesses, or circumstances beyond your control as reasonable cause for penalty relief. You may request penalty abatement by providing documentation, such as disaster declarations or medical records. Filing Form 843 or contacting the IRS helps you demonstrate your situation and seek penalty removal.

Can I change my payment plan if my income changes?

If your financial situation changes, you can request to modify an existing installment agreement. The IRS may adjust monthly schedule payments, extend the calendar year period, or explore other relief options. Contacting the IRS early is essential to avoid penalties or default. A tax professional can also help negotiate reasonable terms on your behalf.

How do I know which IRS address to use when mailing forms?

The correct IRS address depends on the type of form you are filing and your location. Each form page on IRS.gov lists the mailing address based on the state and the balance due. Double-checking the form instructions before sending avoids processing delays. If uncertain, taxpayers should request confirmation directly from the IRS or consult a tax professional.