Can You Go to Jail for Unpaid Payroll Taxes?

The Internal Revenue Service requires employers to withhold from their employees' paychecks federal income taxes and contributions to Medicare and Social Security. The employer then is responsible for sending this money, along with the appropriate tax forms, to the IRS. If the employer fails to make the payment on time, or simply does not make the payment, the IRS can impose penalties such as fines and jail time, in addition to requiring payment of the taxes due.

Deposit Penalties

The IRS can impose a penalty if the deposit is not made on time or if the deposit is for less than the correct amount. The IRS might allow an exception if the personnel responsible for making the deposit can show the error occurred because of a death or serious illness, a civil disturbance or a natural disaster that affected the company. Cash penalties can range from 2 percent to 15 percent of the tax due, based on the number of days the payment is late. The IRS uses calendar days to calculate the penalty, starting from the date the payment was due.

Criminal Penalties

The IRS generally doesn't pursue criminal penalties unless the case involves several millions of dollars of unpaid taxes. The IRS can charge several people, including the company owners and accountants. Based on the facts of the case, the result can be large financial penalties -- in the millions -- plus jail time. For instance, a Miami businessman was fined more than $300,000 and sentenced to two years in prison in 2010 for underpayment of his federal employment taxes.