43-Hour Federal Qualifying Education Practice Test 2025 - Free Federal Education Practice Questions and Study Guide

Question: 1 / 400

What is the penalty for failure to deposit employment taxes on time for small businesses?

A. 1%

B. 3%

C. 5%

When small businesses fail to deposit employment taxes on time, the penalty imposed by the Internal Revenue Service (IRS) is typically 5% of the unpaid tax amount for each month or part of a month that the deposit is late, up to a maximum of 25%. This penalty is calculated based on the total amount of employment taxes due and increases progressively, meaning that the longer the delay in payment, the higher the total penalty will be.

In addition, the IRS implements penalties to encourage prompt payment, reflecting the importance of timely compliance in managing federal tax obligations. Understanding this penalty structure is critical for small business owners, as failing to comply with tax regulations could lead to significant financial burden and affect the overall health of the business.

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D. 10%

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