It happens all the time. An Employer has many responsibilities and burdens. And when a business begins to hire employees, more fun ensues. There are many requirements for reporting wages and filing taxes. Most employers can hire a company to handle these types of matters or purchase software to aid the employer in filing and paying payroll taxes. Yet of the most common problems among employers is their constant disregard for this area. In fact it has become epidemic. The typical scenario is an employer is running short of money. So the decision is made to pay for rent and employee paychecks but not remit payroll taxes. This is a serious error and here is why.
Two types of Payroll Taxes
There are two types of payroll taxes that must be paid regularly in accordance to various IRS rules which must be followed. I tell employers to always pay payroll taxes following the end of a pay period. This insures them of not incurring late paying penalties which are themselves large and punitive. The first portion of payroll taxes which must be remitted are the employee’s withholding. This represents the amount taxes you the employer withheld from their paycheck. An employer issues a “net” check which is the employee’s gross pay less the employee’s portion of their tax obligation. These taxes are federal income tax as well as social security tax and medicare taxes. These taxes are known as trust fund taxes as the employee is allowing you to hold them on their behalf to be paid by you to the IRS on their behalf. The second form of payroll taxes are known as employer taxes. These are simply social security taxes, medicare taxes, and unemployment taxes.
The nonpayment of these taxes will threaten the existence of the employer’s future. The good news is that the IRS will work with employers to correct the mistake. The process is straight forward and will generally involve working with the IRS to develop a repayment plan. It is wise to have competent guidance here.
What will the IRS do?
Depending on the employer’s ability to repay the tax debt, the IRS will look for the person responsible for the nonpayment. Specifically, the person who allowed the “trust fund” portion of the employee’s taxes to go unpaid. This person will be assessed a trust fund penalty and be personally liable for the taxes as well. Prior to this happening there are many steps along the way that can prevent this from happening. This process demands an expert in this area be retained to insure that no trust fund penalty be assessed if not warranted or worse being assessed to an innocent person. Again the IRS is meticulous in this area and most competent tax professionals should be able to handle the situation for their client. However, when standing up to the IRS it is wise to have all of you ammunition and law well laid out ahead of time to avoid errors. You don’t want to be caught by surprise.
Tax Champions has defended many clients who have had a trust fund penalty assessed and were not liable. It happens all the time because taxpayers are afraid to enforce their rights and argue for an appropriate outcome. Generally the IRS does the right thing. But if no one is responding to their questions, you are going to be an unhappy camper.
Hire a competent professional.
Tax Champions’ qualified team of experienced CPAs, Enrolled Agents, Tax Attorneys and Certified Tax Experts will represent you or your company before the IRS. With over 30 years of successful tax resolution experience behind us we know what it takes to get results and how to solve difficult tax problems. Don’t put off dealing with the IRS. Get expert help to resolve your tax issues. Put Tax Champions 30 years of successful tax experience to work for you today.