Are You Behind On Payroll Taxes?

Are You Behind On Payroll Taxes?

There are many paths for laying the groundwork for starting a new business. Whether your enterprise is a large undertaking or a simple sole proprietorship with a couple of employees, business owners large and small need to be extra vigilant when it comes to the proper withholding of payroll taxes and timely payments into the IRS for federal employment taxes. The consequences for either falling behind in your payroll taxes or noncompliance with appropriate withholdings can equal colossal IRS tax penalties, hefty tax debt, and even more severe: civil and criminal sanctions.

Messing Up on Your Payroll Obligations

An IRS requirement if you employ individuals is that you withhold payroll taxes from their wages and then pay those funds to the agency.  Employment taxes include:

  • Federal income tax
  • FICA
  • Medicare (Social Security)
  • Unemployment Tax
  • State Withholdings

In essence, those withholdings, which are employees’ future benefits for the various programs they pay into, are really interpreted as trust fund monies which means that the employer will hold the taxes and then deposit them to the government. There is absolutely zero tolerance for borrowing against payroll taxes collected to satisfy a business’s operating expenses. In fact, once employees’ paychecks are issued, employers are required to make a federal tax deposit within three days, as well as a deposit to state tax authorities.

All employers should be aware of a few facts pertaining to payroll taxes. First, the IRS has long since classified small business owners as the most egregious when it comes to unpaid taxes; therefore, expect to be under the microscope when it comes to required tax payments and compliance.   Second, when you do not make timely payroll tax payments into the government, the IRS will issue a Revenue Officer for collection purposes who will be extra aggressive and may use the following tools in order to get payment:

  • Subpoena financial documents
  • Come to your business
  • Close down your business
  • Issue liens against your assets
  • Intercept future payments from your clientele

In short, the IRS has broad influence and authority when it comes to this area of taxation and can throw around its power without court orders in most cases. In fact, depending on the extent of payroll tax violations, a federal crime investigation may commence against you which will ultimately be handled by the Department of Justice.

Because the IRS is in the business of collecting taxes on a timely and compliant basis, every so often it issues public alerts to warn businesses and individuals about the importance of tax compliance and the actions it takes for those in violation. Among the latest unlawful activities in the area of payroll taxes which the agency highlights include:

  • Pyramiding: occurs when an employer properly withholds payroll taxes from employees but then does not properly remit them to the government.
  • Unreliable Third Party Payers: occurs when a payroll service, working on behalf of the employer, does not properly withhold/remit payroll taxes. Ultimately, the responsibility lies with the employer.
  • Misclassifying Employee Status:   happens when an employer does not properly classify workers (independent contractor or employee) and therefore becomes liable for incorrect withholdings.
  • Paying Wages in Cash: often used as a common evasion tool, paying employees in cash means trouble if the employer has disregarded payroll taxes.

What To Do Next

One of the biggest priorities of the IRS is the collection of unpaid payroll tax liabilities and as such, it also has the highest enforcement precedence.  If you have fallen behind on your payroll tax deposits a tax resolution law firm is your best chance at not losing your business. Our attorneys at Dallo Law Group have an array tax experience and we can advise you on the best viable options to not only solve your payroll back taxes, but also we can help you organize a plan where you never again fall into such a predicament.

We understand that occasionally times can get tough; however in the end, the IRS gets to determine the difference between reasonable cause and willful neglect. We can help you get the most optimal outcome for your particular circumstances. We offer a free initial consultation to determine how we can assist you. Give us a call at your convenience to discuss next steps.