It is the employer’s responsibility to withhold federal income tax from employee’s wages. Failure to file and pay payroll tax generates large IRS penalties and debt and may be considered a federal crime, resulting in the business owner losing his or her business and more.
Social Security & Medicare Taxes
Payroll taxes include several types of tax in addition to federal income tax. The Federal Insurance Contributions Act, better known as FICA tax, consists of Social Security taxes and Medicare taxes. Fifty percent of FICA tax is withheld from the employee’s gross wages, and the other half is paid by the employer. The money collected from employees to pay their share of taxes does not belong to the business. Federal Unemployment Tax, or FUTA, is paid solely from employer funds; no deductions are taken from the employee’s wages for this tax. Other payroll taxes that must be paid are state income tax and local income tax, such as city, county, and school district taxes as well as state disability and State Unemployment Tax, or SUTA.
Trust Fund Recovery Penalty
Payroll taxes are considered trust fund taxes because the employer holds the employee’s money in trust until the federal tax deposit is made. To expedite the payment of these taxes to the appropriate taxing authority, congress passed a law providing for the Trust Fund Recovery Penalty, or TFRP. If trust fund taxes are not paid in the prescribed time, the TFRP may be assessed against the business and/or individual(s) who has the responsibility to collect income and pay employment taxes and who willfully fails to do so. As per TFRP guidelines, using available funds to pay other creditors when the business is unable to pay employment taxes is considered willful failure to pay.
Once the IRS determines a business is at fault, it will send a letter stating that it plans to assess TFRP against the responsible party. The recipient has 60 days from the date of that letter to appeal the proposed action. The IRS can take collection action against the responsible party’s personal assets once the TFRP has been asserted.
Penalties & Interest
The penalties assessed on delinquent payroll tax deposits or filings can increase the total amount owed dramatically in a matter of months. Also, the IRS does not care if a business fails and therefore will generally not agree to an installment agreement or offer in compromise when a business has not paid its payroll taxes. If you don’t take immediate action to deal with payroll tax problems, you may find yourself out of business and with legal problems. The tax resolution professionals at Tidy Tax Services understand that as a business you need working capital and cash flow to keep your business running. We know that resolving your payroll tax issues is about saving your company and ultimately your livelihood. Contact us today so we can help you when you need it – now! 866.749.7717