The IRS requires all employers to withhold certain taxes including Social Security, Medicare, and income taxes for all its employees and submit these as payroll taxes. Most businesses must make a federal tax deposit within a few days after the pay date of their payroll checks, so paying payroll taxes should be a critical part of routine operations for every business. However, some business owners mismanage these funds, fail to submit payments, and experience major payroll tax problems with the IRS.
When a business is lacking proper cash flow they will sometimes rely on money that’s been withheld for payroll taxes as a means to pay expenses. These business owners don’t consider that the money withheld from an employee’s wages does not actually belong to the business at any time. In the eyes of the IRS, it’s their money and if you don’t hand it over promptly you’re basically stealing from them.
When a business collects the withheld income tax from its employees, the employers are considered to be holding the funds in trust (of the employees) to hand over to the Department of Treasury by making federal tax deposits based on their deposit schedule (most small businesses are monthly or semi-weekly depositors) and reported on Form 941 or 944.
Sales Tax is another trust tax but this only applies for states.
In general the government says “Anyone who is responsible for collecting or paying withheld income and employment taxes, or for paying collected excise taxes, and willfully fails to collect or pay them.
A responsible person is a person or group of people who has the duty to perform and the power to direct the collecting, accounting, and paying of trust fund taxes. This person may be:
For willfulness to exist, the responsible person must have been, or should have been, aware of the outstanding taxes and either intentionally disregarded the law or was plainly indifferent to its requirements (no evil intent or bad motive is required).
Meeting with the IRS in these situations is not advisable, as any meeting could in fact turn into an interview called the Non-Assertion Interview, which is used to determine who is responsible for paying the Trust Fund Recovery Penalty. The IRS can go after personal assets to satisfy the Civil Penalty, or Trust Fund Recovery Penalty. It is best to have a seasoned tax professional look your case over, to make recommendations on the best approach for dealing with the IRS.
If you owe payroll taxes, call Tax Debt Pros at 801-878-0363 and get tax help you need today. Then we can proceed with determining all of the options in the Internal Revenue Code for dealing with your business needs. Your business is your lifeblood; give it the care it deserves by having a well-trained tax professional handle the payroll and withholding issues.