941 Payroll Issues - Delinquent Payroll Taxes
One
of the worst tax violations is the failure of an employer to remit
payroll taxes it has withheld from its employees’ pay.
Despite
its gravity, it is also one of the most frequent tax problems we
encounter.
Payroll Tax Delinquencies are Treated Harshly.
The IRS is required by law to give employees the benefit of all taxes
withheld by their employers whether or not such taxes were remitted to
the government.
In short, when an employer fails to turn over
withheld taxes the IRS loses money.
Withheld Taxes Are Held Intrust With The Government
The payroll taxes an employer holds back from an employee
(the “Trust Fund”) never belong to the employer, but rather are held in
a constructive trust for the federal government.
Thus, every
employer is a Trustee whose sole beneficiary is the United States. As a
Trustee, the employer has a fiduciary duty to properly report and turn
over all withheld taxes.
If you don’t do it, it is considered by
the feds to be theft of government funds.
Installment Payment Plans for
In-Business Taxpayers
Employers who are behind in
their payroll tax deposits can count on immediate and aggressive
collection action by the IRS.
There is good reason for this: The
IRS is concerned that a delinquent payroll tax employer who is still in
business will continue to use the Trust Fund for its own purposes.
The IRS calls this “pyramiding” and if you keep doing it you could
end up in one.
Fortunately, there is a solution: If the business
can show that it has corrected the problem and is now keeping current
with its payroll tax deposits and can show that it is profitable enough
to allow it to remain current and make payments on the unpaid payroll
taxes (plus penalties and interest), the IRS will consider an
Installment Payment Agreement.
The Trust Fund Penalty
The IRS is empowered to
assess a penalty against individuals who are deemed responsible for the
failure of the business to remit payroll taxes.
This penalty is
called the Trust Fund Penalty because it imposes a fine that is equal to
the portion of the payroll taxes that was withheld from employees’ pay
and held in trust for the government.
The IRS often assesses the
Trust Fund Penalty against people within the organization who were
neither shareholders or officers.
The Trust Fund Penalty may be
assessed against more than one individual.
Additional Note:
Payroll taxes (Trust Fund) refer to the Social Security tax and the
Medicare tax. Social Security taxes are designed to provide benefits for
retired workers, the disabled, and the dependents of both. Medicare
taxes are designed to provide medical benefits for certain individuals
when they reach age 65.
Again, failing to properly file and pay
payroll taxes is a serious matter
Not only can the IRS go after
the company's assets but, in certain circumstances, it can also go after
Owners, Officers, and certain employees.
This means that if you,
or someone else within your business, are found to be willfully
responsible for the business's failure to pay payroll taxes you could be
held personally liable for a portion of the tax up to and including very
stiff fines and possible incarceration.
The IRS must first make
an investigation and, assuming it makes an assessment against you or
other employees of your company, it can then begin collection efforts
aimed at your personal assets. This would include bank accounts,
property, and other items of value. In some cases, the IRS may liquidate
the company and sell its assets in order to satisfy the tax debt,
meaning they can and will shut down your business to satisfy your tax
obligation.