Payroll taxes fund Medicare and Social Security. It is the duty and responsibility of every employer to pay his fair share of taxes as well as taxes he has collected from employees. The IRS is less lenient for businesses than for individuals, even those businesses that are single proprietorship. They may give you up to a year to make payments, but with penalties and interest added monthly and large amounts billed each month, it will be very difficult to pay the outstanding balance and maintain current responsibilities.
Avoid Tax Fraud
Both employers and employees pay into the system. When you deduct the employees’ portion from their wages and fail to submit it, it is doubly dangerous. Employers withhold federal taxes, employee FICA, and Medicare taxes. Never use withheld taxes to pay other obligations; treat that money as a sacred obligation. The IRS may consider it tax fraud when you collect taxes from employees and use it for other purposes.
The consequences can be devastating — huge penalties and interest, possible loss of business, or perhaps even prison. If your business is a sole proprietorship, you are held personally responsible; if you are incorporated, the responsible person is held accountable, whether that is a corporate officer or the one who signs the checks.
Penalties are Steep
Harsh consequences are imposed upon the employer who fails to pay these mandatory taxes. Both criminal and civil penalties may apply. In addition, failure to pay the collected taxes could have dire consequences for the employee when he files his income tax. Copies of the W-2s that you file with the Social Security Administration — which ultimately go to the IRS — are used by employees to file their income tax returns. If you do not fulfill your role in the continuity of the process, the employee may encounter problems filing his tax return. While situations differ, you may be liable for up to 100 percent penalty.
Payment Plans are Possible
If you have not been paying your payroll taxes, and you can convince the IRS that you are currently in a position to right the wrong, they may negotiate an installment plan and allow you to make monthly payments. However, before they will accommodate you, you must adhere to some stringent guidelines. First, you will be required to provide a full financial disclosure, and to be perfectly honest; lying will only make things worse.
The information is used to set your monthly installment amount. They take into consideration several factors when determining the amount of living expenses you will be granted, such as the cost of food, transportation, clothing, and housing expenses. If actual expenses are more than the amounts granted by the IRS, you live with it. A tax attorney or a certified public accountant may be able to negotiate a better monthly allowance, but do not expect they can abolish the taxes you owe.
Are Family Members also Employees?
Generally, employers who use collected taxes to fulfill other responsibilities are having financial troubles and may be in danger of losing their business. Some of the reasons businesses get into trouble by not paying payroll taxes are poor budgeting, lifestyle choices, lack of understanding of tax laws, not keeping payroll taxes in a separate account, and mixing business and personal finances. If you are a sole-proprietorship and hire family members, you may be able to save the portion of (Federal Insurance Contributions Act (FICA) taxes on children under the age of 18 and Federal Unemployment Tax Act (FUTA) taxes for children under 21, or for your parents or spouse. You save the taxes you would pay and the amount you would normally withhold, thereby reducing your costs and netting family members greater wages.
Aaron
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