What to Know When Behind on Payroll Taxes
Settle Payroll Tax Debt Now
Are you searching for payroll tax debt relief services because you are behind on your payroll taxes? You are not alone. Many business owners must face the IRS each year because of their failure, or inability, to pay their payroll taxes. Some employers may feel hopeless, and that they may never recover. This can cause them to fall further and further behind on their overdue payroll taxes. Many entrepreneurs worry about settling their debt because they are not able to pay quickly enough.
However, if the IRS has contacted you to pay back overdue taxes, you must respond. Failure to respond to the IRS about your late payroll taxes will only leave you in a worse situation. If you are finding it difficult to identify a solution to your payroll tax debt, consult with the tax professionals at DiLucci CPA Firm. We can represent you in front of the IRS. We always keep your best interests in mind and can help you settle your payroll tax debt now.
What Is Payroll Tax Relief?
Payroll tax relief helps businesses that have overdue payroll taxes, or taxes that should have been withheld from employees’ paychecks. It does not matter whether these taxes went unpaid because of an error, the inability to pay, or even if the business has closed, you will still owe payroll tax to the IRS and the IRS is able to levy your bank accounts for it. That is where payroll tax debt relief services become useful. There are many tax debt repayment options that a business owner can use to their advantage to pay off overdue payroll taxes.
Payroll Tax Debts Vs Income Tax Debts
Before you can understand how to pay off your payroll tax debt, you must first know the difference between payroll taxes and other taxes. As a business owner, there many tax laws to which you must adhere. Tax laws for a business owner are much different than those regarding normal income tax. All employers must withhold the appropriate amount of money from what their employees earn. This withheld amount is then paid as taxes to the IRS.
Your employees are counting on you to withhold the correct amount. Also, they are counting on you send the withheld amount to the appropriate channels. Remember, this is their money. You are being entrusted to with their money to pay the appropriate authorities the correct amount. This is different from income taxes. With income taxes, the money is the personal funds of the individual, and the individual is responsible for paying the taxes to the IRS.
What this means for you as a business owner is, if you fail to file and pay your payroll taxes, this debt is then considered by law to be a theft. As a result, the IRS is far more aggressive in collecting payroll taxes.
Payroll Taxes Withheld By Employers
By law, all employers must withhold payroll taxes from their W-2 employees’ wages. Then the employer has to pay both the employees’ and employer’s portion of payroll taxes to the IRS. This includes Social Security, Medicare, and Federal Income Taxes. In addition, employers are required by law to also pay unemployment tax for each employee.
Employers must file IRS from 941 and pay the employees’ and the employer’s portion of the payroll taxes to the IRS, usually on a quarterly basis. An IRS form 940 is required to be filed at the end of the year for unemployment taxes. Unemployment taxes are a debt which is paid by the employer. If, for any reason, the business owner does not pay the pay the payroll taxes, the IRS will add penalties to the initial payroll taxes and begin to collect the debt. The IRS has many different avenues by which to collect the debt including liens/levies and garnishments from business revenues.
Payroll Tax Rates for 2020
Payroll tax rates change from year-to-year, so it is important to check the most current tax rates. The 2020 payroll tax rates are:
- Social Security Taxes: Both employers and employees pay these taxes at a rate of 6.2%. As an employer this means you will need to ensure that a total of 12.4% of employee wages are paid in Social Security taxes, but only 6.2% is directly withheld from the employee’s paycheck.
- Medicare taxes: Again, these taxes are paid at a rate of 1.45% for both the employer and employee. So, as an employer, you will need to ensure that 2.9% of the employee’s wages are paid in Medicare taxes, keeping 1.45% directly from the employee’s paycheck.
- Self-employment taxes: If you run your own business and are self-employed, you will pay these taxes at a total rate of 15.3%—12.4% for Social Security and 2.9% for Medicare.
Again, for clarification, to ensure the payroll taxes are paid you must, as an employer, deduct the employee’s portion out of their paycheck (known as withholding) and the employer’s portion is to be taken out of the business’s revenue. Do NOT withhold the entire amount from the employee’s paycheck!
However, as of March 2020, the COVID-19 stimulus package has given businesses a payroll tax delay. Under this bill, companies need to pay at least 50% of their 2020 payroll taxes by the end of 2021. The remaining 50% is to be paid by the end of 2022.
Not Paying Payroll Taxes
First, you should always seek legal advice from a lawyer. This is in no way should be misconstrued as legal advice. However, as a business owner, it is your obligation to ensure that payroll taxes are paid. This includes collecting, reporting, and paying all taxes owed.
Failure To File Payroll Taxes
It is vital for all employers to understand that the IRS can be aggressive when it comes to assessing the penalty for not paying your payroll tax debt. I like to think of it like this: the money for payroll taxes belongs to the government. You are in essence stealing federal money. Therefore, failing to file or pay your payroll taxes is often considered to be a federal offense.
When the IRS assesses a business as owing back payroll taxes, they will assign a Revenue Officer. This officer becomes the primary point of contact with the IRS.
The Revenue officer will contact the taxpayer either in person, or by mail, requesting the taxpayer to become fully compliant with their tax filings and make payment arrangements. The payments are two-fold, the taxes for the current payroll period and arrangement for the past due amounts.
Keep in mind that the unpaid payroll taxes can add up much more quickly than individual income taxes. As such, the resulting penalty can be truly daunting. Furthermore, if the IRS deems your payroll tax debt case as a federal offense, they can refer your case to the Criminal Investigation Division and the Department of Justice. Needless to say, this can have drastic consequences for your future.
Few business owners are aware that you will still owe the unpaid payroll taxes even if you declare bankruptcy. I want to stress this point to you. Payroll tax debts are NOT dischargeable in bankruptcy.
Tax Penalties For Failure To Pay Payroll Taxes
If you fail to pay the IRS what you owe, they may take action against not only your business, but you personally as well. The potential penalties for not paying payroll taxes include:
The IRS may charge late fees for missed payments or late payments for your payroll taxes. Also, depending on how long you go without paying the overdue taxes, you may be charged higher fees over time.
If the IRS issues a monetary fine against your business, they may begin to charge interest on top of what you owe. Interest adds up quickly and before long can make your payroll tax debt seem insurmountable.
A tax lien:
The IRS has the option to claim a tax lien against your property. While they won’t necessarily begin collections, they will be staking claim to your assets and will be able to collect debts before any of your other creditors. This can make it more difficult to get out from under your other debts by liquidating your physical assets.
Loss of business:
The Revenue Officer will determine if it is in the interest of the IRS to allow the business to continue operations. If a business fails to cooperate, the Revenue Office can take actions that will shut the business down.
In addition, failure to pay taxes can lead to criminal charges. If a business owner does not pay the payroll tax, it is possible to be convicted of a felony. This action is usually reserved for rare cases. Cases in which the taxpayer would be convicted of a felony would include those who diverted the money for personal use, instead of for the sake of the business. This can include using the money to pay off creditors. A tax evasion penalty could lead to up to 5 years in prison or a $500,000 fine.
How it works
After filing a Final Notice of Intent to Levy, the Revenue Officer can legally levy bank accounts and accounts receivable if the taxpayer does not file and pay by the deadline. He or she may even send out notices to your customers, to collect the unpaid taxes directly from monies owed to the business.
Often, the severity of the tax penalty you face is based on a few factors. They include how much you owe, how late your payroll taxes are, and whether the IRS has reason to believe you are intentionally evading your tax obligations. On the other hand, there are certain circumstances in which penalties for not paying employee taxes may be waived.
It is important to note that, according to the IRS, any person who is required to responsibly and truthfully pay taxes and fails to do so will be liable for a penalty equal to the total amount of the tax that is not collected and paid over.
This statement is important because it allows the IRS to put to penalize any person within a business who is responsible for the failure of the business to pay the payroll taxes. Therefore, the penalty can be imposed on any one person or multiple persons responsible, regardless of the business itself.
As always, working with a tax professional who can analyze your situation. A professional can better guide you to resolve your payroll tax debt and offer some relief. A tax professional is essential to help you minimize the penalties you face.
Responsibility For Payroll Tax Debt
Unfortunately, the persons deemed responsible in the event that payroll taxes are not paid is not clearly defined. This gives the IRS a lot of leeway when deciding who is at fault. When the IRS decides who is to blame, they consider a variety of factors. The IRS will analyze who has the power to compel or prohibit the allocation of funds. They will also seek who has the authority to sign the checks. Furthermore, the IRS will find who has the power to make decisions regarding the disbursement of funds and payment of creditors. The IRS will also consider:
- The officer or director of the corporation
- Who controls the payroll of the company
- The person who prepares and signs all payroll tax returns
- Who it is that actively participates in the management of the day-to-day operations
- Who is responsible for the hiring and firing of all employees.
Fear Is Not An Excuse
Often, the owner of a business (large or small) will hand the responsibility of payroll taxes to another employee. However, if this employee fails to file the payroll taxes appropriately, that does not automatically leave fault to the employee. Whether or not the payroll taxes are paid is still the responsibility of the authority in charge. Furthermore, the IRS does not excuse this fear as a good enough excuse for having not paid the taxes. In other words, the courts have decided that the authority (person ultimately responsible) is not entitled to prefer his or her own interest in his or her continued employment over that of the government.
There is not necessarily one person who will be held ultimately responsible. The IRS can hold anyone responsible who fits their definition. This includes employees who are on the bank account with access to pay payroll taxes usually, so it would be those employees, plus owners, plus any other responsible parties. It is not just the most responsible party.
Again, please seek the advice of a legal professional if you have any questions regarding your role in paying payroll taxes.
Preventing Payroll Tax Debt Issues
In our experience, small businesses are most likely to fail to correctly pay their payroll taxes. Unfortunately, this means the IRS tends to more thoroughly investigate small businesses. Honestly, this is understandable. Many small businesses, especially those just starting out, may not have the technical tax knowledge to execute paying taxes correctly and efficiently. Because of the commonality of this issue, the IRS is more likely to focus its enforcement of tax regulations on small businesses. As a small business owner, you may also be held personally responsible. You may then have levies that will be enforced on your personal and business accounts simultaneously.
Every year, we see business owners in debt to the IRS who are simply unable to repay their full balances. We have counseled many business owners who simply are not prepared and do not know where to start. Reach out to our experienced professionals to get expert advice and help you every step of the way.
Payroll Tax Debt Settlement
It is important to remember that the IRS wants you to pay your taxes. They are willing to work with you in order to get your tax debt paid. For this reason, the federal government has put several payroll tax settlement services in place. These exist to find an agreement between what an individual business owner can reasonably repay, and what the IRS or state will accept.
Typically, a payroll tax debt settlement involves a reduced balance. We have even seen the complete removal of an individual’s tax liability. A business owner’s financial situation tends to be the main factor in determining his or her specific means towards payroll tax debt relief.
Work With A Professional To Resolve Payroll Tax Debt Now
Many business owners, specifically small business owners, ask why they should not just use the information available on google, and find means of facing the IRS without costly professional help. The reason is simple. A professional team from DiLucci CPA Firm has the experience and knowledge of tax law that allows a significantly smoother journey to financial freedom. Not only will the process be smoother, but without help, many business owners quickly find that they are woefully ill prepared for the subtle nuances of tax law and IRS stipulations.
Without proper expertise, you may not be able to navigate the inherently convoluted and complex IRS to attain the best repayment plan. Not everyone is taught what an Offer in Compromise is. Also, most do not know how to determine their eligibility for Currently Not Collectible status. These tax settlement services are very difficult to negotiate without a strong case. A strong case is built from significant amounts of support in the form of financial records.
You should not fear whether or not your business and assets will be seized. If you have failed to pay your payroll tax debts, or do not think you have enough funds to pay them, our professionals at DiLucci CPA Firm are here to help you negotiate the best deal and represent you with the IRS.
DiLucci CPA Firm Can Help With Payroll Tax Debt Relief
Our professionals at DiLucci CPA Firm are knowledgeable and experienced tax preparers and tax negotiators who can help you with your payroll tax debt relief services. Our tax professionals understand how to properly prepare your IRS Form 940 and 941 returns and remit your returns according to the IRS deadlines. Or if need be, prepare them in a timely manner if the IRS deadlines have already passed. Our certified tax resolution specialist is uniquely qualified to navigate the minutia and intricacies of the IRS tax code. Our knowledge of the IRS tax code allows DiLucci CPA Firm to negotiate the best resolution for our clients.
Resolve Your Payroll Tax Debt Now
Do not wait for the IRS to begin enforcement actions like levies and garnishments. If you need payroll tax debt relief services, let DiLucci CPA Firm help. Not only will we offer solutions to resolve your payroll tax debt with the IRS, but we will also help you to understand how to avoid issues in the future. Call now!