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Resources:
Tax Education:
Payroll
Taxes
Business owners must withhold
federal and FICA contributions (Social Security and Medicare)
from employee wages. The withheld funds are paid to a
depository bank that collects the funds on behalf of the
Treasury Department. The deposit is monthly or quarterly. IRS
forms 940 and 941 must be filed.
Payroll taxes are the nuclear bomb
of taxes. When a business has financial difficulties, the IRS is the one creditor that is the least demanding—at least
initially. As a consequence, the other creditors tend to get paid first, like suppliers,
landlords, and banks, all to the detriment of the IRS. But if
the business fails, payroll taxes are one of the few business
debts that are not dischargeable in bankruptcy. It’s the
one expense that should be paid first.
Further, personal liability attaches
to every person in the business “responsible” for the nonpayment.
It is not uncommon for the IRS to determine that half-a-dozen
individuals are responsible for the nonpayment. This
personal liability is known as the 100% Payroll Penalty. It’s
called the 100% Payroll Penalty because each responsible
person is liable for 100% of the tax regardless of the person's
level of responsibility for the nonpayment. And, like the tax,
the penalty is not dischargeable in bankruptcy.
All individuals, even low level
employees, can be liable for the 100% Payroll Penalty if they:
- Made financial decisions for the business;
- Had authority to sign checks;
- Had the power to direct payment of bills; or
- Had the duty of reporting taxes.
Pity the taxpayer liable for the
100% Payroll Penalty. The IRS considers this to be the most serious of all tax liabilities. The IRS is notoriously
difficult when dealing with payroll taxes and penalties.
Professional advice is strongly advised, particularly if the IRS
has wrongly determined that an individual was a person
responsible for the failure to pay payroll taxes—a
determination that happens with surprising regularity.
For more information contact
us at taxhelp@taxdefendant.com
or
Toll Free 866-216-1930
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