Late Payroll Taxes-The Most Expensive Business Loan You Ever Got!

How To Navigate Back Payroll Taxes? (For Business Owners)

The Internal Revenue Code mandates that employers collect employment taxes directly out of  wage earner’s income and send it directly to the IRS. The term “payroll taxes” includes: withheld wages as well as FICA (Social Security and Medicare).  The total amount to be withheld depends on the worker’s filing status and the number of exemption claimed by the employee.  The business must match and deposit the FICA portion along with the withholdings to the IRS via electronic fund transfers. Payroll taxes are reported on Forms 940 and 941. The frequency of the tax deposits mainly depends on the amount of the payroll. A payroll service or another type of employee leasing agency may be used to assist with the administration of wages and withholdings. However the employer retains the ultimate responsibility for payment of employment taxes.

Payroll taxes and withholdings are the foundation of the Income Tax and Social Security Systems. This system works well when the business and the workers follow the legal requirements. Unfortunately, sometimes the payroll tax withholding process breaks down on a case by case level. In certain circumstances, the business fails to collect or remit part or all of the withheld taxes and FICA to the IRS.

How Does A Business Fall Behind On Payroll Taxes?

Failure to comply with employment tax obligations is an extremely serious offense.  The IRS relentlessly assesses penalties and interest on top of the unpaid tax, adding additional financial stress on an already weak financial condition of the employer. Although few business owner intentionally abuse the payroll tax system, the majority of the delinquent employers fall behind due to cash flow problems. Most business owners never intended to fall behind, and are horrified at the prospects of being delinquent.  Sadly, as the employer encounters economic downturn, or a cash flow issue, withheld taxes might be used to pay other business, or even personal expenses. If a turnaround or a cash infusion does not happen quickly, the delinquency will compound and may last for years.  The non-compliance might not be limited to non-payment of taxes. Often the business fails to file the required Forms 940 and 941 altogether.

What Happens When A Business Falls Behind On Payroll Taxes?

Once the IRS discovers the failure to file or pay employment taxes, they will begin the process of assessing and collecting the back taxes.  The IRS may send a number of letters asking, urging and later threatening the taxpayer to come into compliance.  Eventually a collector will pay a visit collect the taxes.  It may take years for the IRS to discover the delinquency.  Although, the taxpayer has time to turn the business around, the subsequent penalties and interest greatly inflate the debt. Once the taxpayer is forced to file, the resulting tax bill might have doubled from the original tax owed on the tax returns. The taxpayer is seen as holding the funds in “trust” for the government.  Failure to timely turn over the funds is treated more harshly than other tax delinquencies. Some tax collectors take a very accusatory posture in their attempt to collect this type of debt.

Once the delinquent employer is identified, the IRS will launch an extensive investigation to determine the level on non-compliance, and ascertain the amount of the debt.  An IRS Revenue Officer may arrive at the business or the owner’s residence to discuss the account.  If the returns are not filed, the IRS may file inflated tax returns on the taxpayer’s behalf through their SFR filing program.  If the communication and the cooperation between the government and the business owner break down, the IRS may unleash its powerful arsenal of  liens and levies, putting the business under increased financial stress. Criminal prosecution, personal liability against business owners “trust fund recovery penalty”, and closure of the business are also possible. Harsh collection tactics are more likely if the taxpayer continues the delinquency in the current and subsequent tax periods.   

TaxHelpers Can Manage Your Payroll Tax Problem

Although payroll tax problems are complex and difficult to resolve, do not have to destroy your business. Having experienced representation is vital. Depending on your situation and your ability to cooperate with us, TaxHelpers can restructure your business, secure additional time to pay the balance or settle the tax debt for a much less. Our lawyers have extensive experience in resolving tax problems. Call us if you want to protect and save your business or deal with back taxes from an old business.

Related Topic: Payroll Tax Help

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