Back Payroll Taxes
Running a small business can be challenging as businesses often struggle to survive during the ups and downs of the economy. One of the most basic details that many small businesses fall behind on is payroll taxes. Payroll taxes are the employer's portion of the Social Security, Medicare and Federal tax that needs to be remitted to the government and withheld from the employee’s gross pay.
The Internal Revenue Service (IRS) considers failure to pay payroll taxes as embezzlement, which can result in criminal charges. In addition, the responsible party is assumed to be 100% liable for their actions. These actions can result in the Trust Fund Recovery Penalty, often known as the Civil Penalty, allowing the IRS to collect taxes against the responsible party through garnishments, wage levies, federal tax liens, and IRS seizures.
Failure to Pay Payroll Taxes
Unpaid payroll taxes can result in the filing of business tax liens, which may hinder a business’ ability to obtain credit from banks. If a business has unpaid payroll taxes, it is highly recommended to seek the help of a tax professional, as the IRS will more than likely assign a Revenue Officer (RO) to collect the unpaid tax.
Our highly qualified team of tax professionals at Lifeback will be able to evaluate and determine the best methods for dealing with unpaid payroll taxes and establish a structured resolution for your business.
Back Payroll Taxes FAQs
Unpaid payroll taxes are referred to by the IRS as “trust fund taxes.” A trust fund tax is a money withheld from an employee’s wages (income tax, Social Security, and Medicare taxes) that is held by an employer in trust and then paid to the government. A person is liable for trust fund taxes if
(1) the person is responsible for collecting or paying withheld income and employment taxes
(2) willfully fails to collect or pay them. A person is “responsible” if they have the duty to perform and the power to direct the collecting, accounting, and paying of trust fund taxes.
The IRS will approve an offer in compromise when the amount offered represents the most the IRS can expect to collect within a reasonable period of time.
The IRS takes unpaid payroll taxes seriously. They consider unpaid payroll taxes as theft! It is recommended you seek the help of a tax specialist or tax counsel to work with you and the IRS to resolve the matter immediately.
The IRS can collect the payroll taxes up to 10 years until the statute of limitation expires which starts from the date of the last assessment. As a general rule, if the business is unable to pay back on the payroll taxes, the IRS can personally assess the parties responsible for payroll. If the business continues to incur payroll tax debt, the IRS can also shut down the business.
Yes. There is a ten-year statute of limitations.
Possibly. You may file an Offer of Compromise and it is possible the IRS will accept it. Generally, the IRS is less likely to accept the offer if the business is still open.
Potential penalties for failure to pay payroll taxes may be high. In certain cases, failure to pay payroll taxes may be considered tax evasion. Tax evasion penalties include maximum fines of $500,000 and up to five years in prison. A willful failure to pay payroll taxes can be prosecuted as a felony and punishable by fines up to $10,000 and up to five years in prison.
It depends on the agreement reached between the debtor and the IRS. A ten-year statute of limitations applies. However, it is strongly recommended you seek the counsel of a tax specialist or an attorney as other related criminal and civil charges may also be at issue.