Payroll or Employment Tax Debt
Occasionally, business owners find themselves in a situation where they have acquired payroll or employment tax debt. There are tax laws that business owners are required to follow, in regards to their business and any employees they may have. It is important to understand the difference between payroll taxes and other taxes. Payroll or employment tax debt is different than income tax debt. Recognizing the differences and understanding the requirements of these laws will allow for strategizing the best plan to pay off any business payroll or employment tax debt.
Each pay period, business owners are required by law to withhold the appropriate amount of taxes (Social Security, Medicare and income taxes) from an employee’s wages. It is important that this withheld money/tax is submitted or deposited with IRS on behalf of the employees. Employees rely on their employers to handle this matter in accordance with the law. Not doing so is considered theft and legal action can be pursued. In addition to the taxes that have been withheld from the employee, the employer is responsible for paying the IRS the employer matching tax rate, which is the employer portion of the payroll taxes, including Social Security and Medicare taxes.
The employer is also responsible for submitting or paying Federal unemployment (FUTA) tax to the IRS. Only the employer pays the FUTA tax and it is not deducted from the employee’s pay. This amount is based on the number of employees that work at the business. Federal unemployment (FUTA) taxes are submitted at the end of the year or annually, while employment payroll taxes typically are filed and submitted to the IRS quarterly. Penalties may be added, and collection actions can be taken for all unpaid payroll or employment tax debt.
If an employer fails to properly file or deposit payroll taxes to the IRS, the employer will begin to accumulate payroll or employment tax debt. Within a period of time, aggressive action can be taken by the IRS to collect payroll or employment back taxes. The unpaid tax debt may grow quickly as penalties and fees are also added. These fees can rapidly increase over a short period of time, possibly faster than they would for unpaid personal taxes. The longer it takes to pay the tax debt, the bigger the tax bill can get.
In addition to penalties and fees, the IRS may possibly file criminal charges for not paying payroll tax debt. The IRS can refer the case to the Criminal Investigation Division and the Department of Justice. If this occurs, the consequences could be severe. Depending upon the outcome of the investigation, the individual may even face jail time. This is rare, but it can happen depending on the circumstances of the case.
Unpaid employment tax debt does not go away. Even if the business faces financial hardship, it is not dischargeable in a bankruptcy. However, there are other options available to get help with resolving business payroll or employment tax debt and consulting a tax relief firm with solid experience is essential.
It is in the best interest of the government to get business owners to pay back the money owed. The IRS is willing to work with the business owners to get that debt paid off but navigating these laws and unique circumstances may be difficult without professional guidance. Depending upon how much is owed and the circumstances of the case, it may be possible to settle for less. This may include establishing a payment plan to pay the employment back taxes, so that the business can remain operational.
Some business owners may not be prepared or have financial means to pay their back tax debt in full and many may not know where to start. Understanding employment tax laws may be challenging. It may benefit business owners with payroll or employment IRS tax debt to hire a tax professional. The tax relief experts at Coast One Tax Group are able to provide guidance, skillfully navigate through the IRS regulations and negotiate the best possible resolution option available.