Payroll Tax Problems
Payroll tax debt, often known as withholding tax liability, is probably the most troublesome business tax issue for company owners and corporate officers. This is a debt that does not disappear, even when a Corporation or a Partnership is closed, because a portion of it can be assessed against the person responsible for filing and paying taxes on behalf of the business.
If a business has W2 employees, the law requires the employer to withhold federal income tax, social security and Medicare from the employee’s paychecks every time wages are paid. These withholdings should be remitted to the taxing authorities. If the business fails to do so, the IRS can file a lien against it, and begin pursuit of repayment. A payroll tax liability consists of the amount withheld from employee’s paychecks that have not been remitted to the Internal Revenue Service, the employer matching portion, interest, and penalties.
The IRS can use various methods to collect the outstanding payroll taxes. This includes bank levies, levies on Accounts Receivable, seizure of business equipment and property, and so on. In addition, the IRS can personally assess up to three people responsible for filing and depositing taxes on behalf of the business with the Trust Fund portion of the total payroll tax liability. Although the Trust Fund portion does not include the employee matching portion, penalties and interest, it is still about 60 percent of the total withholding tax liability that can be collected from individuals, even if all attempts to collect delinquent taxes from the business fail.
In order to avoid payroll tax problems, the business has to be current and compliant with all filing and deposit requirements. This means that all withholding tax returns have to be filed on time, and deposits should be made on time. The IRS now requires that all federal tax deposits are submitted to the IRS via Electronic federal Tax Payment System (EFTPS).
Each business has its own schedule to make federal tax deposits. This will be determined from the total taxes reported on the business 941 Withholding Tax Returns in a four-quarter look-back period. The IRS Notice 931 provides more details about deposit requirements for payroll taxes.
In some situations it may not be possible to make deposits or to file withholding tax returns on time. To prevent enforced collections by the IRS on the business payroll tax liability, and to resolve this debt, the business has to file all missing tax returns as soon as possible, make future deposits on time, and contact the IRS to discuss available repayment options.
If the liability is not very high, it is possible to set up a small payment plan with the IRS without submitting completed financial statement and necessary financial supporting documents. However, if the business owes lots of money to the IRS, consulting a tax professional is the best way to resolve this debt and to reach an agreement with the IRS without fear of enforcement.
More information on resolving your
payroll tax problem
is available from the tax resolution specialists at 20/20 Tax Debt Help.