Understanding the IRS Payroll Tax Collections

Failing to timely pay over payroll taxes can result in significant penalties and interest, sometimes in excess of the initial tax that wasn’t paid.

The government may be able to pursue the business owner personally for the business’s unpaid payroll tax liabilities.

The Internal Revenue Code gives the IRS broad powers with regard to unpaid payroll tax liabilities. As a result, the IRS is particularly aggressive in pursuing businesses for unpaid payroll taxes. The government may be able to pursue the business owner personally for the business’s unpaid payroll tax liabilities. This is done by assessing the “trust fund recovery penalty” against a “responsible party”. Trust fund taxes are the income and social security taxes an employer withholds from the wages of employees. Although corporate officers, directors, stockholders and employees are normally protected from personal liability for the tax owed of their corporations, the IRS can assess personal liability against the so-called “responsible persons”.

What are payroll taxes for employers?

Payroll taxes are defined as the income taxes, Social Security, and Medicare taxes that are withheld from the wages of its employees.

These are also commonly referred to as “Trust Fund” taxes because the employer is supposed to hold these funds in trust before turning them over to the IRS.

Employers face stringent obligations when it comes to their employees and their payroll tax obligations. Employers must make quarterly tax deposits to the IRS and complete a series of quarterly and annual filings to account for all payroll taxes withheld and deposited from the employers trust.

Understanding Payroll Tax Liabilities

Failure to properly account for a company’s payroll tax obligations or failure to properly deposit them with the IRS is considered a serious violation by the Service.

IRS enforcement efforts have steadily increased over the past several years with respect to those who violate the payroll tax laws.

In some cases, the IRS has even started prosecuting people through its Criminal Investigations Division for failure to meet their payroll tax requirements (payroll tax evasion).

Too often we have seen business owners having cash flow issues fail to meet their payroll tax obligations, which can lead to disastrous consequences for the business.Utilizing IRS payroll tax deposits for other business expenses often creates a snowball effect and causes serious problems for the client business. The IRS is much less lenient with paying back payroll tax obligations than with other types of liabilities.

In addition, because businesses are usually fruitful sources of assets that the Service can go after (and going businesses are usually generating positive cash flow), IRS revenue officers have been known to be particularly aggressive when it comes to dealing with outstanding payroll tax liabilities.


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