Payroll Taxes

Owning and operating a small business is no easy task. There are many tasks to accomplish … many “hats” to wear. Inventory, customers, services and then the “hard stuff” to do. That is … calculations. You calculate the expenses of the business which include buying inventory, equipment or supplies. You calculate the monies paid out in bills for utilities, rent, perhaps vehicles. But the calculations involving taxes can be the most complicated and most important part of your business. Miscalculating payroll and the resulting payroll taxes can have dire consequences. Besides that, these monies must be deposited with the Internal Revenue Service (IRS) on time every time.

As a business owner, it is your responsibility to withhold these monies from your employees’ paychecks and deposit them timely with the IRS. Of course, you can designate another person or even a company to compete this task. However, you are still the ultimate person with this responsibility. As a reminder, payroll taxes include Federal Income Tax, Social Security and Medicare Tax, Additional Medicare Tax, Federal Unemployment Tax (FUTA) and Self-employment Tax (if applicable). There are various tax tables that can be used to determine the amounts for these taxes. There are also various requirements and limits for each of them as well. These amounts can be calculated using the IRS tax tables and charts.

Now we all know that life can sometimes throw us a few punches. We may forget, we may be busy. We all have been there, done that. Unfortunately, there are also consequences to “forgetting” to pay the payroll taxes. The IRS expects us to collect and pay these payroll taxes to them on time regardless of what is happening in our lives. You are holding their monies “in trust” until you deposit it with them. In other words, they are trusting you to deposit these withheld monies to them on time. So, what happens when you do not collect, deposit or both? That triggers a Trust Fund Penalty.

A Trust Fund Recovery Penalty (TFRP) can be assessed if the unpaid trust fund taxes cannot be immediately collected from your business by the IRS. The taxes may have been collected by you, or not, but they were not deposited with the IRS by the deadline. According to the Tax Code, the individual responsible for the collection and deposit of these taxes can now be held liable for penalty for the willful failure to collect, account for, and/or pay to the IRS these taxes for the business.

So, is just the business owner responsible and therefore liable? The TFRP can be assessed against anyone who is responsible for collecting and/or paying withheld employment taxes and who willfully fails to collect and/or pay these taxes. This can include not only the business owner, but officers, directors, board members, Payroll Service Providers, and even employees tasked with that responsibility. The IRS can even assess the penalty against more than one person. The key is that the failure to collect and/or pay the payroll taxes to the IRS is WILLFULNESS of the action or failure to act. Willfulness is determined as: a) a person must have been, or should have been, aware of the outstanding taxes and b) that person either intentionally disregarded the law or was plainly indifferent to its requirements (no evil intent or bad motive is required).

If the IRS believes you or your business may be liable for the TFRP, they will begin the process by sending you notice that they are planning to assess a TFRP against you. Time is short. You have but 60 days to appeal or pay. Contact a tax professional immediately so that this penalty is not assessed against you. Bullseye Tax Relief is available to help. Call us immediately to discuss your options.

Scroll to Top