As a business owner it is easy to lump all taxes into one evil category. However when it comes to paying them, the tax collection agencies prioritize some taxes over others. Both the IRS and state departments of revenue are very aggressive in collecting payroll taxes withheld from wages that are not paid in a timely fashion. Payroll taxes are:

  • Federal income taxes withheld
  • Social Security taxes for both employee and employer percentages
  • Medicare taxes for both employee and employer percentages
  • State income taxes withheld

These taxes are considered “trust” amounts withheld by the employer. This means that the amounts withheld are the employee’s money and that the employer has the responsibility to remit to government agencies by the applicable deadlines. Using payroll tax money to keep the business running and paying other bills is not a valid excuse for late payment. Whereas paying taxes late at the personal level can result in up to a 25% percent penalty for late payment, the IRS can asses a 100% late payment penalty for payroll taxes. This is called a Trust Fund Recovery Assessment and the IRS can collect from not only the business, but individuals that usually would be shielded from tax liability including:

  • Officers
  • Shareholders
  • Employees of a corporation, partnership, or LLC

The government agencies can even petition to have the business shut down while the tax liability is in the process of being collected. In rare cases criminal penalties are brought against individuals as well. We are sharing this information not to scare business owners, but make them aware that payroll taxes are one bill that you need to pay. This is also another reason we encourage using a qualified payroll service to run payroll for your business. In our experience, the pain and suffering of going through a payroll tax audit or dealing with payroll notices far outweighs the monthly expense of a payroll service for business owners. Please contact us if you need recommendations for payroll services.