Payroll Tax Debt Relief: What to Know When Behind on Payroll Taxes
Settle Payroll Tax Debt
Are you looking for payroll tax debt relief services because you have fallen behind on your payroll taxes? Know that you are not alone. Many employers must come face to face with the IRS each year due to their failure to pay overdue payroll taxes. Some businesses may feel hopeless that they will not recover, and many entrepreneurs worry about settling their debt because they do not know how to pay quickly enough. However, if the IRS is on your case to pay back overdue taxes, you must respond. Failure to respond to these matters can leave you in a crisis with the government agency. If you are struggling to find a solution to your payroll tax debt, consult the professionals at Community Tax. We can represent you in front of the IRS with your best interests in mind and help you settle your payroll tax debt.
What Is Payroll Tax Relief?
Payroll tax relief is meant to help businesses that owe payroll taxes, or those that should have been withheld from employees’ paychecks. Whether these taxes went unpaid due to an error, inability to pay because of financial troubles, or because the business closed down, you still need to pay what you owe to the IRS. That’s where payroll tax relief comes in. There are a variety of tax debt repayment options you can take advantage of to pay off your payroll tax debt.
How Are Payroll Tax Debts Different Than Income Tax Debts?
Before you can begin to understand how to pay off your payroll tax debt, you must know how to differentiate payroll taxes from other taxes. As a business owner, there are certain tax laws that you must adhere to; laws that are much different than those regarding normal income tax. All business owners are required to withhold the appropriate amount of funds from their employees. This withheld amount is paid as taxes to the IRS. Your employees rely on you exclusively to withhold the right amount from their paychecks and send it on its way to the appropriate channels—it’s their money that you are entrusted with, whereas in the case of income taxes, the taxes in question are personal funds of the individual. If you, the business owner, fail to file and pay off your payroll taxes, the debt is then considered by law to be a theft from your employees. This will inevitably end in aggressive acts on behalf of the IRS.
What Must A Business Owner Withhold from Employees?
All employers are required by law to withhold payroll taxes—including Social Security, Medicare and Federal Taxes—from their W-2 employees’ wages and remit the employees’ portion and the employers’ portion of payroll taxes to the IRS. In addition, employers are required by law to pay for an unemployment tax for each employee that works for them. Employers must file IRS Form 941 and remit the employees’ and the employers’ portion of payroll taxes to the IRS usually on a quarterly basis. An IRS Form 940 is required to be filed at the end of the year for unemployment taxes, a debt which is paid by the employer. If for whatever reason, the employer does not remit the fund for the payroll taxes, the IRS will assess penalties and work to collect the payroll tax by the means given to them by law including levies/liens and garnishments.
What Are Payroll Taxes for 2020?
Payroll tax rates may change from year-to-year, so it’s always important to check the most current year’s rates. The 2020 payroll tax rates are:
- Social Security Taxes: Both employers and employees pay these taxes at a rate of 6.2%. You will need to ensure that a total of 12.4% of employee wages are paid in Social Security taxes.
- Medicare taxes: These taxes are paid at a rate of 1.45% for both the employer and employee. You will need to ensure that 2.9% of the employee’s wages are paid in Medicare taxes.
- Self employment taxes: If you run your own business and are self-employed, you will pay these taxes at a total rate of 15.3%—12.4% for Social Security and 2.9% for Medicare.
In order to ensure these taxes get paid, you will need to deduct the employee’s portion out of their paycheck— known as withholding—and the employer’s portion out of the business’s revenue.
However, as of March 2020, the COVID-19 stimulus package has granted businesses a payroll tax delay. Under this bill, companies need to pay 50% of their 2020 payroll taxes by the end of 2021 and the other 50% by the end of 2022.
Is It Illegal to Not Pay Payroll Taxes?
As a business owner, it is your obligation to ensure that payroll taxes are taken care of; this includes collecting, reporting, and paying any taxes owed. So, yes, it is illegal.
What if an Employer Does Not File Their Payroll Taxes?
It is vital for all taxpayers to understand that the IRS can and will be aggressive when it comes to assessing the penalty in regards to payroll tax debt. Think of it this way: the payroll taxes belong to the government—the taxes are the government’s money. Therefore, failing to file or pay your payroll taxes is often considered to be a federal offense. Keep in mind that the unpaid payroll taxes will add up much quicker over time than the taxes of the individual income tax payer. Therefore, the resulting penalty can be massive. If the IRS deems that your payroll debt case is such, they can refer your case to the Criminal Investigation Division and the Department of Justice. This referral has drastic consequences for your future.
Now that you have a general idea of the potential consequences of failing to pay payroll taxes, let’s dive deeper into what these penalties can mean for your business.
Tax Penalties for Not Paying Payroll Taxes
If you fail to pay what you owe, the IRS may take action against your business. The potential penalties for not paying payroll taxes include:
- Late fees: The IRS may charge late fees for missed payments or late payments for your payroll taxes. Depending on how long you go without paying taxes, you may be charged greater fees over time.
- Interest: If the IRS issues a monetary fine against your business because you have neglected to pay your payroll taxes, or made late payments, they may begin to charge interest on top of what you owe. As you know, the longer you allow interest to accrue, the greater your debt will become.
- A tax lien: If your payroll tax debt reaches a substantial level, the IRS may decide to claim a tax lien against your property. While they won’t necessarily begin collections, they will be staking claim to your assets and will be able to collect debts before any of your other creditors.
- Loss of business: This may include seizure of company property, including inventory and machinery. In the most drastic of cases, failure to pay your payroll taxes can result in jail time. Unfortunately for the taxpayer, the penalty is not dischargeable in bankruptcy.
- Jail time: In addition, failure to pay taxes can lead to criminal charges. If a business owner does not pay the payroll tax appropriately, it is possible to be convicted of a felony with a hefty fine and years in prison. This action is usually reserved for rare cases. Cases in which the taxpayer would be convicted of a felony would include those who diverted the money for personal use, instead of for the sake of the business, such as paying off creditors. A tax evasion penalty could lead to up to 5 years in prison or a $500,000 fine.
The severity of the tax penalty you face is based on how much you owe, how late your payroll taxes are, and whether the IRS believes you are intentionally evading your tax obligations. On the other hand, there are certain circumstances in which penalties for not paying employee taxes may be waived.
According to the IRS, any person who is required to responsibly and truthfully pay taxes and fails to do so will be liable to a penalty equal to the total amount of the tax that is not collected and paid over. This statement is key because it allows the IRS to put to task any person within a business who is responsible for the failure of the business to pay taxes. Therefore, the penalty can be imposed on any one person or multiple persons responsible, regardless of the business itself.
Working with a tax professional who can analyze your situation and make the best recommendations to resolve your payroll tax debt is essential to help you minimize the penalties you face.
How the IRS Determines Responsibility for Payroll Tax Debt
The person deemed responsible in the event that payroll taxes are not paid is a broadly defined term; this gives the IRS much freedom as to whom they select. When the IRS goes through the process of making this decision, they consider a variety of factors. The IRS will analyze who has the power to compel or prohibit the allocation of funds. They will also seek who has the authority to sign the checks. Furthermore, the IRS will find who has the power to make the decisions regarding the disbursement of funds and payment of creditors. They will also list who the officer or director of the corporation is, who controls the payroll of the company, who prepares and signs all payroll tax returns, who it is that actively participates in the management of the day-to-day operations, and who is responsible for the hiring and firing of all employees. Of course, there are many more factors at play that the IRS can use in determining whom to hold accountable as well. However, we can glean from the list that the IRS is interested in finding the employee who has the most authority and the IRS will determine if he or she is responsible for paying of the withholding taxes to the United States. The exception to this rule is that the IRS will not deem those responsible who are non-owner employees performing ministerial acts without exercising independent judgment.
It is not uncommon for the owner of a business—no matter how big or how small—to hand the responsibility of payroll taxes to another employee. However, if this employee fails to file payroll taxes appropriately, that does not necessarily leave fault to the employee. Whether the payroll taxes are paid or not still falls upon the shoulders of the authority in charge with responsibility. In addition, if the authority figure in question did not pay the payroll taxes off for fear of getting fired, the IRS does not excuse this fear as a good enough reason not to have paid the taxes. In essence, the courts have decided that the authority (an officer, for example) is not entitled to prefer his or her own interest in his or her continued employment over that of the government.
What Small Businesses Can Do to Prevent Payroll Tax Debt Issues
According to the IRS, small businesses are most likely to fail to pay their payroll taxes adequately, which in turn paints a target on their back for more thorough investigation on behalf of the IRS. This is understandable because many small businesses, especially those just starting out, may or may not have the technical knowledge and tax know-how in order to execute paying taxes correctly and efficiently. Because of the commonality of this issue, the IRS is more likely to focus its enforcement of tax regulations on small businesses more closely than others. As a small business owner, you may also be held personally responsible, and become the victim of levies that will then be enforced on your personal and business accounts simultaneously.
Every year, business owners find themselves in debt to the IRS and simply can’t afford to repay their full balances. Other business owners simply are not prepared and do not know where to start. Reach out to our experienced professionals to get expert advice and help you every step of the way.
Reaching a Settlement with the IRS for Payroll Tax Debt
Remember that the IRS wants you to pay your taxes, and they are willing to work with you in order to get your tax debt paid off. For this very reason, the federal government put several tax settlement service alternatives in place. These exist to find an agreement between what an individual can reasonably repay and what the IRS or state will accept from them.
A settlement typically involves a reduced balance and may involve completely removing an individual’s tax liability if the case calls for such a move. A business owner’s financial situation is the main deciding factor to determine his or her specific path toward tax debt freedom.
Why You Should Work with a Professional to Resolve Payroll Tax Debt
A lot of business owners—especially small business owners—ask why they should not just go it alone and find means of facing the IRS without professional help. The reason is simple, a professional team from Community Tax has the experience and the knowledge of tax law to make the turbulent journey to financial freedom much smoother. Not only does this process go much more smoothly with a trained and experienced expert, but some business owners will find that, without help, they are woefully unprepared for the subtle nuances of tax law and IRS stipulations. Without the proper expertise, you may not be able to navigate the IRS to attain the best repayment plan. Not everyone in the United States is taught what an Offer in Compromise is or how to determine their eligibility for Currently Not Collectible status. These tax settlement services are very difficult to negotiate without a strong case and a lot of support in the form of financial records.
You shouldn’t live in fear that your business and assets will be seized. If you have failed to pay your payroll debts or do not think you have the funds to pay them off yourself, then our professionals at Community Tax will be more than happy to help you negotiate a deal and represent on your behalf with the IRS.
How Community Tax Can Help You with Payroll Tax Debt Relief
Our professionals at Community Tax have knowledgeable and experienced tax preparers and tax negotiators to help you with your payroll tax debt relief services. Our tax preparers understand how to properly prepare your IRS Form 941 and 940 returns and remit your returns by the IRS deadlines or prepare timely after the IRS deadlines. Our tax negotiators know how to navigate the intricacies of the IRS tax code. Our knowledge of the IRS tax code allows Community Tax to negotiate the best resolution for our clients. First, Community Tax assesses your payroll tax debt. Then we provide a case review explaining your payroll tax debt issue include missing returns, tax balances owed and ways to resolve your payroll tax debt.
Resolve Your Payroll Tax Debt Now
Do not wait for the IRS to commence enforcement actions like levies and garnishments. If you need payroll tax debt relief services, let Community Tax help you understand your payroll needs and offer solutions to resolve your payroll tax debt with the IRS. Call 1-888-676-4319.