Articles Posted in Payroll Taxes

In general, the IRS imposes a penalty against any person who has the obligation to either collect, or pay over employment taxes that are withheld from an employee’s salary, when those monies are not paid to the IRS.  Often this happens, when a business is having financial difficulties and uses the payroll withholding to pay other expenses. IRS Tax Relief is then needed.

The Trust Fund Penalty is not a true penalty. It is the amount of monies that should have been paid to the IRS, that were taken from the employees wages (federal withholding taxes, and social security). Therefore, it is actually a portion of the the wages which were not paid, and not a true “penalty”.  Therefore, this penalty does not include interest and penalties charged against the employer for the failure to pay in the taxes owed. However, once the assessment is made against the person, interest will begin to accrue and you will need IRS Tax Relief.

a7-300x150The IRS can collect from an officer, member, partner or other owner or operator of the business. It sometimes comes as a shock to a person that they are liable for the unpaid taxes since they may have been an owner of the business but not in charge of the financial affairs of the business. In addition, the penalty can be assessed against more than one person, but once it collects it from any other party your liability will also be reduced.

To start and grow their businesses, small business owners must wear many hats and become pseudo-experts in marketing, sales, accounting, tax planning and human resources matters. Given the varied and complex nature of each one of these business principles, it’s no wonder that many small business owners make mistakes that, if not corrected, can end up costing them dearly.

Earlier this month, the shipping and delivery giant FedEx agreed to settle what’s being called a landmark employment and tax case. At issue was whether FedEx erred when the company classified delivery drivers as independent contractors rather than employees. While the company maintains it committed no labor law violations, its decision to settle the case for $228 million speaks volumes and serves as a wake-up call for all U.S. employers—big and small.

For an employer, classifying a worker as an independent contractor is a much more attractive and much less costly option than to classify a worker as an employee. Employers aren’t required to pay payroll taxes on independent contractors or provide these workers with health, retirement or time-off benefits. Additionally, while employees are protected under federal wage protection and anti-discrimination laws, these protections don’t extend to independent contractors.

Being audited is a big fear for many New Yorkers, especially around this time of year. It can not only be a long and burdensome process, it can also be quite scary because of the potential penalties involved.

Unfortunately, if you are an on-demand worker, such as a driver for Uber, Sidecar or Lyft, it is almost inevitable that you will be audited at some point in the near future, according to article.

As the article pointed out, these businesses don’t operate like typical big-name companies because many of the people who work for them are independent contractors, not employees, which creates some unique tax issues.

The Internal Revenue Service requires that employers withhold taxes from the wages of employees, and employers are required to contribute similar taxes. This is commonly referred to as “payroll taxes,” and can include income taxes, Social Security taxes, and Medicare Taxes.

The IRS requires that employers file documents with the agency to report the funds being withheld. Employers must file Form 940 and Form 941. Form 940, the Employer’s Quarterly Federal Tax Return, is where employers report Social Security and Medicare taxes withheld. Form 940, the Employer’s Federal Unemployment Tax Return (FUTA Tax Return) provides funds for paying unemployment compensation to employees who lose their jobs. This tax is solely paid by employers, and most pay this unemployment tax at both a federal and state level.

If you are a business owner with employees you must file these forms. The IRS views the failure to pay payroll taxes as a serious violation. If a business owner does not pay the required payroll tax for their business, the IRS will take action. The IRS will be able to collect on the payroll tax owed, as well as penalties and interest on the tax debt owed. The IRS often tries to impose a Trust Fund Recovery Penalty (TFRP) on a responsible person when taxes are not paid.