Find the latest news and information about issues with failure to file or pay payroll taxes and related to the trust fund recovery penalty.
Payroll Tax Information
Every business with employees is required to pay payroll taxes However, occasionally a business may find itself running short on cash with specific debts, such as rent and bills to suppliers for example, taking immediate priority over taxes and using the money collected and set aside to pay payroll taxes can seem like a quick fix.
What Every Business Needs to Know
The distinction between “employees” and “independent contractor” is significant when it comes to the responsibilities of the business towards that person. Employers must withhold income taxes from employees paychecks, Social Security and Medicare taxes, and unemployment taxes on wages paid to an employee, and generally do not have these responsibilities towards independent contractors.
Businesses are required to pay payroll taxes, which are computed and withheld from employees’ taxes. The employer is then required to turn over the withheld amounts to the IRS. Sometimes, however, the employer fails to turn over the withheld taxes to the IRS, instead using the payroll tax funds for operation costs and other purposes. Failure to properly remit withheld payroll taxes to the IRS can result in the assessment of significant civil and criminal penalties on the employer.
Taxation is just one of many areas of law involved in disputing a workers status as either an employee or an independent contractor for the purposes of payroll taxes. Because of recent improvements in the exchange of information between federal and state agencies, one investigation into a workers status may trigger another. Or, a dispute by one worker can domino into additional disputes by other workers.
By federal law, employers are required to withhold certain funds from their employees’ wages and pay them to the IRS in the form of income and payroll taxes. 26 US Code Sec. 6672(a) provides that “any person required to collect, truthfully account for, and pay over any tax,” who willfully fails to do so, is liable “to a penalty equal to the total amount of the tax” not paid over.
Nearly every business needs to hire or contract with other businesses or individuals to provide services in the course of running the business. In doing so, the owners and managers have a duty to determine if the individuals are employees or independent contractors. This decision-making process can often be ongoing.