Employment Taxes: The Worst Kind of Tax to Owe
- July 21, 2017
- Posted by: [email protected]
- Category: Blog, Taxes
The average W-2 wage earner does not realize what a business owner has on their plate — payroll taxes and the deadlines it creates can be a major challenge. An employer must deposit and report payroll taxes by matching social security and medicare taxes paid by every employee, collectively called employment taxes or payroll taxes. After payroll is completed, there are certain time frames to be met by the employer to tender all of the employers and employees portions of taxes to the IRS—otherwise, penalties and interest will be assessed on the employer.
Here at Escobar & Associates, we believe the worst taxes to owe are these employment taxes and there is a succinct reason for this; as described above, the tax itself contains taxes withheld from employees as well as the employer’s matching portion. As a business owner, that money is not yours once payroll is made. The IRS strongly frowns upon not paying your employment taxes, and considers not paying them as stealing from your employees.
The Do’s and Don’ts Regarding Employment Tax
— Do not convert your employees to contract labor; you can get into more trouble by doing this if they are legitimate employees. The IRS has defined the difference between contract labor and employees and if an employer is caught, the employer can be subject to hefty penalties.
— Do not stop paying your employees to make up the taxes owed to the IRS; again, you can get in more trouble for this.
— Do not think that you can put this off once you get behind. This needs to be addressed as soon as possible because the snowball effect is crippling to small business owners—once you consider penalties and interest on top of the unpaid payroll taxes.
— Do seek the advice of a professional immediately, so they can help you assess and mitigate the problem. A professional should help you look at the cash flow of the business, explain the law to you, and come up with a plan to keep your business viable.
— Do address the varying factors of what happened. It is imperative to find out what happened. Simply saying “I did not have the money for the taxes” is not an answer. If left unaddressed, civil penalties can be assessed to the owners of an entity, which means the IRS can make the owner personally responsible for part of the tax. This is known as trust fund penalties.
The business may qualify for tax relief under certain conditions. One of the IRS’ first questions is to determine whether or not you have a viable business. If the IRS determines that you don’t, they can shut your business down. The IRS does not want a business to continue to owe the same tax.
I strongly urge anyone who owes this type of tax to give Escobar & Associates a call as soon as possible. The one thing you cannot afford to do is nothing.