If you run a small to medium sized business or even a large corporation and pay employees, you will deal with payroll taxes. Social Security, Medicare, and income tax withholding from employee wages is just part of normal business operations.

Note: Payroll taxes plus income taxes withheld from an employee’s wages are collectively referred to as “Withholding Taxes” or “Trust Fund Taxes.” As the employer, you essentially are holding these funds in trust until they are paid to the IRS.

As part of your business (and required by the IRS) you need to collect and pay to the IRS taxes that are withheld from employees’ wages. Together with your share of Social Security tax, these are then deposited in your bank account before being transferred to the IRS. You’ll probably be filing a quarterly federal tax return, otherwise known as a 941 Return and the annual Federal Unemployment (FUTA) Tax Return (940 Return).

Are you responsible for your Payroll Tax Problem?

So what happens if you have a payroll tax problem and you have to deal with the IRS to resolve it? First, you should be aware that Congress passed the Trust Fund Recovery Penalty Statute (IRC 6672) to encourage prompt payment of payroll taxes. Through this statute, the IRS can go after responsible third parties [IRC 6672]. How do you know if you are subject to this statute? Ask yourself:

  • Did you have a duty to account for and collect payroll taxes?
  • Were you responsible for giving them your trust fund payroll taxes?
  • Did you fail to hand over your trust fund payroll taxes?

So, we’re really dealing with two separate issues: collecting the taxes and handing the taxes over to the IRS. Not handling withholding and payroll taxes properly is a serious violation with the IRS. In fact, besides the amount owed, you could also pay serious amounts in penalties and accrued interest.

If the IRS can’t get it from the company, they will go after officers, directors, owners and others. The responsibility is usually held by a high corporate official in Finance who handles payments to creditors. If the IRS can’t collect, they will move to shut down the business and sell the assets. Although a last move, this could prove disastrous to any business.

At the law office of Steven N. Klitzner, we have the knowledge and the experience necessary to assist you and/or your business with your payroll tax problems. Dealing with tax issues can be one of the most stressful times of anyone’s life; don’t handle it alone – you need a tax lawyer who specializes in tax law and understands payroll taxes.


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