IRS Payroll Tax
Unpaid IRS payroll taxes can be a big problem for business owners who are responsible for withholding and depositing payroll taxes. Payroll taxes can add up quickly and are a substantial part of a business's cash flow.
What Is Payroll Tax?
Payroll taxes include employee income taxes, social security taxes, unemployment taxes, and state and local income taxes.
How to Calculate Payroll Tax?
Employers use Form W-4 to determine an employee's federal income tax withholding and calculate social security and medicare tax using Form 941. Form 940 is used to calculate and remit federal unemployment insurance tax. Employers may use the state equivalent of the Form W-4 to determine the correct amount of state income tax to withhold for employees.
Information for Payroll Tax Penalties
The IRS monitors payroll taxes closely because these taxes are withheld and deposited on the employees' behalf. Failure to collect these taxes from employers and any payroll tax debt generally results in great difficulty for the IRS to collect the payroll taxes from anyone. Due to this challenge, the IRS uses strong enforcement tactics to collect from the business owner and managers responsible for depositing these taxes with the U.S. Treasury.
Failure by the managers or executives of the business to withhold and pay the taxes can result in additional penalties and even criminal liability for a willful failure. The IRS also has the ability to assess a Trust Fund Recovery Penalty (TFRP) against persons it deems responsible for the failure to withhold taxes.
What is the Trust Fund Recovery Penalty?
The TFRP is a very powerful tool because it is very difficult for taxpayers to avoid and once assessed cannot be eliminated, even in bankruptcy, without negotiating with the IRS. The TFRP is equal to the tax that should have been deposited with the IRS, essentially swapping the unpaid employment taxes for a penalty tax equivalent that cannot be reduced without negotiating with the IRS. The TFRP cannot be discharged in bankruptcy proceedings for Chapter 13 or Chapter 7 bankruptcy.
Contact a Payroll Tax Attorney to Discuss Your Options
Taxpayers who receive an assessment letter from the IRS should contact Payroll Tax Attorney Andrew Steiger at Steiger Tax Law to discuss payroll tax relief or payment options for unpaid payroll taxes and help navigate the process to avoid an IRS criminal investigation. Read an additional blog post here on payroll tax penalties.