Do you think that because you are a small business owner you do not have to withhold taxes from your employees' paychecks? Are you under the impression that the IRS will not notice the failure to remit tax payments? Even if the IRS does not immediately contact you regarding a failure to properly pay taxes, you can be sure that they do notice and you will suffer the consequences eventually.

What Are Payroll Taxes?

Every business must remit payroll taxes to the IRS quarterly, after withholding the taxes from every paycheck. Tax payments are due in March, June, September, and December. As a business owner, you are responsible for determining the appropriate amounts of federal income tax, Medicare, and social security tax to withhold from employee paychecks.

The federal government assesses payroll taxes and enforces compliance through the IRS. Payroll tax is the money an employer must withhold from employee wages and includes contributions to Social Security, Medicare, and unemployment insurance.

What Are My Responsibilities as an Employer?

If you own a business and have W-2 employees, you have some tax responsibilities related to your employees and your business. You must:

  • Withhold payroll taxes from your employees for the appropriate income tax amount with the correct deductions for federal and state income tax
  • Deduct FICA
  • Remit federal and state unemployment taxes
  • Submit quarterly tax statements

Depending on the size of your business, you may be required to remit payroll taxes directly after withholding them. With a little planning, you can avoid penalties for non-payment of payroll taxes.

Non-Payment of Personal vs. Payroll Taxes

If you don’t pay your personal income tax, you can be charged with tax evasion, failure to file, and failure to pay. You wind up paying penalties and interest based on your tax debt balance.

If you don’t withhold or remit payroll taxes, you can be hit with failure to file, failure to pay, and interest as well, but you may also receive harsher punishment. You may owe higher penalties and substantial amounts of money, for which the IRS can take your personal property, bank accounts, and other assets to pay.

FYI, you cannot discharge payroll tax penalties with bankruptcy. Owners, partners, and corporate officers are all held personally liable for unpaid payroll taxes, including consequences such as: 

  • You may be imprisoned.
  • You face significant fines, including penalty assessments up to 33% of what you owe.
  • You may lose your business in an IRS sale to pay back payroll taxes.

If you have business partners or corporate officers, they face the same penalties.

Resolution Strategies

If you're facing issues with unpaid payroll taxes, there are several things you can do to resolve your unpaid payroll taxes before things become really bad.

For starters, you should definitely get current on all your past tax returns and make up any current payroll tax deposits. File Form 433-B to allow you to provide details about your business income, assets, expenses, and debts. Then provide documentation including bank statements, profit and loss statements, monthly bills, and accounts receivable with aging reports.

After you do all that, request in writing an installment agreement with the IRS to allow you to pay down the rest of your payroll tax debt, penalties, and interest. If you cannot pay the total amount, even over time, you can apply for an offer in compromise or short-term deferral of your payroll tax debt.

Be sure to follow all IRS deadlines, or any payment plans or agreements may be revoked.

Learn more in our Employer’s Guide to Payroll Taxes.

Payroll Tax Help

As with failure to pay individual taxes, failure to pay payroll taxes will result in penalties, interest on back taxes, and having to deal with IRS collections. Even failing to pay payroll taxes on a quarterly basis can mean large penalties, even if you are withholding the taxes appropriately and were planning to make an annual payment. Penalties quickly add up, making it more difficult to catch up with back tax payments.

If you have failed to remit your payroll taxes to the IRS, your personal property may be at stake. Provided you are a business owner, and the IRS finds you personally responsible for the failure to pay taxes, they may issue a lien or levy on your personal property. Not paying payroll taxes for your business could even lead to losing your home if you do not catch up with payments in a timely manner.

Even if you have not yet received a notice from the IRS regarding back payroll taxes, you should hire a professional tax resolution company and bring your taxes up to date as soon as possible. You can avoid the negative consequences of dealing with IRS collections if you take care of the problem as soon as possible. If you've already been pursued by the IRS for collection of payroll taxes, you can get help from the professionals at Top Tax Defenders, who have over 27 years of experience helping clients solve their IRS tax problems. You should not delay taking care of the problem before it gets worse.


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