COVID-19 is having a drastic impact on Small Business Owners across the country and is creating a crisis for Small Business Owners in making Payroll Tax Payments timely. During any economic downturn, business owners often have to make difficult cash flow decisions. One solution is for business owners postpone making payroll tax payments to the IRS in order to make payroll for their staff, pay rent, and make other critical vendor payments. While this allows them to continue to operate in the short-term, there are long-term implications of this decision that these business owners are often not aware of or are a risk they feel they need to take to survive. It is critical that Small Business Owners have an in-depth understanding of Payroll Tax Problems!
How Does Payroll Tax Debt Differ?
As a general rule, the IRS takes a more aggressive stance towards businesses that incur payroll tax debt. The IRS tends to address these issues quicker, file Liens and Levy assets quicker, personally pursue responsible parties, and are more prone to criminal prosecution.
Why Is Payroll Tax Different?
Specifically, it is the Trust Fund portion of Payroll Taxes that trigger these actions. Payroll Tax is comprised of two parts:
- The Employer Portion – This consists of the Employer Paid Social Security and Medicare and Federal Unemployment Taxes.
- The Employee or Trust Fund Portion – These are the Federal Income Taxes withheld from an employee’s check as well as the employees portion of Social Security and Medical Taxes.
While all Payroll Tax is a priority to the government, it is the Employee or Trust Fund Portion that makes Payroll Tax Debt the highest priority with the IRS. These are monies withheld from the employee in trust and were due to the IRS. The employee will get credit from the IRS for payroll taxes withheld, and may even get a refund, whether or not the IRS receives the funds. This places a heavy unfair burden on the government and the taxpayers.
Risks of Improper Use of Payroll Funds
While business owners often intend to use these funds only temporarily, when a business is in trouble, they are often unable to get out of the circle they find themselves in. In addition to the risk of bringing the business down, the IRS may hold the business owner, and other responsible parties, liable for the Trust Fund portion, and assess the Trust Fund Recovery Penalty (TFRP) against the responsible parties. If considered egregious, the worst case is criminal prosecution.
Do You Need Help?
There are options if you find yourself with Payroll Tax Problems. Those include payment plans for salvageable businesses and a focus on protecting the personal assets when the business can’t be saved. If you need help with this or other IRS problems, I’d be happy to talk with you. Please give me a call at (972) 821-1991 or email me at [email protected] If you’d like to learn more about us, please visit our website at https://jablonskyandassociates.com/.
