As a New York tax attorney, I see businesses throughout New York get into IRS payroll tax problems for all kinds of reasons.
The IRS takes payroll tax problems very seriously. Learn what you need to know about payroll taxes and trust fund tax problems before speaking to the IRS.
What are trust fund taxes?
As an employer in New York, you are required to withhold payroll taxes, which consist of Social Security and Medicare taxes.
This withholding from your employee’s salary is also known as FICA. You are also required to withhold income taxes from your employee.
Oftentimes, this is referred to by the IRS as “Trust Fund Taxes.”
Essentially, you are holding tax funds in trust until they are due to the IRS. This portion of taxes that is withheld from the employee’s pay are the trust fund.
Payroll tax problem representation and negotiation is very difficult and as such, it often advisable to have experienced Long Island tax lawyer Charles Rosselli of the Tax Problem Law Center represent your interests.
Payroll Tax Requirements
As part of your small business, you typically file a quarterly tax return, also known as a 941.
You are also required to file an annual federal unemployment tax return, known as a 940 return.
Responsible for Unpaid Payroll Taxes
IRS 6672, also known as the Trust Fund Recovery Statute, governs the issue of “responsible party.”
The employee’s total withholdings are referred to as the Trust Fund and the IRS wants to hold anyone who is willful and responsible for repayment of the taxes personally.
In general, the issues revolve around the issue of control and responsibility as it pertains to the accounting and the collecting of payroll taxes on behalf of your small business.
A tax attorney should help you determine whether you are responsible for your payroll tax problem.
If you failed to pay the “trust taxes” that were due, the penalty is 100% of the trust fund taxes due. The responsible party or parties will be assessed the trust taxes and the penalty.
The IRS takes a very aggressive position when it comes to payroll taxes.
The IRS will pursue the company as well as its owners or officers.
Typically, an IRS Revenue Officer will be assigned to your tax matter and you will be called to the local IRS office for a Form 4180 interview.
This interview is often called a Trust Fund Recovery Penalty Assessment (TRFP).
After a 4180 interview is conducted, the Revenue Officer will issue letter 1153, which will assess all responsible parties.
Payroll Tax Problem Consequences
The IRS starts adding interest and penalties to your IRS tax liability if you do not file your payroll taxes when it’s due.
If your business has cash flow issues, this will just add to your tax problems.
Failing to submit payroll returns by the deadline will increase the penalties that the IRS can attach to them.
Penalties can range from five per cent to twenty-five per cent each month. Your tax problems are growing each month because interest is compounding and the penalties are accruing.
The IRS may put a levy on your business assets or put you out of business if you dismiss the notices they serve about your payroll tax problem.
If determined that the non-payment or late filing of payroll taxes was your fault, you’ll be paying a Trust Fund Recovery Penalty that includes payroll taxes and accumulated penalties and interest
Payroll Tax Problem Solutions
IRS tax settlement of your payroll tax problems is possible. However, one of the first steps is to determine the viability of your small business.
IRS collection efforts may also involve asset seizure, which essentially will shut down your business.
First, we recommend that you get current with your 940/941 filing requirements.
Then, we can pursue a hold on IRS collections, a payment plan with the IRS, or potentially an Offer in Compromise.
There is no “one size fits all” solution and an experienced IRS attorney should review the specific details of your tax problem.
As a tax attorney and small business owner myself, I understand your payroll tax issues.
Your biggest customer doesn’t pay you on time, you get a bad check from a client, unexpected repairs on business assets, bad weather, poor economy, and a new competitor has totally changed the marketplace and so on…
How are you supposed to control all these outside variables?
Many businesses having financial issues submit payroll returns late and hold off paying payroll taxes.
The IRS tax liability of the business begins to accumulate and this is the beginning of your payroll tax problem.
You’re using your employees’ money to settle your other liabilities when you fail to submit payroll taxes.