Business Payroll Tax Representation

December, 10 2024 by Charla Suaste

In this blog, we’re going to talk about small businesses and one of the most common tax issues they face: making sure their payroll tax is taken care of timely and properly.

Small businesses often lack funds, and one common mistake they might be tempted to make is treating the IRS like any other creditor. In turn, they may decide to delay payroll tax deposits. However, this can be a costly mistake and will result in swift IRS action.

 

Why are payroll tax deposits so important?

Every time you run payroll, you (or whatever payroll software you are using) should be deducting taxes from an employee's check. The taxes you should be deducting likely include the following:

• Employee’s share of social security tax
• Employee’s share of Medicare tax
• Federal income tax
• State income tax
• Applicable local taxes for employees

You are then responsible for passing those deducted dollars onto the IRS. So, when you fail to pay the IRS these payroll tax deposits, you are taking money from your employee’s paycheck and holding onto it or using it for other purposes. In turn, the IRS can issue a Trust Fund Penalty. (It is called a Trust Fund Recovery Penalty because you hold the employee’s money “in trust” until you pay the amount due.)

If the IRS believes or determines this has happened, they will quickly assign a Revenue Officer to investigate. Once the IRS assigns a case to a Revenue Officer, they will try to conduct a Trust Fund interview to determine 1) who the responsible party is and 2) to see if a Trust Fund Penalty can be assessed. The reason for the Trust Fund Penalty is to motivate businesses to pay their payroll tax on time.

If the IRS determines that you (or a group of individuals) are the responsible parties, you can each be held personally liable for the amount due to the IRS, plus interest. This is extremely important to note because the responsibility will not fall on the business entity itself but on any individuals determined to be “responsible parties.”

Should the IRS decide to assess the Trust Fund Recovery Penalty, they will issue you a letter informing you of this, and you will have up to 60 days to appeal this decision. If you believe you do not owe the amount due, it is imperative that you respond to this letter as quickly as possible. If you do not respond to the letter, the IRS will send you another letter simply demanding payment.

If you decide to appeal the decision and the IRS Appeals Office disagrees with your request, the only thing you can do is pay a portion of the balance due and then file a refund suit in the federal district court.

Of course, the goal is never to allow things to get to this point – but if it does, we recommend reaching out to qualified tax professionals to help you resolve the issue and provide guidance on how to prevent it from happening again. That is where TaxAudit’s Tax Debt Relief team comes in. We are here to provide guidance on any and all tax debt – whether it is for personal tax debt, business tax debt, or both! Our team will review your case and provide guidance on the best next steps you need to take. In some cases, they may even be able to speak with the IRS on your behalf. If you are not sure if our team is the best fit for you, that’s okay, too – that's why we provide a free, no-obligation consultation where you can chat with one of our team members and determine if we’re the right fit for you.

For more information or to get the process started, click here!