If you own a business and have employees, then you are familiar with payroll and the payroll tax the IRS collects.

As the employer, you are responsible for withholding certain taxes from your employees’ wages each pay period and paying that sum to the IRS. This is what we term “payroll tax.”

Payroll Tax Typically Includes

Social Security tax (6.2% employee portion plus 6.2% employer portion)

Medicare tax (1.45% employee portion plus 1.45% employer portion)

Federal income tax withholding

State income tax (if applicable) withholding

State unemployment tax

Federal unemployment tax

How Payroll Tax Works

After you have withheld the payroll taxes from your employees’ pay, you are supposed to send it to the IRS and State. Once they receive it, they credit the amounts to the income tax, Social Security, and Medicare accounts of each person. Therefore, the money belongs to your employees, and if you do not send the correct amounts of payroll taxes, you are creating a problem for them as well as yourself. Not paying the correct amounts for each employee in full and on time will result in penalties.

Penalties

The Trust Fund Recovery Penalty is 100% of the unpaid trust fund tax. It may be applied to all individuals that the IRS determines acted willfully in not fulfilling their responsibilities for collecting, accounting for, or paying over those taxes. However, the penalties do not apply if the IRS accepts that a failure to make a proper and timely deposit was due to reasonable cause and not willful neglect.

For late or missing payments that do not yet rise to the level of the Trust Fund Recovery Penalty, the IRS may initially impose the Failure to Deposit penalty. This penalty adds a surcharge to the amount owed based on how late an incomplete or missing scheduled payment may be. These surcharges are calculated as follows:

Calendar Days Late                                                          Penalty for Missing Amount

1 to 5                                                                                    2% of the unpaid deposit

6 to 15                                                                                  5% of the unpaid deposit

More than 15                                                                    10% of the unpaid deposit

More than 10 days after IRS letter                              15% of the unpaid deposit

As we can see, the IRS has the power to impose some very strong penalties for businesses that fall behind in their obligations to make the scheduled payroll tax deposits. However, you don’t have to handle matters on your own. Our team of tax professionals are here to help with all things tax and IRS representation.

Call us today at (402) 932-8815 to seek assistance in dealing with the IRS and processing future payroll tax returns.

Sincerely,

W.E. Stevens PC