Who is responsible for your company's payroll tax liabilities?

Any business that has employees is responsible for collecting and paying payroll tax. The most common liabilities are federal income tax, state income tax, Social Security, and Medicare. The percentage of payroll tax will vary from state to state. For example, residents of the state of Florida (as well as several others in the country) don't pay income tax which lowers the overall payroll tax liability compared to other states.

Hopefully, you have realized by now that the government takes tax collecting very seriously. When a company doesn't pay payroll taxes, the IRS will use trust fund recovery penalties to collect the taxes owed. All of that probably seems normal to you. Of course, the government wants to collect unpaid taxes. But there's something different you need to know about payroll tax liabilities. 

Trust fund recovery penalties hold individuals, not corporations, responsible for non-payment. According to the IRS website, "If you are a person responsible for withholding, accounting for, or depositing or paying specified taxes…you can be held personally liable for a penalty equal to the full amount of the unpaid trust fund tax, plus interest." This includes company owners and employees. Failing to meet your responsibilities can carry hefty consequences. 

The statute also states that the person must have "willfully" neglected to pay payroll taxes. One example they give is employees who use payroll tax money to pay other expenses within the business. Remember that the money collected for payroll taxes is not free money and must be submitted quarterly or risk facing significant personal repercussions. 

When you think of the things that could go wrong when you don't do your job correctly, you're probably not thinking about something like this. But the risks are real, and the responsibility to pay payroll taxes to the IRS is serious. Whether a sole proprietor or the company bookkeeper, you can be held responsible for the lack of payment. So, before you try to game the system, think seriously about whether or not it's worth it. In my professional experience, it's never worth it.

If you have more questions about payroll taxes, or if you require assistance navigating a sticky situation with the IRS, give us a call. We're experts in this field and would be happy to help.