Do You Fully Understand Your Payroll Responsibilities As A Business Owner?
There are many responsibilities that fall on business owners. One of the most essential duties of a business owner with employees is payroll. Employers are responsible to handle any IRS payroll liability. If the employer fails to meet timely filing and payment, it can lead to many negative consequences. The employer may become subject to an IRS Trust Fund Interview.
Business Owners/Employers should understand payroll responsibilities.
IRS payroll liabilities revolve around many types of tax and contributions that an employer may be responsible to withhold from an employee’s wages. These withholdings typically consist of federal income tax, social security tax (FICA), and Medicare tax. Employers are required to match the employee’s social security and Medicare contributions. In addition, employers are responsible for federal and state unemployment taxes (FUTA and SUTA, respectively), and workers compensation.
Employers are required to remit timely payroll taxes regularly to the IRS. The IRS recognizes that the withheld portion of payroll taxes is not the employer’s fund, but rather part of the employee’s compensation that the employer must remit to the IRS (hence, the reference to Trust Fund). If the employer fails to remit the payroll deposits, it may result in burdensome penalties and interest. If the employer owes payroll liabilities, it could lead to collection enforcement. Collection enforcement may include levies and may even result in the IRS pursuing individuals who they believe are responsible.
Trust Fund Interviews and Penalties
The IRS can pursue an individual they believe is responsible by conducting an IRS Trust Fund Interview. During the interview, the IRS will ask a series of questions and review information/documentation, in order to determine who had decision making authority and responsibility. The interview may include discussions with business owners, officers or any employee who handled check signing, deposits and/or payment of any financial obligations. After the interview, the IRS will work to determine and hold a particular individual liable for any unpaid portion of payroll tax that is due. This includes determination of who willfully neglected to timely file and deposit payroll tax.
If you or someone you know if facing a challenging Trust Fund Interview or potential payroll tax problems, the following should be considered before making a decision on how to proceed:
- Compile and review all relevant financial information related to the tax periods in question. These records could include, but are not limited to, bank statements, payroll records, applicable tax forms, and a list of people involved in payroll tax payments.
- Consider retaining a professional to review the information, discuss options and meet with the IRS. A tax professional can assist with navigating the Trust Fund Interview process.
- Make sure you comply with all IRS requests. Again, it may beneficial to involve a tax professional to review the requests and guide you on how to compile the appropriate information.
- Familiarize yourself with the taxpayer rights and the Trust Fund Interview process.
- If you believe you have legitimate reasons for the failure to pay payroll taxes, make sure to document them and have back up documentation to provide, if needed.
Again, business owners have an obligation to submit payroll tax liabilities to the IRS. Failure to make appropriate payroll tax deposits can lead to negative tax implications. If you find yourself facing a Trust Fund Interview, be well prepared and seek legal advice as needed.
