If you are a business owner, whether small or large, you need to be aware of the importance of paying your payroll taxes and filing your payroll tax reports. While you hear a lot in the news about people who don't file and/or don't pay their income taxes, you don't hear much about an equally common problem of businesses not paying their payroll taxes.

Some business owners mistakenly believe they can use the money they have taken out of employees paychecks to run their business. In the short run, that might look like a viable solution. In the long run, it is a recipe for disaster. Of all the types of unpaid taxes, the IRS pursues this type with the most persistence and offers the least amount of flexibility in repaying once you are behind.

It is important to remember that you have taken the Federal Withholding, Social Security and Medicare deductions from your employees' pay. This is money you are holding in Trust prior to payment to the IRS. You also have a portion of the FICA and Medicare due as the employer's portion of the total payroll taxes due. The seriousness of neglecting to pay these taxes to the IRS cannot be emphasized too heavily. Not paying these taxes is considered stealing, and the consequences are extremely serious.

If you do not pay these taxes on time, you incur penalties and interest. The same is true of not filing your 941 reports on time. The penalties for not filing your 941 reports on time vary beginning at 5% and increase each month by an additional 5% until they reach 25%. There is also a failure to pay penalty that starts at 0.5% and can also go up to 25%.

If you do not make your Federal Tax Deposits on time, you are penalized at 2-15%. These are just the penalties; you also will have to pay interest at the current interest rate. You also put yourself as owner, and anyone else who may be held responsible (including your bookkeeper if he or she can sign checks or is determined to have control over what bills are paid),at risk for the Civil Trust Fund Penalty or Trust Fund Recovery Penalty.

The Trust Fund Recovery Penalty is a penalty that can be assessed to an individual, even if your company is a Corporation. You as an individual are not protected by the company's corporate status from this penalty. The trust fund portion of the payroll taxes due (Federal Withholding, and FICA-the employee portion) can be assessed to you as an individual. What this means is that once this penalty is assessed, the IRS can come after your personal assets like bank accounts and personal property and/or file liens on your personal property, such as your home.

One additional piece of important information: Be sure when you are making payments on past due payroll taxes that you specify that you are paying the Trust Fund portion first otherwise the IRS will assume the payment goes to the non-Trust Fund portion. It is always in your best interest to pay off the Trust Fund portion first. The employer portion of the FICA cannot be assessed to the individual; it remains a debt of the company.



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