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Why You Must File and Pay Your Employees’ Withholdings on Time

February 20, 2018 by Heyward CPA

Image credit: stocksnap.io

There is zero wiggle room when it comes to handling the federal income taxes and FICA taxes withheld from employees’ paychecks. The taxes are government property, which employers hold “in trust” and then remit to the IRS on a set schedule. Employers are not permitted to use this “trust fund” money for other purposes.

Serious Penalty

The penalty for breaking the rules is harsh. Any person involved in collecting, accounting for, or paying the trust fund taxes — a “responsible person” — who willfully fails to do so may be liable for a penalty equal to 100% of the unpaid taxes. The penalty is aggressively enforced.

Responsible Persons

Generally, a responsible person is anyone with the power to see that the taxes are paid. This might include a corporation’s officers, directors, and shareholders; employees; and the partners in a partnership. Under certain circumstances, even family members and professional advisors may be subject to the penalty.

It’s not uncommon for there to be more than one responsible person. When that’s the case, each responsible person could be found liable for the full penalty.

A Word About Willful

Failure to pay trust fund taxes can be willful without being an intentional attempt to evade paying the taxes. Temporarily “borrowing” from the trust fund to meet bona fide business expenses in a pinch can qualify as being willful.

For more tips on how to keep business best practices front and center for your company, give us a call today. We can’t wait to hear from you.

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