What To Know About Payroll Taxes
If you operate a business, either as a sole proprietor or as another type of business entity, you not only have federal income tax obligations, but you also have payroll tax obligations.
Payroll taxes – also referred to as “trust fund” taxes because the government entrusts businesses to remit them – consist of taxes for Social Security and Medicare. Employers withhold these taxes directly from an employee’s check and remit them to the federal government, just as they do with federal income tax withholding.
If you’re a sole proprietor, you’ll need to handle your payroll tax obligations entirely on your own. This is one instance in which being an employee carries a distinct benefit, as employers foot half of the payroll tax bill for their employees.
Payroll taxes are paid on either a biweekly or monthly basis. Employers are required to report their payroll tax payments on a quarterly basis by filing Form 941. This form is fairly straightforward and simply requires an employer to add up the total payroll tax contributions within the given quarter.
How Payroll Tax Issues Develop
Although they are simple to understand in the abstract, calculating payroll taxes can be a bit more difficult. Social Security, for instance, is only collected up to a certain income ceiling. In some cases, after a certain revenue threshold, employers may be liable for an “additional” surtax for Medicare.
These difficult calculations can make payroll tax complicated. On top of that, companies often forget to keep track of payroll tax deadlines. These factors can contribute toward payroll tax noncompliance, which the IRS treats quite harshly. If a business fails to pay its obligations, for whatever reason, the issue can quickly escalate and become unmanageable.
As a short-term solution to immediate cash shortages, some businesses decide to “borrow” funds that should go toward payroll tax obligations. No matter the business’s intention, this strategy has a high likelihood of backfiring. Most businesses find that replacing these borrowed funds becomes increasingly difficult over time, and ultimately, the costs for borrowing the trust fund taxes significantly outweigh the rewards.
To recap:
- Payroll taxes are withheld to cover Social Security and Medicare.
- Payroll taxes are split evenly between employers and employees.
- Sole proprietors are responsible for covering their entire payroll tax obligation.
- Calculating payroll taxes can be challenging for many businesses.
- The penalties for noncompliance can be severe.
How to Resolve Payroll Tax Debt
If you run into payroll tax problems, whether through simple miscalculation or other means, you need to seek counsel immediately. As mentioned, the potential consequences for payroll tax noncompliance can be severe. The last thing you want to do is avoid this problem and allow it to compound. In this situation, reaching out to a qualified, licensed tax professional to assist you in your dealings with the IRS is the optimal solution.
Boxelder Consulting’s team of enrolled agents, tax attorneys, and accountants has a wealth of experience resolving payroll tax issues. We have helped countless people reduce their tax burden by negotiating settlements and penalty abatements directly with the IRS. Our relentless and diligent approach has saved countless clients millions of dollars and, in many cases, their business altogether.
When we deal with payroll tax problems, we take a two-step, long-term approach.
We first need to address the immediately pressing problem of resolving past-due payroll taxes. Then, after resolving this matter, we move on to ensure that the problem doesn’t repeat itself in the future.
One way to fix this latter problem is to work directly with a third-party provider. We have long-standing relationships with two of the largest payroll providers, ADP and Paychex, and can refer you to either one based on your needs.
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Reach out to Boxelder Consulting today to speak with a trusted team of tax relief specialists and calm your concerns regarding payroll tax debt. We believe in second chances. Start your comeback story today.