Learn tax basics of payroll taxes
  • January 15, 2016
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So many companies are downsizing, shrinking staff, declaring bankruptcy, or shutting down completely. The most common reason is failure to pay or settle their payroll taxes. Payroll taxes, also known as employment taxes, and frequently referred to as 941 taxes, are State and Federal taxes imposed on employers on behalf of their employees. Many cash-strapped companies, including start-ups and big corporations, fail to pay their payroll taxes when due. State and federal tax authorities typically do not come to the doorstep demanding money; they wait until the company accumulates cash to settle the debt. Unfortunately, when profits don’t rise and cash dwindles, the problem compounds.

Eventually, the company’s owners will find themselves face-to-face with a tax collector asking for payment of the money owed plus interest. If you are new to corporate tax issues and need help finding your way around payroll taxes, this post will help you understand the nitty-gritty of employment tax and ways to insulate yourself against personal liability for outstanding amounts.

Effects of Payroll Tax Default by Corporations

If outstanding 941’s are not paid immediately upon due date, the tax authority may impose tax liens on company property against the outstanding amount, including penalties, and interest on the amount what are assessed to the company. In the process, many company executives find their personal savings and property being drained to cover company liabilities. More often than not, their innocent spouses come under the scrutiny of the IRS. Non-compliance with provisions of the Tax Code results in the owners being stripped of their company and in some cases personal property. Each state has varying parallel schemes to recover money from defaulting employers.

Trust Fund Recovery Penalty (TFRP)

If you are a business owner employing any number of people, it’s imperative to become familiar with the provision that requires you to withhold payroll taxes and submit them to the IRS. This provision set forth by the IRS is called the Trust Fund. According to IRS guidelines, employers are required to deposit the withheld income and employment taxes as well as a matching contribution on their part, every quarter (three months) . These taxes are called fund taxes as employers hold their employee’s money in trust with a promise to make a federal tax deposit. Employers who fail to comply with this payroll tax requirement face Trust Fund Recovery Penalty (TFRP) from the IRS.

Are you liable for TFRP?

If you are responsible for accounting, depositing, and withholding specified taxes including, payroll taxes of a company, and fail to do so, you are liable for a penalty equal to the full amount of the unpaid trust fund, plus interest. If you are in top management of a corporation, a partner, sole proprietor, employee, trustee, or agent, with authority over business funds, you can also be held personally responsible for the penalty.

Your spouse can also be liable

Tax authorities leave no stone unturned to recover tax and Trust Fund Penalty debt. If the money is not paid immediately, the IRS may contact your spouse to try talk him or her into an agreement to pay off the debts. The IRS can also impose a tax lien against your spouse’s property disabling him/her from selling or mortgaging the property. A tax lien against you or your spouse is a matter of public record and can negatively impact their employment.

Escaping Joint and Several Liability

There are 3 courses of action that can provide help to spouses who file jointly from personal liability. These are:

  1. Innocent spouse relief
  2. Separation of liability relief
  3. Equitable relief

Each offers relief under different circumstances. Make sure you seek advice from your tax attorney to gain a thorough understanding and take advantage of the right one.

The Bottom Line

If have fallen behind on payroll taxes, hire competent tax counsel so you don’t fall victim to incorrect assessments from tax collectors. Let the Nick help you navigate through the maze. Call for your complimentary consultation now.

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Carla AtwalCarla Atwal
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Miguel AlvaradoMiguel Alvarado
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Lucy FoyLucy Foy
06:55 19 Jan 24
My first appointment I had with, Tax Attorney Nick Nemeth, gave me such a sense of relief. He listened and gave me his professional advice, Mr Nemeth took my case. I was well kept updated, by phone calls and letters. That really impressed me and gave me so much confidence in them. The case went on for a couple of months. The day I received the call from one of his team members Kyle, informing me that the case was resolved and that I owed absolutely nothing to the IRS, I was overwhelmed with joy. I would recommend this law firm to anyone that needs help, with any tax issue. Thank you, to the Law Firm of Attorney Nick Nemeth and his team.
Bradley RunyonBradley Runyon
20:17 13 Jan 24
I received a tax bill in the mail from the IRS last year in 2023. The fees and penalties I owed were something I myself could not afford. I reached out to Nick Nemeth's firm and received the best experience you could imagine. The team was professional, educational, and fast. If you have a tax issue with the IRS using another firm other than Nick Nemeth's would be an error in judgment. I would recommend their services above others.
Sue HulsemanSue Hulseman
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Working with Nick Nemeth and his team to resolve my debt with the IRS was the best decision I could have made. I felt such relief knowing I didn’t have to deal with the IRS myself. They did a wonderful job and were responsive to my questions and kept me abreast of my case. My outcome was exactly what I was hoping for. I strongly recommend using them if you have an issue to resolve with the IRS.
20:53 21 Dec 23
I had an incompetent tax preparer, who also ignored several notices from the IRS, which in the end resulted in a lien on my property. I did not know what to do and an attorney friend recommended that I contact the Nick Nemeth Law Offices. I met with Jamie Flores and Ivan Nalbantov in December 2021 for a free consultation, and right away was impressed by their thorough examination of my paperwork and extensive knowledge of IRS tax laws. I felt not pressured and appreciated their advice and in the end decided that I would pursue resolving the issue by myself. I paid the IRS Civil Penalty and, as recommended also submitted a letter to the IRS requesting a refund and explaining what happened. I am glad to report that my persistence finally paid off. My case took two years to resolve and I finally received a full abatement/refund check from the IRS in December 2023. I could not have done this without the straightforward recommendation of Jamie and Ivan; and I highly recommend the Nick Nemeth Law Offices to anyone needing help with the IRS.
Susan WilsonSusan Wilson
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I would like to thank Mr. Nick and his staff for the superb help that I received from them. My IRS problem was resolved quickly and efficiently. It took 2 visits to convince me that I was over my head. I thought that I could call the IRS, appeal my tax notices and settle on a payment plan on my own. After many phone calls to the IRS, waiting sometimes more than 4 hours with no resolution to speak of, it proved to be extremely difficult and stressful. Revisiting Mr. Nick was a huge wake up call. My account was reviewed, and a payment plan was established with the IRS within a week. I will be forever grateful to the staff who worked on my case and especially to Lorna who listened to me vent while going through this painful process.
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I cannot say enough good things about Nick and his team. When I first met with Nick he was up front, honest, friendly and efficient. When I worked with one of his attorneys, Eric B, I was just as pleased. All of the staff there are nice and very helpful. I wish I hadn't waited so long to get help with my issue. Over 6yrs I tried getting through and getting anywhere with the IRS and hardly made any progress. I know this may not be the case for all, and even I thought it would take longer than it did, but 3mos and they had my situation straightened out. I still can't believe it. Thank you thank you THANK YOU for all that you did for me. This is a huge burden gone out of my life now thanks to you. If anyone needs help out there, I know you may not want to shell out more money to get their help but it may just save you in the long run.
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