Skipping payment of your payroll taxes is like poking the lion at the zoo through the bars. Eventually the lion, or in this case the IRS, is going to bite the stick or you. Correct withholding of payroll taxes from employee paychecks is a legal mandate for all employers in the United States. Employees logically count employers to hold the money taken out of their check for payroll taxes and then send it on time to the Internal Revenue Service. The IRS also counts on receiving those funds and it has severe penalties in place for companies that don’t comply with law and send the funds that have been set aside. The bottom line for the IRS when it comes to payroll taxes is if the funds held aside for payroll taxes are delinquent for 1 year or more, they will most likely see it as tax evasion and come after you with criminal charges.
Trust Fund Recovery
Responsible parties identified by the IRS can be personally charged
with the Trust Fund Recovery Penalty for unpaid payroll taxes. Responsible
parties are charged with the mandate to payroll tax deposits on time. This is
accomplished by collecting the taxes due, holding them in a trust account then
paying the directly to the IRS. The Trust Fund Recovery Penalty is severe. It
is equal to 100% of the payroll taxes due, plus and any penalties and interest.
Let’s say there’s a total of $8,000 due
including penalties and interest. If IRS charges the Trust Fund Recovery Penalty
to a business, any and all responsible parties will be personally responsible
to pay a total amount of $16,000.
Past Due Penalties Assessed
as a Crime
Payroll taxes that go unpaid can be assessed by the IRS as tax
evasion. If this turns out to be the case, a responsible person may have to pay
up to a maximum fine of $500,000, go to prison for 5 years and be required to
pay the taxes, interest and penalties still due, including the Trust Fund
The Lessons for Employers to be Learned About Delinquent Payroll Taxes
Payroll taxes must be paid on time. Responsible parties with
the duty to pay payroll taxes face severe penalties and potentially even
criminal consequences for unpaid payroll taxes.