Paying Employment Taxes on Time

Some businesses may be tempted to delay remitting Social Security and Medicare (FICA) taxes and income taxes withheld from employee wages when they experience a cash crunch. Unfortunately, that approach is likely to create serious problems with the IRS.

IRS Requirements

All employers, no matter how many employees they have, must meet certain employer tax obligations. These include:

• Withholding income taxes and the employee portion of FICA taxes from wages and certain other compensation payments
• Paying the employer part of FICA and federal unemployment taxes (FUTA)
• Depositing the employment taxes
• Filing employment tax returns 

Penalties for Noncompliance

The IRS can levy a penalty against any individual in the company identified as a “responsible person” who willfully fails to collect or truthfully account for and pay FICA and income taxes required to be withheld from employees’ wages. The penalty is equal to 100% of the total federal income taxes and FICA taxes due that were withheld from the pay of employees and not remitted.

Who Is a “Responsible Person?”

Generally, the company officers and employees in charge of accounting functions are considered by the IRS to be “responsible persons.” However, the IRS broadly defines the term and also examines whether or not the individual:

• Has a major influence in deciding which of the company’s bills or creditors will be paid
• Has the authority to sign company checks
• Handles the day-to-day financial management functions of the company
• Is an officer or member of the company’s board
• Has an ownership interest in the business

Staying in Compliance

No matter how tight cash flow may be, you should pay all withheld taxes on time. If your business experiences frequent cash flow problems, please contact us.