30 Jun Payroll Tax Resolutions: Effects & Implications
Taxes are the lifeblood of the government. Without taxes, the government cannot provide any kind of service to its people. As lifeblood entails, the government would be dead without taxes. This is why it is the responsibility of every person in the country to pay their taxes, making payroll tax an important aspect of employment. Of course, there are people who live under the poverty line and have to be excused from paying the obligatory taxes. But services could not be afforded to them without the taxes paid by income earners.
As an individual, it is important that you are aware of your tax obligations. And as such, you should know that a responsible employer should withhold taxes on your behalf. In essence, this is called payroll taxes. The employer becomes the withholding agent of the Internal Revenue Services. Included in the withheld amount are those that go to every employee’s Social Security and Medicare. Make sure you keep track of this to prevent a large tax issue that would result in a more complicated payroll tax resolution.
On the part of the employer, he should be aware that this is a responsibility he cannot renege on. This is like the negative side of hitting two birds with one stone. If the employer fails to withhold tax, it implies that he or the company is negligent with the responsibility over the employees. But more than that, it’s like the employer is keeping his employees from being responsible citizens by inadvertently causing them to fail in paying their taxes.
IRS Form 941
The IRS Form 941 is what employers use to report income taxes, Social Security taxes and Medicare taxes that are withheld from their employees. The document will also indicate the employee’s Medicare counterpart. The reporting is usually done quarterly. It is important that employers’ accomplish this form or else there would be no record of the employee paying his taxes. And as such, a penalty might be incurred. On the other hand, the employer will also incur penalties if he fails to file the said form before the IRS.
This simple form could actually become a major cause of stress for a lot of people—employees and employers alike—if not accomplished appropriately. Imagine that an error was made in the IRS Form 941 and there is no record in the IRS of tax contributions from a particular employee. But since the employee was confident that the employer is doing its job of withholding payroll taxes, then the employee did not bother checking it out. Until one day, the employee receives a demand letter from the IRS. Can you imagine the stress he will face?
The employee would be forced to experience dire consequences. One of the possible effects of failing to pay taxes is a tax lien or a tax imposed on a specific property as a means of securing payment for taxes owed. This is satisfied through the actual seizure of property or properties. But the worst punishment for failing to pay taxes is jail time. Can you imagine going to jail for a mistake you didn’t even do?
This is also the reason why companies should have at least one accountant. It is imperative that the company knows that calculation of taxes as well as the documentation. According to reports, one of the most common reasons for errors in payroll taxes is the lack of proper documentation. Runner-up to that is the wrong calculation. Numbers are obviously very sensitive and as such, should be handled only by people who are expert in numbers.
But if there are tax issues, the least that an employer can do is make sure that there is swift payroll tax resolution. Early detection means that the problem has not ballooned to epic proportions. If you detect any problem at all with the IRS, don’t wait for the federal agency to get in touch with you. Remember that the agency looks after the taxes of millions of Americans, hence, not everything will be settled.
Every day that the issue remains unresolved means penalty and interest rates. If the IRS determines that multiple people were involved in the failure to turn over payroll taxes, there is that possibility that the company will be financially held liable as mandated under the Internal Revenue Code Section 6672. Under this provision, anybody in the company identified to have been responsible for the non-payment of taxes will be assessed through the Trust Fund Recovery Penalty.
So make sure that payroll tax resolution is handled at the soonest possible time. You must also consider hiring a tax professional or tax expert.