As an employer, you're responsible for collecting payroll taxes from employee wages and depositing the taxes with the IRS. The IRS takes these rules very seriously – so seriously that if your business willfully fails to deposit payroll taxes on time, the responsible person could be held personally liable for a penalty of 100% of the past due amount. In other words, if your company comes up short on payroll deposits, you might have to pay the entire balance out of your own pocket.
- Who is a "responsible person" for purposes of the penalty? You can be considered a responsible person when you're the active owner of the business. The definition can also be extended to others with authority over disbursing funds, such as the treasurer or other officer of the company, a bookkeeper, and even an independent third party.
- What is a "willful failure?" Typically, the penalty will apply if you knew or should have known about the unpaid payroll tax liability.
- What can you do to protect yourself? Make complying with payroll rules a top priority. Stay aware of due dates by setting up a "tickler" or reminder file, or notifications on an electronic calendar. Follow up to ensure that deposits have been made on time. Assign the task of payroll collection and deposits to a reliable employee and train backup staff to fill in during vacations or other absences.
You can't be too careful with your payroll tax obligations. Contact us for assistance and guidance whenever you have questions about your responsibilities as an employer.
Ong & Company is a professional accounting, tax, and advisory services firm. Our team of CPAs specialize in helping small businesses and individuals minimize tax expenses and maximize after-tax income. Headquartered in Corporate Woods in Overland Park, Kansas, we serve clients across the United States.