I hope you have managed to stay safe and well! We focus on resolving tax issues in Prince William County and throughout the lower Northern Virginia area.
Today, we are going to switch it up a bit, and discuss the role of payroll, and the hidden issues that could lurking for unsuspecting businesses that use very large payroll providers, but opt for a package that they don’t really understand their responsibility in relation to the Federal government or the states in which they operate. First, all taxpayers that provide payroll need to be enrolled in the Electronic Federal Tax Payment System (EFTPS). You can enroll at: https://www.eftps.gov/eftps/ . Even though a number of payroll packages include tax filings and tax deposits, some do not include these services and the information is not prominent each time you process payroll. Due to our work in the tax resolution space, one of the first items we check upon onboarding a new accounting/bookkeeping customer, are their payroll liability reports. These reports will tell us who has the responsibility of making the tax deposits. Normally, whoever has the responsibility of making the deposits, will also have the responsibility of filing the payroll tax returns with the appropriate regulatory bodies.
Plenty of business owners believe that they are receiving payroll at an unbelievable price from a mega payroll provider, only to discover (sometimes years later), that not only have no payroll tax returns (Form 940 and Quarterly Form 941s), but that no tax deposits have been made on behalf of the business (nor the employees) either! Ouch! And as you might guess the IRS absolutely hates this, because they are essentially hit with what would a trifecta of possible missing tax revenue. First, they quite possibly had to issue refunds to taxpayers (employees that had money withheld). Second, they never received any of the tax revenue, that the business owner is said to be holding in trust for the tax agencies, until they forward such tax revenue. Third, the business owner may have paid themselves to account for reasonable compensation, that would in turn allow them to avoid self-employment taxes (or at least 60% of the total)
Often, willfully not making payroll tax deposits is referred to as the easiest loan to obtain and the most difficult loan to payback. The deadlines for making the deposits are very strict (larger the filer, the more frequent the timing of the deposits must be), and can be the cause of huge penalties. Resulting in business owners paying in many cases (triple the amount of tax originally owed). In case you’re wondering about the statute of expiration, the timeline is essentially double from 10 to 20 years (Possibly with Revenue Officers after you the whole time), because the penalties assessed receive their own statute date, in an attempt to make sure that the business owner is less likely to wiggle free of their obligation of paying the taxes.
Remember to choose a payroll provider and plan that suits your needs and capabilities. There are plenty of payroll providers, firms and accountants (like us), that will process your payroll, help you make the tax deposits, prep and file the payroll tax returns for you.
If ever you’re feeling overburdened by your tax situation or you’d rather be doing something else with your time, just remember we’re here to help you with all of your tax preparation, resolution/representation needs. Now and in the future. Don’t put off addressing your tax situation. Feel free to contact us with any questions you may have in approaching your specific tax scenario.