Small Business Payroll Tax Liability
As soon as you hire employees and have payroll, you, the small business owner, as the employer, have a responsibility to submit the appropriate taxes to:
- The IRS (Withholding taxes, Social Security and Medicare)
- The State of Michigan – Department of Treasury (Withholding Taxes)
- The State of Michigan – Unemployment office (Unemployment Taxes)
You are custodian only of those taxes and must submit the taxes to the government agencies. You cannot tell an employee that you will pay them $10 an hour, give the employee $7 an hour in net pay and then not submit the $3 to the above agencies, plus applicable employer taxes.
But due to cash flow, slow customer payments or business slowing overall, you find that you spent the money you should have sent to the agencies. Now you cannot make the tax payments as planned. You owe $1,000, then $3,000 and now before you know it, you owe $12,000 in back payroll taxes.
To avoid payroll tax problems, consider:
- Tax Impounding: Hire a reputable full-service payroll company, such as Padgett Business Services, to impound 100% of the payroll taxes as the taxes are withdrawn from the employee paycheck. Padgett is a wholesale provider of ADP payroll.
- Payroll Processing: Hire Padgett (a sister company of Tax Debt Resolution Services) to process the payroll for you. Call in your hours to Padgett or input the hours yourself into the website. All IRS tax payments must be made via EFTPS. If you have not been able to make payroll tax deposits and need to discuss your options with a professional Tax Debt Resolution Representative, contact us immediately.
This approach is the best way to control your money, pay all taxes owed and stay out of trouble with the tax agencies.
If you have been paying your “workers” as independent contractors or non-employees but they really are employees, and want to treat them as employees without fear of owing the IRS back taxes with interest and penalties, in 2011, under the new Voluntary Classification Settlement Program (VCSP) you can treat your “employees” as such in the eyes of the IRS with minimal consequences. If you have:
- Paid the workers and issued 1099’s for the past three years;
- Not been under audit by the IRS.
You can then:
- Avoid past interest and penalties on past due payroll taxes.
- Agree to pay the employment tax liability that would have been paid on the payroll for the most recent tax year.
- Avoid an employment tax audit for worker classification from prior years.
When is a “worker” an independent contractor and when is the “worker” an employee? Refer to the IRS Employee vs. Independent Contractor Analysis. Your worker cannot tell you what they want to be. You look at the position open, fill the position with the appropriate worker (employee or independent contractor) and set the standards.
Too many problems occur when you hire a “worker” as an independent contractor and they should have been an employee. Such problems may be:
- Payroll tax audit by the IRS or State.
- Unemployment issue with the non-employee worker, the independent contractor, when the worker seeks unemployment.
- With the “worker” when they think they are an employee, and they believed you were submitting their payroll taxes.
Call Tax Debt Resolution Services at 586-323-2360 today, ask for Denise to assist you with any payroll tax liability or VCSP.