Managing the Payroll – Never Mess Around with Payroll Taxes
One common and potentially business-crushing mistake made by new employers is using withholding taxes as a business bank account. Rather than make payroll deposits in full and on time, they cover their other cash-ﬂow gaps by borrowing from the payroll tax account. Doing that is 100 percent illegal, and the penalties are pretty stiff, often enough to put small businesses out of business.
Withholding taxes fall under a special set of laws, different from virtually all other kinds of taxes. That’s because the money you withhold belongs to your employees, not to your company, and you hold that money in trust for them until you turn it over to the government on their behalf. When your company doesn’t make the payments, both civil and criminal penalties may apply.
The biggest is the 100 percent penalty, and you can be held personally liable for paying it. If the IRS can prove that your company willfully didn’t pay the taxes, you’ll have to pay both the taxes and the penalty, which can be equal to the total taxes that were due. Willful nonpayment means that you chose not to pay the taxes, for whatever reason; not paying them because your company doesn’t have enough money counts as willful nonpayment.