Employment
taxes information
Employers are required to deduct and withhold a specified percentage
of the wages actually or constructively paid to your employees
- and then pay that amount to the Internal Revenue Service.
The employer is liable for these amounts whether or not the
taxes are actually withheld from the employee's wages - and
to pay certain other taxes also based on a percentage of the
employee's wages.
The
amounts required to be withheld from an employee's wages are
called "trust fund" taxes. They consist of withholding for federal
income tax and withholding for the employee's share of Social
Security ("FICA") taxes. There is no general requirement that
the withheld sums be segregated from your general funds or be
held in a special account. In addition to the trust fund portion
of employment taxes, an employer is required to pay its allocable
share of FICA taxes and all of the Unemployment Insurance ("FUTA")
taxes.
Collectively,
the amounts withheld from employees' wages and paid directly
by the employer are called "employment taxes."
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Can
the employer use the withheld funds?
While
there is no requirement that the employer put the funds in a
separate account, it may be a good idea to do so - and a bad
idea to use those funds for any purpose other than payment of
employment taxes.
When
an employer is struggling, perhaps on the brink of going under,
the employer may be put in the position of having to choose
between paying a creditor for needed services or products or
remitting employee withholding and employer employment taxes
to the IRS. Perhaps the employer's only available source of
cash is that withheld from employees' wages; or, the employer
may justify the use of such funds as a short-term loan. Whatever
the circumstances or justification, it is a bad idea to not
properly withhold or not remit employment taxes and may subject
the employer, even if doing business as a corporation, to personal
liability for the taxes as well as penalties and interest. The
plain fact is that few creditors have the collection power of
the IRS and few creditors can shut you down and collect their
money faster than the IRS.
The
IRS views employment taxes as the government's money, not your
money, not the taxpayer's money, but money belonging to the
United States Treasury. The IRS takes this very seriously. Thus,
in general, the IRS is extremely strict with regard to the payment
of employment taxes and the collection of outstanding employment
tax obligations. You simply should not expect any leniency from
the IRS in this area. For more information on employment taxes,
consult with an tax attorney in your area.
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