Payroll Piggy Bank?
Payroll taxes have long been an annoying thorn in the side of business owners. Some entrepreneurs have even been tempted to borrow some of the money set aside to pay these levies. But the experts say you'd be foolish to fall into that trap.
The money you withhold from employee paychecks to pay federal income, social security and Medicare taxes is considered trust fund money and is collected and held in trust by employers for the federal government. The same is true for the state and local payroll taxes you collect.
Borrowing any of this money, even for a few days, is illegal and will result in substantial penalties and interest charges. While you may think no one will notice if you use the funds for a short period of time, you run the risk of not having the money available when it comes time to send it to the IRS or to your state and local government offices.
On top of that, "you and anyone who has signatory authority to write checks used to pay these taxes can be held personally and even jointly liable for all income and FICA taxes you or your employees willfully fail to withhold or pay to the IRS," says Thomas Ochsenschlager with accounting firm Grant Thornton in Washington, DC. The IRS defines "willfully" as any action that is done "voluntarily, consciously and intentionally." The federal tax agency gives business owners very few breaks in this area.
If your business hits a rough patch, you may also be tempted to send your company's payroll payments in late. Experts say make every effort not to fall behind, or you risk eventually losing your business. For the most part, federal payroll taxes are deposited with an authorized financial institution at least monthly. State tax deposits are usually made quarterly with the agency that administers the particular tax.
Ochsenschlager says the best way to stay out of hot water is to hire a payroll service to take care of these tax responsibilities for your company. These firms are competing for your business, and some are especially designed to handle the needs of entrepreneurs.
For more details on your payroll tax responsibilities, check out IRS Publication 15, Circular E, Employer's Tax Guide. For a copy, visit www.irs.gov and click on "Forms and Publications."
Great Falls, Virginia, writer Joan Szabo has reported on tax issues for 16 years.