Every month, small businesses across the United States send money to the IRS to cover payroll taxes. This money is drawn from employee pay to cover things like Social Security, Medicare, and unemployment insurance. Although businesses know the rules, many of them still make mistakes. In fact, according to the IRS, they issued 6.8 million penalties that totaled over $4.5 billion for the year ending in September 2013.
Even though small businesses know that they’re supposed to be sending payroll taxes, the numbers show that many businesses are still making mistakes. Past due payroll taxes isn’t just a small mistake either. It’s a mistake that can lead to fines and even for your business to be shut down if it’s severe enough. The IRS is constantly striving to educate small businesses on tax compliance so they can avoid IRS penalties, tax debt and federal criminal investigations. Here are some of the things your small business needs to know about payroll taxes:
Small businesses are a target of increased enforcement
Small businesses are often the target of increased tax compliance enforcement from the IRS. The IRS has identified that small business owners are the largest source of uncollected taxes, which is likely why the IRS is harder on them – especially during economic downturns.
You can lose your business if you don’t pay your taxes
For the most part, you won’t lose your business right away if you fail to pay your taxes on time. Instead, you’ll receive a fine from the IRS. However, if you fail to pay for an extended period of time, it is a possibility.
IRS collection officers have the highest authority and power when it comes to collecting these taxes, and they’re known for their aggressive collection tactics. They have the power to shut down your business without obtaining a court order. They can seize your equipment and use it as collateral. They can even contact your customers. Although these aren’t everyday occurrences, they are examples of what can happen if you don’t deal with any outstanding payroll tax issues.
Not filing payroll taxes can be considered a federal crime
If you don’t file or pay your payroll taxes, the IRS can refer your case to the Criminal Investigation Division. If they can prove that you intentionally didn’t file or pay, your case will be sent to the Department of Justice for further investigation.
Borrowing from payroll taxes is against the law
Sometimes, small businesses use the money they collect from payroll taxes to pay for their operating expenses. However, the money collected from your employees for payroll taxes does not belong to your business and should never be used towards business expenses. In fact, using this money for your business is against the law.
The rules are constantly changing
As your company grows and hires more or different types of employees, the rules you have to follow change. It’s important to keep up-to-date with the laws and regulations surrounding your business, and you’re responsible for knowing any new rules if they should change. Tax collectors often change rules, meaning that even though you used to pay payroll taxes on a monthly basis one year, you could be expected to pay bi-weekly the next year. There are so many different rules to stay on top of, but as a business owner, it’s important that you take the time to learn these rules in order to avoid unnecessary penalties.
Outsourcing your payroll to a third-party company such as ADP is one of the best ways to ensure that you’re paying your payroll taxes on time, that you’re paying the right amount and that you’re in compliance with all governing rules and regulations. Payroll service providers take the guesswork out of paying these taxes and will always ensure that you’re in compliance with the IRS.