Business Tax and Employment Tax 940/941

What are Payroll Taxes?

Payroll taxes are income taxes withheld from an employee’s  income, including Social Security and Medicare taxes. All employers are legally required to withhold payroll taxes from the paychecks of their employees and place these taxes within a trust to be paid to the IRS.

How did I accrue payroll tax debt?

When employers, knowingly or unknowingly, fail to withhold payroll taxes, or fail to have the money within a trust to send to the IRS, they acquire a payroll tax debt.

Payroll tax is considered a trust tax where it is the responsibility of employers to pay taxes on behalf of their employees to the IRS from a trust. The “trust” comes in where the employee’s federal tax withholdings and the employee’s portion of FICA are withheld and held in trust to be delivered to the IRS in the form of Federal Tax Deposits. Therefore, failure to pay payroll tax is considered serious, and the IRS is particularly aggressive when it comes to collecting on delinquent payroll taxes.

What collections measures can the IRS take to collect payroll taxes?

The IRS may place a lien or a levy on the company so that the any money made off the sale of the business is put towards the debt. The IRS may also auction off the assets of the business until the debt is satisfied. If a payroll tax debt is ignored by a business, it can lead to the shutting down of the business, and in worst cases, imprisonment of the guilty. Even in cases of bankruptcy, some payroll taxes are not forgiven.

In certain circumstances, the IRS can pursue company owners, officers, and specific employees if necessary to satisfy the delinquent taxes, as well as assess civil penalties to parties involved with the businesses finances.

To avoid IRS collection actions and penalties, businesses should make their required federal tax deposits on time, every time.

What should I do if I currently own or have owned a business with employees, and owe 941 or Employee Withholding Tax?

We can’t stress enough that you NEED TO RESOLVE YOUR TAX ISSUE IMMEDIATELY! The IRS is most aggressive when it comes to these types of taxes.

If Payroll Taxes are not paid, you are putting your income, assets, and business reputation at risk.  If these taxes (Payroll Tax 940/941) are neglected long enough, the business may be forced to close and all assets can be seized to satisfy the debt. Regardless if the business is closed, you must make arrangements to pay the taxes. The IRS will not be deterred and by not paying or making arrangements your personal finances are at risk. One of our tax consultants who specialize in Payroll Tax Issues can discuss what options are available and what will be the best course of action.

IRS BUSINESS PAYMENT PLAN

Your business owes back taxes.  This may include corporation or payroll taxes.  The business is unable to pay back the taxes in full.  You could pay back the taxes over time.  The IRS may agree to a Business IRS Payment Plan.

If the business can’t afford the Business IRS Payment Plan then you may qualify for an offer in compromise or Non Collectible Status.

Please note: An Business IRS Payment Plan will not stop penalties and interest.  Penalties and Interest will continue to accrue.

IRS Payment Plan Step 1 – Compliance

The business must be “compliant” before you can set up a Business IRS Payment Plan.  What does “compliant” mean?  All business tax returns must be filed.  This includes corporation and payroll tax returns.  At least the last 2 quarters of business taxes must be paid in full.

Example: You would like to set up a Business IRS Payment Plan in the 3rd quarter for payroll taxes.  All payroll tax returns must be filed.  All taxes must be paid for the 1st and 2nd quarters.  The IRS will not accept a Business IRS Payment Plan unless the business is “compliant” for the last 2 quarters.

IRS Payment Plan Step 2 – Types of Business Taxes

All business taxes can be included in the Business IRS Payment Plan.  It is important to understand the main business tax types.  You will want to include all the business tax types in the Business IRS Payment Plan.

• Form 941, Employer’s Quarterly Federal Tax Return.  Reports payroll taxes quarterly
• Form 944, Employer’s Annual Federal Tax Return.  Reports payroll taxes annually
• Form 940, Employer’s Annual Federal Unemployment (FUTA) Tax Return.  For federal unemployment taxes
• Form 1120, U.S. Corporation Income Tax Return.  For C Corporations income taxes
• Form 1120S, U.S. Corporation Income Tax Return for an S Corporation.  You may get a tax penalty for filing an S Corporation tax return late.

IRS Payment Plan Step 3 – Pick the Plan

Option 1: Streamlined Business IRS Payment Plan

• Business owes less than $50,000
• Available for C Corporation Tax, S Corporation Tax, and Closed Businesses with payroll tax problems
• Not available to Open Businesses with payroll back taxes

If the tax balance is less than $25,000, then you do not need to provide the IRS business financial information.  If the tax balance is between $25,000 and $50,000, then you do need to provide the IRS business financial information and the payments must be automatically taken out of the business bank account.  IRS will ask you to fill out Form 433B for business information and Form 433D to set up automatic payments.

Option 2: In-Business Trust Fund Express Business IRS Payment Plan

• Business owes less than $25,000 of payroll taxes
• Available to Open Businesses with payroll back taxes

You do not need to provide the IRS with business financial information.  If the tax balance is between $10,000 and $25,000, then payments must be automatically taken out of the business bank account. Use Form 433D to set up automatic payments.

Option 3:  Regular Routine Business IRS Payment Plan

• Business owes more than $50,000
• Available for C Corporation tax, S Corporation tax, and Closed Businesses with payroll tax problems
• Not available to Open Businesses with payroll back taxes

The IRS will request business financial information.  Your monthly payment amount will depend on how much the IRS thinks the business can afford.  For example, the business owes $350,000.  The IRS determines you can afford to pay $8,000 per month.  IRS will agree to a Business IRS Payment Plan for no lower than $8,000 per month.  If you are unable to afford $8,000 per month payments, you may need help negotiating with the IRS.  IRS will ask you to fill out Form 433B.

Option 4: Partial Business IRS Payment Plan

• Any amount of taxes owed
• Available for all types of business back taxes

The IRS will request business financial information.  The IRS will determine the payments you can afford.  For example, the business owes $125,000.  The IRS determines you can afford $900 per month payments.  IRS will agree to a Partial Business IRS Payment Plan for no lower than $900 per month.  If you are unable to afford $900 per month payments, you may need help negotiating with the IRS.  IRS will ask you to fill out Form 433B.

What’s Next

Every tax case is different, but EVERY case has a solution. We can help you figure out the best program to settle your tax debt, click below for a free consultation with a professional that can guide you to the correct solution.

The IRS will not forget about you or your tax debt, it will only increase the pressure to collect! Business Payment Plans, may be a life saving solution for your business, In some cases, if you and your business are under duress, you may qualify for tax settlement options such as offer in compromise or other options, which can reduce the amount of taxes owed.

An IRS Tax Settlement may be more difficult to get if the business is still operating.  These cases are often complicated, and it’s in your best interest to speak with a tax profession to determine the best solution for you.