Importance of Paying Payroll Taxes
You’re only one person and, as such, you can only do so much for your business. Once your business hits a certain point in its growth, you’ll have to add more employees to your payroll. More hands-on-deck means more work can be done, which ultimately will lead to your longstanding goal of continuous business growth. Having employees can complicate your business taxes further though, especially when it comes to payroll taxes.
What Are Payroll Taxes?
Payroll taxes or employment taxes are taxes that an employer withholds from employees’ paychecks to pay to the IRS. As an employer, you will have to withhold the correct amount of taxes from your employees’ paychecks.
You will also have to add taxes that you must pay as an employer. For instance, the employee does not pay Social Security tax entirely; the employer pays for half of it.
The responsibility of depositing the withheld amount resides with the employer.
When Are These Taxes Deposited?
Until the withheld taxes are actually paid to the IRS, they remain with you, the employer, as trust fund taxes. Trust fund taxes include income tax, social security taxes, Medicare taxes, railroad retirement tax or collected excise taxes, and other employment taxes.
When it comes to depositing the trust fund taxes, an employer can choose either a monthly schedule or a semi-weekly schedule. It’s important to note that you can’t switch schedules during a year. So, you’ll need to choose one before the start of each calendar year.
Why is Paying Payroll Taxes Important?
Payroll tax debt is no joke. In an effort to encourage employers to pay withheld taxes promptly, Congress passed a law that allows the IRS to charge the Employment Taxes and the Trust Fund Recovery Penalty (TFRP). The IRS enforces this penalty if they cannot collect the required payroll taxes from a business. Negligent employers must pay a failure-to-deposit fee of up to 15 percent for not making deposits on time.
You can also face collections actions from the IRS for failing to deposit, file, or pay your payroll taxes. Therefore, both timely withholding of income and paying all payroll taxes are essential for all qualifying businesses.
If you need help figuring out your payroll taxes and want to avoid the risk of falling into payroll tax debt, contact MoneySolver for a free consultation today!