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Many businesses fall behind on payroll tax deposits to the IRS and EDD, but some businesses fall victim to interest and penalties that leave the responsible officer personally liable for payroll tax debt. Whether you deferred payroll tax deposits because business was slow or you trusted employees, Sacramento payroll tax attorney Jin Kim can help. With flat fee tax resolution services to straightforward installment agreements, Jin Kim has helped many businesses establish installment plans with the IRS and California EDD.
Call Sacramento employment tax attorney Jin Kim at (916) 299-9913 for a free tax relief consultation.
IRS & EDD Installment Agreements
Payroll tax debt is one of the most severe forms of debt, but tax relief options still exist. Applicable penalties, including the trust fund recovery penalty, can quickly turn a nominal amount of back taxes into an overwhelming balance. Worst of all, payroll taxes are nondischargeable in bankruptcy and often saddle the responsible officer with personal liability. To navigate clients out of payroll tax debt many experienced tax attorneys secure installment agreements with the IRS and EDD. Through an installment plan, taxpayers can repay payroll tax arrears over time while continuing their business. Better yet, installment plan fees are generally less than offers in compromise, so they may be more accessible to clients with limited finances.
Not every business is eligible for an EDD installment plan. Moreover, failure to satisfy the terms of the installment agreement can result in an EDD levy, seizure of assets, and collection action. To secure an installment plan with the EDD and avoid involuntary collection action, contact a payroll tax attorney. A tax resolution attorney can cease EDD collection actions and secure a viable installment plan.
Employment Tax Attorney
Withholding and remitting payroll taxes is a critical task for every California business. Unfortunately, minor errors in this task can quickly snowball into payroll tax debt and trigger EDD audit. Moreover, improper withholding and remittance of payroll taxes can lead not only to penalties but even criminal liability.
Once employment tax debt exceeds an amount that can be immediately repaid, it’s critical that the business establish a tax resolution strategy with legal counsel. A workable tax resolution strategy such as an installment plan for non-dischargeable payroll taxes can keep the business in operation and avoid additional liability.
If you have back payroll taxes or have been assessed employment tax liability as the “responsible person,” call payroll tax attorney Jin Kim at (916) 299-9913 for a free consultation.
Read more about how to avoid payroll tax violations.
Employee vs Independent Contractor
The IRS and EDD are particularly attentive to employee misclassification which can lead to payroll tax debt. In essence, employers get into trouble with the IRS & EDD because they classify workers as ‘independent contractors’ rather than employees. The reasons for doing so are understandable: employees entail greater employment law liability and payroll itself is a hassle, especially withholding and remitting payroll taxes and filing returns. Unfortunately, the legal tests applied to identify employees vs independent contractors generally favor the employee classification. As a result, some employers are surprised to find out that their ‘independent contractors’ have been reclassified as employees, leading to substantial payroll tax arrears.
How Does The IRS Determine Who Is An Employee?
As a rule, workers may be classified into two. The first classification is employees. An employer is required to withhold taxes for every worker classified as an employee. The second classification is independent contractors. Employers are not required to withhold taxes for independent contractors because the contractors themselves declare it on their income and pay their own taxes.
The fact that taxes aren’t withheld for independent contractors has caused many employers to declare workers as independent contractors when in reality they are employees. Because of this, the EDD is extra vigilant when it comes to the classification of employees in the course of an audit. If you want to protect yourself, make sure you declare workers properly either as employees or independent workers, and have the appropriate evidence to back your claim. On the other hand, if you are facing payroll tax arrears following an EDD audit there are tax relief strategies that can keep your business running. To learn more about the best tax relief strategy for your situation call our tax attorney at (916) 299-9913 for a free tax consultation.
The Employers Role In Withholding Payroll Taxes
The IRS views the employer as something akin to a trustee of payroll tax funds. In essence, the employer is tasked with withholding the correct amount of money from an employee’s paycheck and remitting those payroll tax funds to California and Federal tax authorities. In addition, the employer is obligated to file returns indicating the amount of payroll taxes withheld and remitted. Due to the complexity of this calculation and process, it’s highly recommended that employers use a payroll tax company for withholding, remittance, and return filing.
Unfortunately, the employer does not escape liability for underwithholding or failure to remit payroll taxes due to a bookkeeper’s error. In the IRS’s view and pursuant to law, the employer remains liable for these errors. Accordingly, some minor mistakes over the course of years can lead to substantial payroll tax debt. Moreover, employers with substantial payroll tax arrears who continue to engage in payroll tax violations may find their businesses forcibly closed to prevent further violations.
Criminal Liability
You might be tempted to think – “So what, if the IRS founds out, I’ll just pay the penalty. I’ll make the money back in the business.” This is tactic has led many business owners to incur payroll tax debt. Liability for tax violations extends not only to penalties but may also include criminal liability. This usually happens when the IRS believes that the taxpayer has committed the violation willfully – meaning with full awareness that what the taxpayer was doing was wrong.
Liability may also attach even if you’re not the one in charge of the business’s day-to-day operations. For example, as a partner, you may be held jointly and severally liable for the business’s tax violations even if you don’t take an active part in the business. The IRS can and will go after your personal property to satisfy the tax delinquency if you’re the owner or a partner in the business. Joint and several liability means that you’re liable for paying the entire amount, even if there are over proprietors or partners in the business. The IRS can go against any of you for payment of the entire tax liability.
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