Payroll Tax Lawyer

Jin Kim, California Employment Tax Attorney

Jin Kim
Free Consultation
(916) 299-9913
Flat Fees

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.

EDD Audit for Misclassification

The California Employment Development Department (EDD) performs audits for employee misclassification as misclassifying employees and independent contractors can lead to significant payroll tax debt. The incentive for misclassification is understandable: employees require payroll tax withholding and remittance, worker’s compensation insurance, tax filings (DE 9 & DE 9C), and payroll administration. Unfortunately, the legal test applied to identify employees vs independent contractors generally favors the employee classification. As a result, some employers are surprised when the EDD audit reclassifies ‘independent contractors’ as employees, leading to substantial payroll tax arrears, interest, and penalties.

How Does The EDD Determine Who Is An Employee?

As a rule, workers may be classified as independent contractors or employees. For employees, the employer is required to withhold payroll taxes for Unemployment Insurance (UI), Employment Training Tax (ETT), State Disability Insurance, State Disability Insurance (SDI), & Personal Income tax (PIT) withholding, & FICA taxes. In contrast, employers are not required to withhold payroll taxes for independent contractors. Accordingly, it is cheaper for employers to hire independent contractors rather than employees.

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 Employer’s Role In Withholding Payroll Taxes

The IRS views the employer as something akin to a trustee of payroll tax funds which include State Unemployment Insurance (SUI), Employment Training Tax (ETT), State Disability Insurance (SDI), and Personal Income Tax (PIT) withholdings. As a trustee of those payroll tax funds, 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 not withholding payroll taxes or failing to remit payroll taxes due to a bookkeeper’s error. In the IRS’s view, the employer remains liable for these errors. Accordingly, some minor mistakes over the years can lead to substantial payroll tax arrears.

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.

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.