Best Way to Avoid Getting in Trouble for Payroll Taxes?
In the news recently, you may have seen that the owner of Gladys Knight’s Chicken and Waffles restaurant has been sentenced to two years in prison and owes the federal government over $1 million. Why? He refused to pay his payroll taxes. There are severe consequences for avoiding your tax obligations. Please keep reading to learn more about the payroll tax and how to stay on top of it.
What is the payroll tax, and why do I have to pay it?
The payroll tax is money that you withhold from your W2 employees, including federal and state income taxes and your company match of the employee’s Social Security and Medicare. The IRS credits the employee withholdings to their tax return and considers their withholdings to be employee money, not your money. You must pay the taxes you withhold from employees along with employer matches of SS and Medicare according to the payroll schedule that the IRS directs – either monthly or semi-weekly. The IRS will notify you each year of your deposit schedule for the upcoming year.
You must also submit quarterly tax returns that show what you have paid employees and how much you have withheld from them. These quarterly forms are due at the end of April, July, October, and January (for the final quarter of the previous year). By filing quarterly, you will be able to reconcile tax deposits to ensure you’ve paid what you should have. At the end of the year, you will send employees their W2s, and the total of all W2s is reconciled to the quarterly payroll forms at the end of the year to make sure everything matches. If you don’t pay your payroll taxes that tie out to the W2s and quarterly payroll forms, it will catch up to you because of the W2s.
How do I avoid getting in trouble?
Make your deposits on time, every time. If you decide to revert those funds and use them elsewhere, you risk losing your business and going to jail. The IRS takes these matters very seriously, but you should be fine if you follow the rules and observe the deadlines!
As always, if you have questions, feel free to reach out to us at 770-392-1113 or visit our services page to learn more about what we offer!
-Stanley & Kelly