Who Is Responsible for Unpaid Payroll Taxes?
Anyone that the IRS deems to be a “responsible person” who willfully fails to pay payroll taxes may be liable for non-payment. Employees and independent contractors at all levels of the company, including business owners, corporate officers, shareholders, or directors, partnership members, employees, and third-party payers, may be found to be a “responsible person.” The IRS will make this “responsible person” determination on a case-by-case basis, and will consider factors such as the following:
- Did you determine financial policy for the business?
- Did you authorize or direct payments of bills or to creditors?
- Whether you prepared, reviewed, authorized, or signed payroll tax returns.
- Whether or not you had knowledge that the withheld taxes remained unpaid.
- Do you authorize the company’s payroll?
- Do you make or authorize the company’s federal tax deposits?
As you can imagine, even low-level employees could wind up being found to be a responsible person if they had check-signing authority. On the other hand, there may be employees much higher up the chain that were not exercising independent judgment regarding the company’s finances, and thereby may not be deemed to be a responsible person.
What Is Willfulness?
Being found to be a responsible person in itself does not trigger liability for unpaid payroll taxes. You must also have willfully failed to collect or pay the payroll taxes. As far as the IRS is concerned, this is not an accident, but instead a voluntary, conscious, and intentional decision not to pay. The IRS may consider a responsible person to have willfully failed to pay the payroll taxes if he or she:
- Actually knew that the company had not paid the payroll taxes and chose not to pay them; OR
- Recklessly disregarded a risk that the company may not have paid the payroll taxes.
Are Trust Fund Taxes the Same as Payroll Taxes?
While trust fund taxes and payroll taxes do overlap, they are not the same thing. Trust fund taxes refer to the amounts withheld from an employee’s paycheck to fund Social Security and Medicare, as well as income tax that is withheld from the employee. Payroll taxes, on the other hand, refer to both the employee’s and the employer’s portions of the taxes used to fund Medicare and Social Security, as well as federal and state unemployment taxes which the employer is required to pay.
You Are Not Alone
At Ayar Law, we understand that many companies experience financial hardship, making it nearly impossible to timely pay all payroll taxes. Our attorneys strongly recommend that if you are in this situation, you should consult with an experienced payroll tax lawyer as soon as possible.
Our attorneys at Ayar Law take pride in representing businesses experiencing large and serious tax challenges. With more than a decade of experience, we know how the IRS works.
One Phone Call May Provide Peace of Mind
If you have questions about who is responsible for unpaid payroll taxes, call Ayar Law today to book a 100 percent free case evaluation. There is no need to face your tax problems alone.