A payroll tip about who the IRS may hold liable for 941 tax payments.
Are you the bookkeeper or accountant for your company? Are you a signer on any of the company bank accounts? What about your client’s accounts? Do you sign on any of them? If so, you may be held responsible by the IRS for underpaid 941 liabilities. Sounds scary, but it can be true.
How is it possible that can be true? The IRS says the federal income tax and the employee’s portion of social security and medicare taxes withheld is a trust fund. It is to be deposited according to the schedule they have determined for your company. The IRS cannot collect this tax from the employee, even if the employer does not pay the tax to the government.
To protect the government when the tax has not been paid, Internal Revenue Service Code 6672 subjects “all responsible persons” for withholding and payment of taxes to a penalty equal to the amount of taxes due. The penalty is imposed on anyone who is required to collect, administer and pay over the tax and who willfully fails to do so.
Two requirements must be met. First you must be a “responsible person”. The IRS considers a responsible person anyone who has authority to make business decisions for the company, not just owners of companies. If you pay the company bills and sign the checks, then you are making business decisions. You process payroll and sign checks, make the 941 tax deposits and file the 941 quarterly returns, you are making business decisions.
The second requirement for the penalty to be imposed would be if you willfully failed to pay the tax due. You withheld the money from the pay checks that you signed, but rather than paying the tax liability, you decided to pay a supplier, or a utility, or another vendor. Once you have done that, you have met both requirements and are subject to the penalty imposed by I.R.S. Code 6672.
Once the IRS determines that a tax is due, forms 4180 and 4183 are completed by an agent, which identifies the responsible person in the company. In 1993 the IRS determined that secretaries, bookkeepers (nonaccountants), and charitable volunteers are not subject to I.R.S. Code 6672. Accountants, however, are still held accountable.
What can you do as an employee? Advise your employer of the penalties he will face for not paying the taxes due. If possible, don’t be a signer on any accounts. You don’t want to be personally responsible for the company you are working for.
What can you do as an owner? Pay your taxes on time. Pay them before you pay your other vendors. It’s not your money once you have paid your employees.