Employers are required to deduct and withhold a specified percentage of the wages actually or constructively paid to your employees – and then pay that amount to the Internal Revenue Service. The employer is liable for these amounts whether or not the taxes are actually withheld from the employee’s wages – and to pay certain other taxes also based on a percentage of the employee’s wages.The amounts required to be withheld from an employee’s wages are called “trust fund” taxes. They consist of withholding for federal income tax and withholding for the employee’s share of Social Security (“FICA”) taxes. There is no general requirement that the withheld sums be segregated from your general funds or be held in a special account. In addition to the trust fund portion of employment taxes, an employer is required to pay its allocable share of FICA taxes and all of the Unemployment Insurance (“FUTA”) taxes.Collectively, the amounts withheld from employees’ wages and paid directly by the employer are called “employment taxes.Can the employer use the withheld funds?
While there is no requirement that the employer put the funds in a separate account, it may be a good idea to do so – and a bad idea to use those funds for any purpose other than payment of employment taxes.When an employer is struggling, perhaps on the brink of going under, the employer may be put in the position of having to choose between paying a creditor for needed services or products or remitting employee withholding and employer employment taxes to the IRS. Perhaps the employer’s only available source of cash is that withheld from employees’ wages; or, the employer may justify the use of such funds as a short-term loan. Whatever the circumstances or justification, it is a bad idea to not properly withhold or not remit employment taxes and may subject the employer, even if doing business as a corporation, to personal liability for the taxes as well as penalties and interest. The plain fact is that few creditors have the collection power of the IRS and few creditors can shut you down and collect their money faster than the IRS.The IRS views employment taxes as the government’s money, not your money, not the taxpayer’s money, but money belonging to the United States Treasury. The IRS takes this very seriously. Thus, in general, the IRS is extremely strict with regard to the payment of employment taxes and the collection of outstanding employment tax obligations. You simply should not expect any leniency from the IRS in this area. For more information on employment taxes, consult with an tax attorney in your area.Copyright GotTrouble.com, Inc. All rights reserved.