Employment taxes for California business owners located in the county of Los Angeles, Orange, Santa Barbara, Ventura and San Diego consist of two separate parts:
• The amounts an employer should withhold from employees for income, social security, and Medicare taxes (also called withheld or trust fund taxes), plus
• The amount of social security tax and Medicare taxes an employer pays on behalf of each employee
The Trust Fund Recovery Penalty (TFRP) may be assessed against any person who:
• is responsible for collecting or paying withheld income and employment taxes, or for paying collected excise taxes, and
• willfully fails to collect or pay them.
A responsible person is a person or group of people who has the duty to perform and the power to direct the collecting, accounting, and paying of trust fund taxes. This person may be:
• an officer or an employee of a corporation,
• a member or employee of a partnership,
• a corporate director or shareholder,
• a member of a board of trustees of a nonprofit organization,
• another person with authority and control over funds to direct their disbursement, or
• another corporation.
For willfulness to exist, the responsible person:
• must have been, or should have been, aware of the outstanding taxes and
• either intentionally disregarded the law or was plainly indifferent to its requirements (no evil intent or bad motive is required).
Using available funds to pay other creditors when the business is unable to pay the employment taxes is an indication of willfulness.
Paying employment taxes late, or not including payment with a return if required, could result in additional penalties and interest on any unpaid balance. Failure to Deposit (FTD) penalties of up to 15 percent of the amount not deposited may be charged, depending on how many days the payment is late.
Unpaid employment taxes could cause additional collection action to be taken. IRS could require an employer to:
• File and pay employment taxes monthly, rather than quarterly, or
• Open a special bank account for the withheld amounts, under penalty of prosecution.
Enrolling in and making current tax deposits through the Electronic Federal Tax Payment System (EFTPS) can help employers stay up-to-date with their payment requirements.
Need tax help now? Call Mitchell A. Port at 310.559.5259.