Small firms sometimes struggle to thrive amid the ups and downs of the economy. Payroll taxes are one of the most fundamental concepts that many businesses overlook. Payroll taxes are the employer’s share of the Social Security, Medicare, and Federal taxes that must be deducted from an employee’s gross salary and submitted to the government.

Although taxes invoices are already unpleasant enough, the penalties associated with not paying them are far worse. There may be several reasons why the penalty is assessed, but the main one is either not paying the required payroll tax amount or not adhering to the processing and filing requirements for income tax returns.

Unpaid payroll taxes are taken seriously by the IRS. They view unpaid payroll taxes as theft. The collection of unpaid payroll taxes statute of limitations is up to 10 years, which begins on the date of the last assessment. The IRS has the right to tax the parties in charge of payroll if the company is unable to repay payroll taxes. Yet, if the company continues to avoid paying payroll tax debt, the IRS has the authority to close the company down.

How Bad Can It Get

Criminal charges may result from failure to pay trust fund taxes. A willful refusal to pay over or collect tax is a criminal offense under Section 7202 and is punishable by up to a $10,000 fine, five years in jail, or both. Instead of situations where an owner or other responsible person in a business that was having financial difficulties used the money to pay other creditors in an erroneous attempt to keep the business afloat, the IRS reserves criminal charges for the most egregious cases, typically where the responsible person owned the business and diverted the money for his or her personal use.

By submitting payroll tax returns on time and paying payroll taxes in excess, it is preferable to avoid the trust fund penalty. Encourage everyone you know who has neglected to pay payroll taxes to make every effort to do so.