Payroll Tax

Payroll Taxes: What do I need to know?

Whenever someone gets a new job, the first thing they usually want to know is how much they will be paid. Unfortunately, most taxpayers immediately realize that they will not be taking home the entire amount quoted. Regardless of whether the pay is based on a hourly rate or yearly salary, most people gripe and complain when they realize that they must pay a sizable payroll tax. A payroll tax is a tax that is based on an employee’s paycheck. A payroll tax is generally the most significant tax that United States citizens must pay.

Furthermore, there are individuals within a company that are put in charge of each and every payroll tax. They are responsible for establishing a trust fund in the process of getting money from a paycheck to the IRS. Such individuals must make sure that the IRS is receiving everything that is expected. If the IRS determines that a portion of the payroll tax has not been received, the company in question is closely examined.

This article will discuss all of the basic aspects of a payroll tax. Gaining knowledge regarding a payroll tax is important because most issues regarding back taxes and other items have to do with the payroll tax. Better understanding of the payroll tax can lead to less back taxes. One must pay careful attention to the standards set for a payroll tax, as well as the consequences of not paying it. It is also useful to know the ways to appeal to the IRS for a payroll tax that is overwhelming.

The topic of payroll tax can be fairly complex, however. Disagreement over a payroll tax can lead to complications with the IRS. A payroll tax that is left unpaid can lead to back taxes. Back taxes can lead to things like tax liens and tax levies on the individual scale. Back taxes from a payroll tax can lead to more serious consequences than usual. The company itself may be at risk if the payroll tax is not properly paid. Therefore it is exceptionally important to pay a payroll tax on time. This is best done if the payroll tax is automatically taken out of a paycheck and kept carefully in a trust fund until it is ready to be sent to the IRS. Individuals who are responsible for these actions must always be careful and make sure that the money reserved is untouched.

We Are Here to Help

Tax lawyers and tax attorneys can give incredible legal advice if one ever has any issues with a payroll tax. They can explain some of the complications regarding a payroll tax. They can evaluate a payroll tax and determine if any element is missing. If back taxes have been building up as a result of a delinquent payroll tax, a tax lawyer can give professional advice regarding the elimination of such burdens. Tax lawyers have perspective and insight of payroll tax that makes it much easier to deal with the demands of the IRS. If one is experiencing troubles with paying for a delinquent payroll tax, they can immediately consult their tax lawyer and determine what needs to be done to prevent penalty.

The Parts of a Payroll Tax

As stated before, a payroll tax is a tax that the IRS incurs on a paycheck. The government taxes income in order to provide for the facilities and services that make a work environment better. A payroll tax may seem bothersome, but in the end, the money is used to benefit taxpayers. If it weren’t for these benefits, a safe and functional work environment would probably not be possible. And it is not just the taxpayer who must pay the tax. The employer is also burdened with payroll tax. As discussed before, the employer is also responsible for maintaining the money that is withheld from the employee’s paycheck.

Payroll Tax 1

Trust Fund

The employee’s portion of the payroll tax is usually automatically withheld from the paycheck. This makes things much easier and convenient for taxpayers. When taxes are withheld, it minimizes the amount of work the taxpayer has to do when it comes to pay taxes. The amount of money withheld from an employee’s paycheck is often referred to as a “trust fund”. This is due to the fact that technically, a payroll tax does not immediately go to the IRS. A payroll tax is usually paid all at once annually. But in order to prevent employees from accidentally delving into the money that should be going to the IRS, companies hold money in trust for the IRS until it is time to pay all of it. Once it is time to pay the payroll tax, the company already has the money required. This way of paying the payroll tax is very beneficial for the taxpayer. It places responsibility on the company to assist in paying for payroll tax.

Employer’s Burden

The second portion of the payroll tax that is paid is the employer’s burden. This part of the payroll tax is generally thought of as the cost incurred upon employers for hiring employees. The government regulates the hiring and firing of employees, so in order to help cover these expenses, the IRS collects money from employers too. All of the documentation to verify information is covered by payroll tax. One can only imagine how frustrating payroll tax is for employers, since they have to pay money in spite of the fact they are not receiving monetary income. They do, however, gain several benefits from being allowed to hire employees. Payroll tax also pays for the services that the government provides employers to make sure that employees are legitimate (which is why forms such as the W-2 exist). If payroll tax did not exist, it would be much more difficult to quickly hire and fire those who are willing to work.

Collection of Payroll Tax

The IRS expects prompt payment of payroll tax. If, for some reason, a taxpayer inhibits the ability of the IRS to collect the payroll tax, they may face severe penalty. It is up to each individual to make sure that they have paid the appropriate payroll tax. If they fail to do so, they risk facing actions by the IRS to collect unpaid payroll tax. Liability for payroll tax is important to understand in order to prevent certain consequences.

Search for Responsibility

If the IRS realizes that payroll tax is not being paid, then they immediately begin a search to determine who is responsible. After seeing that the employer has paid their amount of the payroll tax, they turn to individual workers to try and vigorously search for the person who is delinquent in their taxpaying responsibility. The IRS will observe the people in the company who were responsible for paying the payroll tax. About two-thirds of the payroll tax comes from the “trust fund”. If this “trust fund” has been tapped into in any way, the IRS will pick up on it pretty quickly. If this is the case, the individuals involved risk facing severe punishment.

Once the IRS realizes that a payroll tax has gone unpaid, they immediately go after anyone who could possibly be involved. One cannot exaggerate the amount of attention that the IRS gives to a payroll tax that is behind. Out of all of the other taxes, the payroll tax gets the most attention from the government. This is due to the fact that the payroll tax deals with an immense amount of money. Losing money from payroll tax means that the government will fall short on budget. Therefore, taxpayers must pay the utmost attention to the amount of payroll tax that they are expected to pay. If they fail to do so, they will probably be required to explain their situation to the IRS. This is usually tedious and should generally be avoided.

Contact A Lawyer

If one is concerned about their participation in activities that could lead to delinquent payroll tax, they must contact a tax lawyer immediately in order to be advised on possible options. Even if the IRS has not yet contacted an individual, it is better to be safe than sorry. Early consultation with a tax lawyer can save individuals from issues that could potentially spring up later.

Payroll Tax

Build-up of Payroll Tax

The most troublesome aspect of delinquent payroll tax is the fact that they build up very quickly. This is especially true for companies that have a lot of employees. If a company does not have many employees, they do not have to worry so much about slightly delayed payroll tax (although it is a concern). The combined total of all of the paychecks does not come out to a significant amount. If, however, a company has a lot of employees, any delay in the payment of payroll tax can lead to chaos. For large corporations, the “trust fund” could be in the millions. Such a large number must be dealt with extra care. It is a slippery slope for companies that do not tow the line for a payroll tax.

Who is Responsible

When it feels as though a payroll tax has not been paid, the IRS immediately starts the process to discover the responsible party. This process is thorough and quick. While this is something that is usually done rapidly, as the payroll tax is one of the IRS’s top priorities, it is also done very carefully. The IRS does not want to wrongfully penalize any individual, so they conduct careful evaluations in order to assign fault. Taxpayers must still be incredibly careful when dealing with their payroll tax.


The IRS conducts two different “tests” when assigning blame for unpaid payroll taxes. These “tests” are done in a way that is meant to narrow down any involved party. Therefore, the tests are designed to exclude anyone who is innocent. When these tests are completed, the IRS generally has an idea of who is responsible for any amount of unpaid payroll tax. The IRS must generally collect a certain amount of evidence to complete these tests. Individuals going through the process should be prepared to provide as much documentation as possible to support their case. The more documentation that can be provided to the IRS, the better. Contrary to what one may believe, the IRS does not want to wrongfully collect money. If there is sufficient evidence supporting the case of the taxpayer, the IRS will properly consider it.

Test 1: Proper Authority

The first part of the test ensures that the individual in question had proper authority for payroll taxes. The IRS will check and see whether the individual knew who to pay and when to pay the payroll tax. Furthermore, the IRS makes sure that the individual in question had proper authority to submit the payroll tax. The IRS will question whether an individual was supposed to know that the payroll tax had to be paid.

In order to verify and/or prove the first part of the test, the IRS will go through company documents. In certain cases, they may conduct interviews with employers or other employees to determine the function of those responsible to pay the payroll tax. They may look at the history of the payment of payroll tax as well as the position of the individual in question. Often, they will try and see who had bank signature authority on the account responsible for paying the payroll tax and take things from there. If an individual who had such authority was delinquent when it came time to pay the taxes, they are subject to the penalties that are typically imposed by the IRS.

Test 2: Proper Knowledge

The second part of the test is exceptionally important, as it essentially considers how responsible the individual was for the delinquent payroll tax. Basically, the IRS has to prove that the individual had full and complete knowledge that the payroll tax was expected to be paid. This may be useful to a rare employee who sincerely did not know about certain payroll tax. For people who attempt to alleviate the situation by pretending that they did not know the payroll tax was supposed to be paid, this is not the best kind of situation to be in. The IRS can see right through such gestures and may interpret it as fraud. If accused of fraud, an individual will find themselves in a much more severe case than they were in to begin with.

Functions of Tax Attorneys

A tax attorney can give a great amount of aide to those who believe that the amount they paid for payroll tax is correct when the IRS insists that it is, in fact, incorrect. They may be able to point out the discrepancies that led to the disagreements. Those who are being evaluated by the IRS may find themselves in unwanted situations in which they risk facing severe fines. Tax attorneys are professionals who can help prevent serious action by the IRS in some cases. They may be able to reduce or eliminate large fines. The IRS is much more likely to listen to a professional individual than a typical taxpayer. In cases in which the IRS is already actively pursuing reimbursement for payroll tax, a tax lawyer can greatly improve the situation.

Actions Against Responsible Parties

Once the IRS has determined a responsible party, they can take action against them. This action is immediate and of high priority. This can range anywhere between demanding the delinquent payroll tax to charging a large amount of fees if the payroll tax has gone too long without being paid. Regardless of the circumstances, consequences for not paying a payroll tax can often be quite large. Those who previously chose to ignore payroll tax may now find themselves overwhelmed with the new demands of the IRS. This can lead to very negative things, as the responsible individual will find themselves digging deeper and deeper into a tax hole.

It is important to note that there may be more than one person who is deemed responsible for a delinquent payroll tax. This can occur if there are shared positions or if there are multiple people in the same department. The IRS conducts an exceptionally thorough search when it comes to searching for a delinquent taxpayer. As such, it may determine that more than one person has neglected their taxpaying obligations when it came to payroll tax. In cases such as these, the IRS is sure to pursue all individuals responsible for the payroll tax. This has an important role in determining penalties for not paying a payroll tax, as will be discussed soon.


The basic fine for not paying a payroll tax is approximately thirty thousand dollars. This penalty is one of the main reasons that most employers don’t bother with trying to keep some of the payroll tax for themselves. It may seem like a large sum of money, but in most cases, the amount of money accrued by a payroll tax exceeds even this figure. Regardless, it would be much better to not be in such a situation in the first place.

Multiple Parties

When there is more than one responsible party for delaying the payroll tax, payment of fees can get very interesting. The thirty thousand dollars required as a penalty for the payroll tax is only required to be paid once. Once it is paid, no one else is obligated to pay. In other words, the IRS does not expect each individual involved to shell out thirty thousand dollars. The amount is a set amount that does not depend on the number of individuals involved. They will ask for the amount from each individual. However in the end, once the thirty thousand has been paid, no one else is obligated to pay the government. One person guilty of withholding payroll tax would have to pay just as much money as a group of eight people would.

For example, if four individuals were found guilty of withholding payroll tax from the government, they would face a thirty thousand dollar fine. They do NOT have to pay a hundred and twenty thousand dollars, even though there are four people involved. If the first person takes care of half of the obligation and the second person pays for the other half, then the third and fourth people are let off the hook (at least temporarily).

Civil Penalty

This thirty thousand dollar charge is commonly known as a civil penalty. Basically, a civil penalty is a charge levied against those responsible for the payroll tax. It should not be considered an addition to the payroll tax that must be paid. Instead, it is a demand from the IRS that the specific individual pay a certain amount of the unpaid payroll tax. It is still a very serious penalty, but one should not get the impression that it accounts for a large amount of extra payroll tax.

How to Counter the IRS

Although it is much less common than it is most other tax cases, a late payroll tax can still be countered if there are appropriate resources. The IRS is not, however, very lenient to late payroll tax. A tax lawyer who is well-versed in the procedures of the IRS can still work with taxpayers in order to find the most beneficial resolution. Even when an individual thinks that they have done all that they could do, it is still effective to have a tax lawyer to verify and reexamine the situation.

Offer in Compromise

The first item that could help a payroll tax go away is an offer in compromise. Although not every payroll tax is eligible for an offer in compromise, it is worth examination by a legal professional. An offer in compromise can effectively eliminate some of the burden caused by a payroll tax.

For those who do not know already, an offer in compromise is basically an appeal made to the government. The individual must have a convincing reason to not pay taxes and although the IRS is strict, they are often accommodating. For cases that do not deal with payroll tax, this is usually caused by medical emergencies and other life-threatening situations.

An offer in compromise in the context of a payroll tax is even more difficult than usual. This is due to the fact that so many people are responsible for the payroll tax. Since there are generally more people involved, the IRS thinks that there is less of a risk of having to reduce the amount of payroll tax due. If one person experiences financial hardship, the other person responsible for the payroll tax should cover them. This makes it almost impossible to obtain an offer in compromise. It is doable, but it takes a lot more concentration and persuasion to convince the IRS to reduce some of the payroll tax that had previously been expected.

Tests of an Offer in Compromise

In order to submit an offer in compromise, an individual must first prove that they are unable to pay for the amount of payroll tax requested. This essentially functions in the same way that a normal offer in compromise does. The IRS examines the expenses and income of the individual in order to reach a decision about their responsibility for the payroll tax. If the individual is in some kind of financial hardship in which they are unable to pay the payroll tax, they pass the first test.

The second “test” has to do with the company as a whole. Since the payroll tax deals with all employees under the umbrella of a certain company, the IRS also examines the details surrounding income of the entire company when considering responsibility for a payroll tax. If the company as a whole can pay for the delinquent payroll tax, the IRS may request it to do so. If, however, the company is also experiencing financial hardship, then the IRS may feel it is necessary to remove a portion of the payroll tax.

Payroll tax is a tax on income that is split up into two parts. First, there’s the part of the payroll tax that must be paid by the employee. These wages are usually withheld in a “trust fund”. The word “trust” is used to indicate that the company sets the money aside for the IRS without paying the IRS in full. Once the payroll tax is due, the company sends all of the trust fund to the IRS. The second part of the payroll tax is the employer’s contribution. It is a tax on the employer’s ability to hire workers.

Delinquent payroll tax adds up fast. On top of that, various civil penalties are assessed once it is discovered that a payroll tax has not been paid. It is usually an issue that is just not worth dealing with. In some cases, penalties can amount to thirty thousand dollars.

An offer in compromise can be submitted, much in the same way that an individual taxpayer can submit one. The IRS determines whether both the individuals and the corporation are experiencing financial hardship. If this is the case, then they are excused from a portion of the tax. If this is not the case, the individuals involved are still responsible for their share of the payroll tax.

As has been highlighted throughout the article, since payroll tax can end up on such a large scale, it is important to consult with individuals who have a lot of knowledge in the situation. A tax attorney is the perfect person for the job. Furthermore, this particular law firm (SCL Law) has proven its excellence in ways that other law firms have not. If an individual wishes to be assured of the quality and capabilities of a tax lawyer who can help them with their troubles, they have come to the right place.

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