Facts About Payroll Taxes

If you are an employer, you absolutely have to pay payroll taxes.  The Internal Revenue Service says that it is shorted $12 Billion annually in payroll taxes.  It has become aggressive in its tactics to collect this revenue.

As an employer, you must pay them; there is no way around it.  It is your responsibility to make all payroll tax deposits.

The IRS will get your payroll taxes or they will take your business, seize your assets, and come after you personally.

IRS fines for missing payroll tax deposits are immediate and the penalties add up fast.  If you miss a payroll tax payment, you want to jump on it as soon as possible.  The IRS can use liens against your bank accounts as just one collection method for missed payroll taxes.

The IRS is particularly watchful of small businesses.  In the past, many small businesses thought they could get away with ignoring these taxes more easily than the big businesses.  The IRS caught on and is now on the watch for businesses small and large alike.  They are one of the IRS’s biggest compliance issues.

Borrowing against your payroll taxes is illegal.  You cannot use your employee’s withholdings for anything other than paying the IRS.  If you are found to be borrowing against them, you risk loss of your business, your assets, and your freedom.  Employers are often jailed when caught in this type of violation.

No method exists to resolve payroll tax disputes other than paying up.  The IRS can shut down your business and seize your assets for failure to pay payroll taxes, and no court order is needed.

No matter your business structure, you can become personally responsible for unpaid payroll taxes.  From the biggest CEO to the smallest shareholder, if your company fails to pay payroll taxes, you can be held personally liable.

The IRS can assess the Trust Fund Recovery Penalty.  The money you collect for payroll taxes is the withholding from your employees.  So, you are technically holding this money in trust to turn over to the IRS on behalf of your employees.  The Trust Fund Recovery Penalty is assessed against your company when you fail to hand that tax money over in a timely fashion.

The Trust Fund Recovery Penalty is assessed at 100%.  In other words, if you have $5000 in unpaid payroll tax, the Trust Fund Recovery Payment will be assessed at $5000 on top of the $5000 you owe.  The Trust Fund Recovery Penalty doubles your payroll tax liability.

If you do find yourself in trouble with payroll taxes, you will need to contact a tax resolution specialist swiftly.  If you contact them in time, they may be able to help you pay your payroll taxes to date and avoid the Trust Fund Recovery Penalty.


Can Taxes Be Discharged When Filing Bankruptcy?

The answer is maybe or it depends upon the circumstances. The discharge of taxes when filing for bankruptcy under Chapter 7 or Chapter 13 is possible depending upon the type of taxes and a number of factors as discussed below.

If you have outstanding taxes owed to the Internal Revenue Service or Franchise Tax Board, seek the counsel of an experienced San Francisco bankruptcy attorney at West Coast Bankruptcy Attorneys for assistance. The following is a complex explanation of the requirements that must be met to allow taxes to be completely discharged when filing for bankruptcy protection.

What Requirements Must be Met to Discharge Taxes?

If taxes are owed, they are usually owed to the Internal Revenue Service or the Franchise Tax Board in California. There are many different types of taxes. This article is limited to income taxes that are owed. Generally though, taxes are dischargeable or partially dischargeable in bankruptcy depending upon the circumstances.

Which chapter of the Bankruptcy Code will also effect if all or some of your tax obligation will be discharged. In a Chapter 13 usually a portion of non-priority general unsecured debts are paid back to creditors in the Chapter 13 Plan over three to five years. In a Chapter 7 bankruptcy all of the tax obligation may be dischargeable.

The Bankruptcy Code mandates that all priority debts must be paid back in full when filing for bankruptcy protection. The key to discharging a tax obligation is when does the tax obligation no longer have to be classified as a priority debt? Once the tax obligation can be classified as a non-priority general unsecured debt, it can then be discharged in bankruptcy. Another key point is whether the taxing entity has already obtained a tax lien against your property? If a lien has been obtained, then the taxed owed is a secured debt, and the tax then must be paid in full.

When Does a Tax Debt Become a Non-Priority General Unsecured Debt?

Taxes owed are classified as a priority debt until:

1) the tax debt is over three years old from the date the taxes were due at the time the bankruptcy case

is filed; if your tax return was due April 15, 2007, it would now be over three years old;

2) the tax debt was accessed over 240 days prior to the filing of the bankruptcy case;

3) the tax return(s) were filed on time or at least two years before the bankruptcy case was filed;

4) there must have been no attempt to evade or defeat the tax by filing a false return.

To summarize, a tax obligation may be dischargeable in a Chapter 7 bankruptcy or Chapter 13 bankruptcy if the taxes were due at least three years prior to the filing of the bankruptcy case, accessed at least 240 days prior to the filing of the bankruptcy case, the tax return was filed on time or at least two years prior to the filing of the bankruptcy case and there was no fraud or intent to evade the taxes. If these requirements are met, then the tax obligation is not a priority debt, but a non-priority general unsecured debt that may be discharged in bankruptcy.