Friday, September 13, 2013

EMPLOYEES LIABLE FOR PAYROLL TAXES?


After finishing up an appointment at a client's office the other day, they mentioned to me that one of their employees had received an IRS notice in regards to a former employer that they worked for.  Immediately I knew that the notice was probably for payroll taxes that had not been paid.  The employee showed me the notice and sure enough that was what it was for. 

As I was talking with her it dawned on me that many employees are probably not aware of the risk that they are taking by being given check signing authority.  She had check signing authority at her former place of employment and the IRS was looking to see if they could collect from her the payroll taxes uncollected.  More than likely the IRS had already been trying unsuccessfully to contact her former employer in order to collect the taxes.  This employee's name was on several of the business checks written and that is why the IRS wanted to contact her.  The IRS will hold owners and responsible parties liable for the trust fund portion of payroll taxes that are not paid by a business.

What are the requirements for being held responsible for the trust fund payroll taxes?  The IRS says that there are two requirements for being liable:
  1. The person is "Responsible" - Had the duty to account for, collect, and pay over the trust fund taxes for the government, and
  2. The Responsible person "willfully" failed to collect or pay over trust fund taxes to the government.
Check signing authority is one of the factors the IRS and courts looks at when determining responsibility.  Now obviously the IRS and the courts will go more into detail than those two broad requirements mentioned above to determine whether an employee is held responsible for the payroll taxes, but we just want to point out the fact that many employees are not even aware of the risk they are taking on by being able to have check signing authority.  So if you are an employee with check signing authority and do payroll, beware.

As always, we would love to hear your feedback and experiences on topics we cover.  If you ever have any accounting or tax questions feel free to contact us.

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