Payroll Taxes Collected By Your Employer
The federal tax code, as of 2016, contains 74,608 pages which account for about 10 million words. Thanks to Google, I didn’t have to wait to long to get that information; took about 0.78 seconds. More important to realize, there is so much information when it comes to tax laws and it is impossible for one person to know them all. Hence the reason many hard working Americans are unaware their employer can get them into trouble with the IRS.
According the Bureau of Labor Statistics (BLS), there are approximately 140,000,000 employed in the U.S. The number of companies that employ them isn’t clear but, is said to fall in the range of 6-18 million. Think how about how many paychecks go out every 2 weeks and the vast number of deposits the banks handle. It is bit mind blowing, I know. Now, add into the equation that employers are responsible to forward all payroll taxes to the Internal Revenue Service and your state taxing authority.
Where Does the Money Go
Our paychecks are never what we want them to be, due in part to federal social insurance taxes (Social Security & Medicare), also known as FICA. The major portion of our paycheck’s payroll tax goes to “income tax withholding”. As you may know, you don’t necessarily owe income taxes until the end of the tax year. Hence, the income tax withholding is not a payment to the IRS, it is PREPAYMENT of income tax, which is usually held in “trust” by your employer. Put simply, the payroll taxes taken out of your paycheck does not always go straight to the IRS. The taxes may be held in company coffers until they see it fit to pay YOUR payroll taxes.
In essence, you are trusting your employer, who is holding your income tax money, to pay YOUR income tax withholding to the IRS by the end of a quarter/year. Many questions may arise with this realization. Namely, “Who is the responsible for the your income tax, if your employer does not pay your withholding to the IRS?” The answer to this question is interesting.
Who is Responsible for Payroll Taxes
Generally, the responsibility of paying the payroll tax falls onto the employer. The major exception revolves around your job title and the responsibilities in your job description. So if you are the Payroll Tax Manager/Director (laughs), obviously you are complicit in the non-payment of the payroll taxes. Conversely, if you are a cashier at Walmart, you don’t have any responsibility or oversight on payroll tax matters. It is important to note, that board members of corporations have been held responsible, even though they are not involved in day-to-day operations. The IRS penalties are stiff and can include jail time.
There may be some consequences involved with trusting your employer. In addition, if your position with a company has a fiduciary duty to the financial health of your employer, you might want to get some insight on this matter. Payroll taxes avoidance is not an overnight problem. It gradually occurs occurs over each pay period. At the very least, an attorney should be consulted if you feel the financial health of your company is in question.