Articles - Compliance and Legal

Small business owners starting a company often have greater responsibilities than initially expected when operating and managing an organization. Many times, small businesses start with the owner as the key operator, and later hire employees without understanding the requirements and responsibilities for Federal, State, and Local employment taxes.

As an employer, you must withhold certain taxes from your employees pay checks including the following:

• Federal income tax withholding
• Social Security and Medicare taxes
• Federal unemployment tax act (FUTA).

Federal Income Taxes/Social Security and Medicare Taxes

There are some specific areas employees are exempt, however generally an owner must withhold federal income tax from their employees wages. To determine how much to withhold from each wage payment, owners should review Publication 15, Employers Tax Guild and Publication 15-A, Employers Supplemental Tax Guild, which can be retrieved online at www.irs.gov

A common misconception made by employers is that employment taxes are due for all small businesses on the same day or period; such as a 1040 return which is required to be filed by April 15^th every year. The deposit due dates are determined by when an employer pays his employees and by how much in total taxes are reported on line 8 of your Forms 941 in a four-quarter lookback period.  The lookback period begins July 1 and ends June 30.

This could include any of the following:

SEMIWEEKLY DEPOST SCHEDULE

MONTHLY DEPOSIT SCHEDULE

$100,000 NEXT DAY DEPOSIT

Careful consideration needs to be taken to the payroll cycles of the company to avoid failure to file (FTF), failure to pay (FTP) and failure to deposit (FTD) penalties. Although payments may be made later, if the employer fails to meet the IRS deadline, these penalties will accrue regardless until the conditions are met.

File Forms 941, by April 30, July 31, October 31 and January 31.

Why is this important to know if I hire a CPA or bookkeeper?

It I important to keep abreast of the IRS guidelines for several reasons: First and foremost, your accountant or bookkeeper may not detect an increased payroll which could change reporting requirement and deadlines.

Second, the IRS has an obligation to the Federal Government to place a Federal Tax Lien on the employer business and in some cases personal property when these taxes are not paid on time. The accountant/bookkeeper is not held responsible at this point for the wrong which has occurred. In fact, a bookkeeper does not have the legal authority to speak to the IRS about any delinquent issues without personal representation by the owner himself, or the CPA who has completed the correct documentation with the IRS as a power of attorney.

Third, and the most important, it is the employers personal responsibility to understand and abide by the rules and regulations the IRS enforces. Ignorance of the law is not a justifiable reason to request an abatement of FTF’s and FTD’s. Furthermore, interest is never abated under any circumstance.

In essence, if a business owner is delinquent on his employment taxes, he has taken money from the employee and has utilized the funds for another reason outside the realm of its intended use (perhaps cash flow the company, pay personal loans, et. al). At this point the employer is “borrowing” money (Trust Fund Taxes) owed to the Federal Government from his employees and the IRS fines heavily for this process. In the long run it is far more inexpensive to take a line of credit out or take a loan from the next door neighbor to satisfy the debt.

What do I do if I am delinquent in employment taxes?

If you are a small business owner who is delinquent in filing returns or paying employment taxes, but have been yet to be caught, a Federal Tax Lien is already placed upon your business/employment identification number, but the lien may not be publicly filed to date for others to recognize. The IRS has recently hired thousands of Revenue Officers to rectify this situation, and you may very well find them standing in your office sooner than later (Yes, they do stop sending letters eventually and make personal visits in front of your customers). If you are proactive with the delinquent nature and cannot pay the full amount, the IRS will work on a payment plan versus closing your company. It is far better for an employer to contact the IRS prior to their employees finding you at work. If your company is failing and you cannot possibly pay, an Offer and Compromise is your last alternative.

Additional Information:

Which form do I file to report federal Income Taxes, Social Security, and Medicare taxes?

• Form 941, Employer's Quarterly Federal Tax Return
• Form 943, Employer's  Annual Federal Tax Return for Agriculture Employees (For use by farm employers)

References/Related Topics

• Employment Taxes for Businesses
  
• Online Classroom, Lesson 7 - How to manage payroll so you withhold the right amount from employees
• Online Classroom, Lesson 9 - What you need to know about Federal Unemployment Taxes (FUTA)
• W-2 Online, Create, save, print, and submit Forms W-2 and W-2c online.
• Tax Calendar for Small Businesses and Self-Employed
  

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BIOGRAPHY

Dr. Melissa Luke is a practitioner in the financial and securities markets, specializing in maintaining positive economic conditions within domestic and international organizations for maximum profitability.

Dr. Luke has directly worked with top agency authorities such as the Securities and Exchange Commission (SEC), the National Association of Securities Dealers (NASD), and the Public Company Accounting Oversight Board (PCAOB) to increase knowledge base for university students and business owners nationwide.

She assists leaders in maintaining corporate vitality and economic growth within an organizations strategic structure and shareholder realm.

Melissa was a professional guest speaker, conducting seminars nationwide and in Canada on market makers, electronic control networks, arbitrage, Level II systems, technical approaches, and crisis prevention methods for corporate securities and welfare, and the Sarbanes-Oxley Act of 2002.

She has published securities educational methods for global distribution, and has worked with several foreign governments on securities issues.

Dr. Luke beta tested the primary software systems used for many of the major brokerage houses and online trading entities prior to the inception and implementation to the general public. She also trains all levels of organizations and corporations on the identification process of corporate malfeasance and fraudulent activity, to protect the corporate executives and public shareholders.

She educates 21st Century organizations, investigates wrongdoing, conducts extensive research on the intricacies of the Sarbanes-Oxley Act, and recruits knowledgeable professionals on the requirements of compliance of corporate fraud utilizing her prior experience working for the United States Treasury.

Currently, Dr. Luke analyzes corporate legal entities, methods of operation, systems, internal controls, employee management, ownership, and corporate structure to maximize profitability and provide recommendations to improve ease of operation, productivity, and profitability of small to medium sized business in the United States.

She also teaches undergraduates at Boise State University as an adjunct professor in management and doctoral students at North Central University in finance.

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