7 Things to Know About Payroll Taxes

Every employer has to withhold some money from their workers' paychecks in order to pay taxes to the federal and local governments. In Santa Ana, CA, there are countless rules and regulations surrounding payroll taxes, so it can be hard to know exactly how much to withhold. If you're struggling with this issue, you should contact a tax specialist, who can help you avoid tax problems.Payroll tax debt is a serious issue because the government can come after your personal assets. As soon as you notice that you can't pay, you should take action. The IRS has designed a comprehensive forgiveness program, which can lighten your tax burden or allow you to spread out your payments over several years. Let's have a closer look at what payroll tax is and what you can do if you can't pay your debt.


7 Things to Know About Payroll Taxes

1. They Pay for Various Services

When an employee earns an income, they don't receive the entire amount because a certain portion of the money goes to federal and state taxes. This system is designed to ensure that citizens enjoy a high standard of living. The federal portion of the taxes funds social security and medicare, both of which are programs that benefit people who have reached retirement age and may no longer be working.

Additionally, there is a component called the FUTA unemployment tax, which is designed to help people who have lost their jobs. Employers are responsible for paying for unemployment insurance and employment training, and state disability tax and personal disability tax are both withheld from employees.

2. The Employer Must Pay Them

Although many of these taxes are deducted from the employee's salary, the employer is in fact responsible for paying them. Before you create your workers' paychecks, you must calculate how much money to withhold from each one. For example, you should deduct 6.2% for social security tax from all employees, but only up to $147,000. If the person earns more, they don't pay additional SST.

Similarly, medicare tax amounts to 1.45%, but if your workers earn more than $200,000, they have to pay a higher rate. In addition to these various taxes, you also have to consider your employees' federal income tax, which could range from 0% to 37%, depending on their income. What's more, they might have post-tax deductions like child support or wage garnishment.


3. The Laws Can Be Confusing

As you can see, the laws surrounding payroll taxes are extremely complicated, especially when you employ various people who are all earning different salaries. For employers who aren't trained in accounting, it's almost impossible to make accurate calculations without help. For this reason, contacting a tax specialist is essential, especially in your first years of running a business.


An expert will be able to explain the different taxes to you and let you know how much your employees should be paid after deductions. What's more, they have access to the software and tools to create accurate, easily understandable paychecks. That way, you don't risk withholding too little money or misleading your employees.


4. The IRS Can Come After You for Unpaid Taxes

Sometimes, employers aren't able to pay the entire amount they owe the IRS. For example, they might not have properly documented their employees' income and taxes, they might have failed to withhold the correct amount, or they could have used the money that was meant for the IRS to pay for business equipment. It's important to remember that payroll tax money doesn't belong to your business, and you should always set it aside in a dedicated account.


If you fail to pay tax on your employees' income, the government will come after you. You won't only have to pay back all the tax you owe, but you will also be charged a hefty penalty, called the Trust Fund Recovery Penalty (TFRP). Usually, this is equal to the amount of taxes you have withheld. Therefore, if you owe the IRS $25,000, you will have to pay a total of $50,000.


5. A Great Tax Resolution Specialist Helps You Resolve Problems

As you can see, not paying tax on your workers' income is a serious issue, and you should address it as soon as possible. When you notice that you won't be able to pay your taxes, get in touch with a tax resolution specialist. Ideally, you should speak to a professional before your bill is due because it's much easier to find a solution at that stage.


However, it's never too late. The IRS forgiveness program is designed to lighten the tax burden of both individuals and businesses and help them make overdue payments. When you speak to a competent tax expert, they can lay out the various options and help you decide which one could be suitable. Depending on your individual situation, you might be able to spread out your payments, or you could pay only a part of the tax.


6. You Can Set Up an Installment Agreement

Since the pandemic, countless businesses have struggled to make ends meet. If you used some of the funds meant for the IRS to pay for your business expenses, you're not alone. Fortunately, almost everyone is eligible for an installment agreement, which allows employers to spread out their tax payments over several months or even years.

Your tax resolution expert can let you know whether an IA would be suitable for your company. For example, it is a great option for businesses that have recovered from a temporary cashflow issue and will be able to pay off their debts eventually. By spreading out the payments, you can take pressure off your business's finances while still meeting your obligations.


7. You Can Make an Offer in Compromise

Sometimes, paying off the entire amount is simply not realistic, especially when you consider that the TFRP doubles the bill. But even if you believe you can't cover your outstanding tax bill, you should never ignore warnings by the IRS because the government has immense collection power. If you fail to communicate with them, they might come after your personal assets such as your home or your savings accounts.

An offer in compromise is suitable for businesses that can't pay off their debt. Once the OIC gets approved, you only have to pay a part of what you owe, and the rest is forgiven. Although this might sound like the perfect solution, it's very hard to obtain an OIC, and you shouldn't attempt to do so on your own. Instead, ask your tax specialist whether you could be eligible.


Every American business is responsible for deducting payroll taxes from employees' paychecks. There are various taxes, which are designed to pay for services such as medicare, social security, and unemployment insurance. To make sure you withhold enough and don't run into issues, you should work with a tax expert when setting up your business.If you've fallen behind on your payments, it's important to act fast. Unless you pay off your debt or you make an offer in compromise, the IRS can gain access to your personal assets like your home and your bank accounts. Call us now at Tax Alliance in Santa Ana, CA to discuss your situation with one of our specialists.

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