One of the important responsibilities that all employers in Virginia have is to make sure they are collecting, reporting and paying payroll taxes as mandated by state and federal laws. It is important to remember that if you are a “responsible party” based on the Internal Revenue Service’s definition of such a party, you may be held personally liable for any payroll taxes that go unpaid or unreported. The IRS also makes it very clear that if you use an outside contractor to do your company’s payroll, you will still be held accountable if your tax returns are not filed in a timely manner or if your payroll taxes are not paid on time.
Payroll Taxes You Have to Pay
First and foremost, if you are starting your own business and employing people, you need to understand for what federal and state payroll taxes you will be responsible. These include the federal and states taxes that are required to be withheld from the employee’s salary and paid to the IRS and to the state of Virginia as required by the law. You also need to withhold FICA taxes, which go into Social Security and Medicare.
This can be withheld once every two weeks or monthly depending on the number of employees you have. Federal unemployment taxes must be paid quarterly or each year and are reported on the business’s Form 940. State unemployment taxes are also collected, reported and paid as state laws dictate. Other types of payroll taxes employers are responsible for include annual wage and tax reporting for employees, which is done with a Form W-2 or Form 1099.
Understanding the Penalties
The penalties you will need to pay for failing to pay payroll taxes can be quite complex and challenging to understand. When you fail to withhold FICA taxes (Form 941), you may be charged a percentage penalty depending on how late the payments are. For example, you may be charged 2 percent if the payments are up to five days late and up to 15 percent depending on the delay in payments.
The trust fund recovery penalty is typically equal to the income taxes, Social Security and Medicare taxes that go unpaid. A responsible party may be held personally liable for the trust fund recovery penalty, under federal law. What’s worse, you may have to pay interest, which accrues from the due date, in addition to the penalties. You may still face fines and interest charges for late payments even if you could provide evidence that your failure to pay or report taxes was not deliberate or “willful.”
In addition, you could face penalties for unpaid payroll taxes if you misclassified employees as independent contractors. You could also be penalized if you don’t prepare and provide W-2 forms for employees by the deadline, which is the end of January. You may have to pay a penalty of about $50 per statement that should have been sent out or was inaccurately prepared.
Contacting an Experienced Tax Lawyer
If you are a business that is facing penalties for failing to pay payroll taxes or are looking to avoid penalties, the experienced Northern Virginia tax accountants can help you solve your issues. We are experienced in resolving both personal income and business tax issues at the state and federal level. Contact us for a free initial consultation.