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Regardless of any business, if you’re an employer, it is important you know about tax laws, the rules and regulations about tax preparation, and when to pay them. However, as a business owner, you may be oblivious to the tax process, so a wise decision would be hiring a tax professional capable of meeting the requirements of your specific business.

The US tax system follows a “pay-as-you-go tax system,” which means that you must pay income tax as you earn or receive your income during the year. Moreover, if you do not pay your income tax withholding and withheld Social Security taxes, the IRS will pursue its collection from officers, directors, stockholders, key employees, and anyone else who could possibly be held liable.

To give you a clearer picture of the US tax system, Christopher G Carmona CPA, APC, has explained the two internal revenue codes for the responsible persons and lender liability for trust fund taxes § 6672 and § 3505.

The facts!

Internal Revenue Codes § 6672

Under Internal Revenue Code (IRC) section 6672(a), an individual can be held personally liable for a penalty for the willful failure to collect, account for, and pay to the IRS the employment taxes of a business. Section 6672 applies to trust fund taxes imposed by Section 7501 of the Internal Revenue Code.

Internal Revenue Codes § 3505

Section 3505 of the Internal Revenue Code imposes liability on a lender for an employer’s withholding when the lender has made a payroll loan to that employer, knowing that they did not pay the taxes.

So why does the IRS get so cranky when an employer fails to pay over the payroll taxes?

The reason is that the unpaid payroll taxes act as a double-hit to the government fisks. Usually:

a. The government will be required to issue refunds to the employees who file their 1040 income tax returns despite the fact the IRS never received the funds and,

b. The employees will need to be credited for their social security earnings, again, despite the fact, the IRS never received the money.

Given that withholding accounts for more than 70% of the revenue for the United States government, it is easy to see why the IRS is aggressive about trying to protect this critical source of funds.

For more facts about the Internal Revenue Codes § 6672 and IRC § 3505, reach out to Christopher G Carmona CPA, APC. We are a renowned CPA firm in Diamond Bar, CA, specializing in tax-related problems and representing clients who owe IRS penalties, interest, and taxes. We offer our services across Diamond Bar, Los Angeles, Oceanside, Orange County, Riverside County, San Diego County, and the surrounding areas.

To learn more about how we can help you with your taxes, get in touch with us here. If you’d like to explore our other services, visit our website.