Understanding withholding and payroll taxes
Payroll withholdings are the taxes and benefits paid by the employee (trust fund taxes) and include:
- Employee portion of Social Security tax – 6.2 percent
- Employee portion of Medicare tax – 1.45 percent (a 0.9 percent Medicare surtax when the employee earns over $200,000)
- Federal income tax
- State income tax
- Court-ordered withholdings
As an employer, you are technically the 'trustee' and are holding this money 'in trust' for the government until your quarterly payment is due (4/15, 6/15, 9/15, 1/15). Technically, this is not your money… it is the governments.
The law also requires you to pay the employer's portion (non-trust fund taxes) of two of these taxes:
- a 6.2 percent Social Security tax
- a 1.45 percent Medicare tax (the “regular” Medicare tax).
Falling into payroll tax trouble
We have a lot of clients that are dealing with payroll tax debt. The stress can feel overwhelming, and you may make poor choices trying to solve the issues on your own. It’s a scary thing because you are talking about not only your own livelihood, but the livelihood of your employees. Also, you are personally liable for this debt; it's not just the responsibility of the business to pay it back.
In our experience, we find that 98% of payroll tax problems are caused by cash flow. Cash flow problems can easily spiral out of control, and can be caused by a client that burns you, a natural disaster, a lawsuit, or employee embezzlement, to name just a few reasons.
Unfortunately, we find that the nicest people end up with payroll problems because they may be afraid to lay any employees off. These are honest people that didn’t take the money for their own use; they took the money and put it into the business to keep the lights on, or to pay for supplies hoping to turn the business around. They are misunderstood, hard-working, and are simply trying to make ends meet.
If you have a payroll tax debt and arent' sure how to get a handle on it, contact us. We can help. Call us at 888-727-8796 or email info@irsmedic.com.
