940/941 Payroll Tax Problems
The 941 Payroll Tax problem is a businesses' tax problem concerning their payroll. Before understanding what a 941 payroll tax problem is, it is important to know what it is. There are three (3) main types of taxes falling under the category of payroll taxes. First is the regular income tax that must be withheld from the business' employees' wages or salaries. Second is the Federal Insurance Contribution Act (FICA), which is a contribution to the Social Security and Medicare. The third is the Federal Unemployment Tax (FUTA).
The first is commonly known as the withholding taxes from employees which will appear in their individual pay vouchers or pay slips. The amount of taxes withheld is dependent upon the earnings of an individual employee, exemptions and deductions and basically based on their individual returns and calculation. An error in the deduction is considered a 941 payroll tax problem. On the second tax, Employers are required to withhold from the employees 7.65 percent of the first $62,700 income and match that amount so that the total FICA contribution will be equivalent to 15.3 percent. Again erroneous calculation of the percentage amount will fall as a 941 payroll tax problem. If you are a Self-employed persons, you have to should both or the entire FICA tax. The FUTA tax is solely paid by the employer equivalent to approximately 1 percent of the first $7,000 wages of an employee.
So aside from withholding payroll taxes for employees, employers must remit these taxes to the IRS on prescribed periods and manner, failure on their part to remit or errors in the manner of remittance is another payroll tax problem. The income taxes withheld from employees payroll and the employees' portion of the FICA taxes that are also withheld from their pay every pay period must be remitted to the IRS monthly together with the Federal Tax Deposit Coupon (Form 8109-B). However, if the total amount withheld is less than $500, the employer taxpayer may make the payments quarterly. Employers must also file four different reports regarding payroll taxes. The first report is the Employer's Quarterly Federal Tax Return made under Form 941 providing thereon the number of employees in the payroll, the amount of wages they were paid, and the amount of taxes that were withheld for the quarter. Therefore, the business-taxpayer had to prepare a payroll, deduct employees' taxes, remit the deduction to the IRS and make a report of these facts in Form 941. All tax problems arising and related to Form 941 is what we refer to as the 941 payroll tax problem.
On top of the monthly and quarterly activities explained above, the employer taxpayer must file the other three reports annually. Form W-2 which is the Annual Statement of Taxes Withheld must also be sent to the Social Security Administration. The third report under Form W-3 which must be sent to the IRS by February 28 of the following year provides a formal reconciliation of the quarterly tax payments under Form 941 and the annual totals reported on Form W-2 for all employees. The fourth and last report which is the Federal Unemployment Tax Return, Form 940, outlines the total FUTA taxes owed and paid for the year.
The money involved which are in the possession of the employer's taxpayer are in reality not their money but the money of the IRS, FICA and FUTA mostly coming from the employees in the form of withholding tax. They are in possession of the tax money they are holding in trust or as they call it Trust Tax, or Trust Funds. Failure to remit the collected FICA and the IRS is considered as theft as it is the taking of somebody else's money. In other countries, this is considered as Estafa which is considered also as a Criminal Offense and for this reason, the IRS speeds up the process in running after and recovering from the employer taxpayer the money robbed and stolen. Payroll Tax problems are not only about non-remittance to the IRS of the deducted taxes, it also includes erroneous deduction of withholding tax, erroneous reporting of the amount, the IRS number, the employees' name and anything and everything about payroll. Payroll tax problems are often causes of business collapse or what usually brings down a profitable newly established business as well as small and medium size businesses, the very reason why a department is usually created in a company or business just to deal with Payroll Tax Reporting.
FinishLine Tax Solutions specializes in the management and resolution of Payroll Tax matters. According to the IRS, Payroll tax matters are considered one of the most serious of all tax liability issues and may potentially result in criminal prosecution. From the IRS' perspective, when payroll taxes are owed, it is viewed as theft from not only the employees of the compny by its owners, but also as theft of federal funds. Due to the serious nature of payroll tax matters, Innovatum Tax Group takes an extremely aggressive approach in defending our clients who fall into this category.
If you are experiencing payroll tax problems, call us immediately so that we may take the necessary agressive measures in assuring that you are protected from the potential attacks by the IRS.