They say there are two things you can count on in life — death and taxes. When it comes to taxes, it can feel like once you think you have a good understanding, everything changes and you have to learn it all again. But for employers, there is one thing that will always remain the same — your responsibility to withhold taxes from your employees’ paychecks. Failure to comply with federal regulations could result in serious legal consequences.
Your responsibility as an employer
As an employer, it is your job to accurately withhold, record, and pay all taxes for each of your employees. While there may be a slight deviation from worker to worker, generally you must withhold from each employee’s wage:
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6.2% for social security;
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1.45% for Medicare;
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An additional 0.9% for wages that exceed the threshold amount; and
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Federal income taxes pursuant to the employee’s W-4
Additionally, the law requires all employers to match the employee’s share for social security and Medicare. These funds should be deposited after each paycheck and paid and reported in accordance with the IRS schedule.
What happens when an employer does not properly withhold an employee’s payroll tax?
When an employer does not withhold its employees’ payroll taxes, it can affect both the employee and the employer. Unfortunately, these issues often occur because of improper training, negligence, or outsourcing payroll duties. Regardless of the reason, the IRS takes withholding issues very seriously and will aggressively pursue employers in the fourth quarter of 2021. Common problems that occur:
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The employer fails to withhold the correct amount of taxes from the employee’s pay
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The employer does not pay quarterly taxes to the IRS
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The wage the employer reported to the IRS does not match the wage reported to social security
Accurate withholding and reporting is important. When an employer makes a mistake, the error may cause a delay in the employee’s eligibility for federal programs, including Medicare, social security, and unemployment. Furthermore, failure to properly withhold or pay employee payroll taxes could result in civil or criminal charges for the employer. Depending on the circumstances, the IRS may even charge you with tax evasion.
All employers need to take tax withholding requirements seriously. If you are concerned about your liability or have received a notice from the IRS, an experienced tax attorney may be able to help.