The current economic climate has been tough on California businesses. One of the biggest problems even well-established companies are facing is a cash flow crunch. Many businesses simply do not have the money they need to meet all of their obligations. As the saying goes, “desperate times call for desperate measures,” but deciding to pay some bills and not others can have significant consequences. While most people understand that not paying your electric bill will get your lights turned out, many people do not know that stiffing Uncle Sam could put you behind bars.
The Internal Revenue Service (IRS) and the State of California require business owners to withhold Social Security taxes, Medicare taxes, and income taxes from the wages of its employees. These withholdings, along with the employer’s own portion of the same taxes, are commonly referred to as “Payroll Taxes” or “Employment Taxes.” In theory, these funds are to be kept in a trust account, and then periodically transferred to the government.
Because the transfer of the payroll tax trust funds to the government only happens periodically (often quarterly) some businesses who are short on cash don’t do withholdings. They indicate on their pay stubs that they are doing withholding, but in reality they do nothing, hoping that when the time comes to make the transfer they will be doing better financially and nobody will ever know that they didn’t hold funds in trust to make the payment. Unfortunately, this gamble rarely pays off, since most businesses desperate enough to try it don’t have the turnaround they need to make the payment when it comes due.
Failure to pay payroll taxes is a big deal. The government imposes stiff failure-to-pay penalties, and charges interest on money owed. This can quickly add up to an amount that is impossible for a struggling business to ever pay off. And it’s not just the business that is in trouble when the tax collectors come to call. The people responsible for making the decision not to pay the payroll tax can be held personally responsible for the money owed. In very serious cases, the government has jailed people who did not pay payroll taxes.
If you have fallen behind on your payroll taxes, the time to seek help is now, not when you are being threatened with jail time. Brunoro Law has helped hundreds of business owners solve their payroll tax problems, and in many cases, keep their business. Contact us today for a free consultation and see how we can help you and your business.