Do You Have an IRS Payroll Tax Debt?

The IRS will often make an unannounced visit to a business with unpaid employment tax liabilities. This visit is legal, but you don’t have to invite the Revenue Officer past the public area of your business unless they have permission to enter by a court order, which is rare. You also don’t need to make promises or share any detailed information.

During this visit, the IRS officer may deliver a Final Notice of Intent to Levy.

You should let the Revenue Officer know that you’ll be working to answer the IRS questions through a professional. If you don’t yet have an IRS tax expert working on your case, retain one as soon as possible after receiving notice — it’s essential not to miss deadlines for unpaid IRS employment tax withholdings.

The IRS describes Revenue Officers as “civil enforcement employees who work cases that involve an amount owed by a taxpayer or a delinquent tax return. Their role involves education, investigation, and when necessary, appropriate enforcement.” This definition is accurate but fails to convey how Revenue Officers execute their roles in practice.

IRS Revenue Officers are primarily focused on the investigative and enforcement aspects of their responsibilities. They are looking to determine how much a taxpayer truly owes and how much they can realistically collect on behalf of the IRS.

In their investigative capacity, IRS Revenue Officers are empowered to visit a taxpayer’s home or business and contact the taxpayer directly. They will issue requests for information that must be addressed by very specific deadlines. When information is not provided voluntarily and by deadline, the officer can issue a subpoena.

In their enforcement capacity, the IRS Revenue Officer will use strong collection actions to elicit prompt payment of the payroll tax debt. Whether through a payment arrangement or a levy, the officer is motivated to collect and close the case.

A levy is a seizure of bank accounts and other assets — in this case, those associated with the business. A levy of your business can include seizure of receivables, vehicles and equipment, as well as accounts receivable. The Final Notice of Intent to Levy provides 30 days within which to dispute the intent to levy.

It’s essential to respond to the Final Notice of Intent to Levy within 30 days. If you believe a mistake was made, roof that the tax withholdings were paid in full.

If you know your business legitimately owes the IRS, consult a licensed tax professional for advice on the best strategy for your business tax debt situation.

A tax professional may recommend filing a request for a Collection Due Process Hearing (CPD). A CPD prevents the IRS from imposing the levy against your business while you negotiate a solution to the tax debt. It also transfers your case to an IRS appeals settlement officer.

Trust fund taxes are taxes that employers hold in trust for their employees. Any taxes you withhold from employees’ paychecks, which are due to the IRS, are trust fund taxes. Trust fund taxes include income tax and employee contributions for Medicare, and Social Security payments.

Non-trust fund taxes are the Social Security and Medicare contributions employers must match against their employees’ contributions. The IRS mostly holds businesses responsible for non-trust fund taxes, rather than individuals. That means these taxes aren’t included in the Trust Fund Recovery Penalty for most businesses. However, if you’re self-employed or the sole principal of an LLC, you may be held liable for non-trust fund taxes as well as trust fund taxes.

When it comes to trust fund taxes, the IRS can seek to collect these back payroll taxes from the business or anyone within the business deemed responsible for financial operations. This can include the owners, officers, and employees with financial control over the business. The liability for these taxes can be divided between the business and individuals, up to 100% of the trust fund amount.

IRS Revenue Officers are motivated to expedite the payments and resolve the payroll tax liability as quickly as possible. 12–24 months is a typical timeframe for past due payroll tax Installment Agreements.

IRS Revenue Officers are motivated to expedite the payments and resolve the payroll tax liability as quickly as possible. 12–24 months is a typical timeframe for past due payroll tax Installment Agreements.

There are times when the IRS will forgive back payroll taxes. The debt is often settled for less than the initial amount owed, but only when the business is no longer operational, or the Trust Fund Recovery Penalty is assigned personally to the responsible taxpayers.

If you qualify, an Offer in Compromise is often the best option for resolving payroll tax debt. An OIC is an agreement with the IRS to settle the debt for less than the amount owed. Our Senior Tax Consultants can discuss whether submitting an OIC is a viable option for dealing with your payroll tax debt.

If an IRS financial investigation reveals that your business is unable to satisfy the debt quickly enough, the Revenue Officer will initiate a trust fund penalty investigation. Also, the IRS will seek repayment from individuals responsible for the payroll tax debt.

In the case of a financial investigation, the IRS Revenue Officer will issue a Proposed Assessment of Trust Fund Recovery Penalty. If you’re named in the proposed assessment, you have 60 days within which to file an administrative appeal with the IRS. Failing a successful administrative appeal, you can later appeal to the U.S. District Court.

The IRS will initiate collections against you for trust fund taxes, just as if you owed personal back taxes. If the IRS asserts the penalty against you, they can take action to collect against your personal assets through federal tax liens, levies and seizures.

In some cases, the debt can be forgiven through bankruptcy, but bankruptcy isn’t a universal solution to payroll tax debt and trust fund penalties. Moreover, it’s also important to note that bankruptcy will affect your credit rating for 10 years.

When the Trust Fund Penalty is assessed, a portion of the debt is transferred out of the business name to the responsible taxpayer as an individual. The business itself remains responsible for the remaining portion of the debt.

Bankruptcy for payroll taxes may require a two-pronged approach, assessing the business’s and the individual’s ability to pay. There are different requirements for how taxes are treated in cases of business and personal bankruptcy.

There are times when filing for bankruptcy may be the best option, but our goal is to make you aware of the alternatives available for resolving your payroll tax liability.

Yes. There is a 3-year statute of limitations on IRS investigation of the trust fund recovery penalty. That means, individuals can only be held personally responsible if the IRS asserts the penalty within three years of the tax debt assessment.

However, the statute of limitations for unpaid federal payroll taxes is 10 years. So, the business will continue to be liable for unpaid payroll taxes long after the prospect of a trust fund recovery penalty has passed.

That means you didn’t have any federal taxes withheld throughout in the year. In this case, contact your employer to ensure the correct amount of federal taxes is withheld in the future because it’s your employer’s responsibility. Your employer should withhold income tax from your paycheck and pays it to the IRS in your name. And, only your employer can tell why no taxes are being withheld.

Employers are legally required to withhold taxes from employees paychecks. However, suppose your employer fails to withhold federal taxes. Failure to do so can lead to tax issues for employees. Still, it’s your responsibility to follow this. Moreover, there may be a different problem because sometimes employers misclassify employees. For example; if you’re an independent contractor, it’s your responsibility to pay all taxes, including a self-employment tax. Contact your employer and resolve this issue with a tax lawyer. Shortly, you can’t sue someone for not paying your debt.

There could be several reasons why no federal income tax was withheld from your paycheck. Common reasons include:

1. Exemption on W-4 Form: If you claimed exemption on your W-4 form because you had no federal tax liability last year and expect none this year, no federal tax would be withheld​.

2. Incorrect W-4 Form Information: Errors in filling out your W-4 form or not updating it to reflect changes like a significant decrease in income, increases in tax deductions, or changes in personal status (e.g., marriage, children) can result in no tax being withheld​.

3. Type of Income: Some types of income, like certain Social Security benefits, are not subject to withholding unless you request it through forms like W-4V​.

4. Independent Contractor Status: If you are classified as an independent contractor rather than an employee, federal income tax will not automatically be withheld from your payments. Instead, you might receive a Form 1099-MISC and be responsible for making your own tax payments.