If you are a business that has employees, you are essentially paying 7.65% in Federal taxes on top of their wages (and state/local taxes) as a privilege for having a staff member. That 7.65% chunk is your share of the employee's FICA/Medicare Taxes. The employee withholds the other 7.65% (totalling 15.3%) from their own paycheck along with Federal Income Taxes. When you submit these taxes to the IRS in the form 941 payroll tax deposits, you are basically forwarding the Employee's own federal withholding plus the FICA/Med on their behalf.
We all know when a business stops being profitable it is tempting to stop paying 941 taxes. Not paying 941 taxes can really loosen cash flow LOL! But if it becomes a pattern, you will be visited by a Revenue Officer of the IRS who will aggressively collect these taxes. 941 tax collection is at the top of the pyramid, because...you are more or less stealing from employees. There really isn't a better way to put it.
941 tax collection cases usually go three directions:
1. Business gets profitable pays them off. If your business just had a hiccup and gets back on track of profitability, you pay the taxes and ask for a penalty waiver.
2. Business gets profitable but requires payment plan. If you can start paying your current 941's and show some profitability, the IRS will allow you a payment plan (in some rare cases that we will allow you to be placed in temporary hardship status. Later, you can ask for a penalty waiver.
3. Business dissolves. If you owe 941's and continue to owe 941's and you are under the scrutiny of the IRS, you will have to dissolve. How will this work? It depends on your entity status.
If you are a S corp, C corp or multi member LLC, you might get a 60% discount on what you owe by only being assessed the Trust fund portion of the taxes (essentially the federal income taxes you were supposed to be forwarding employees).
If you are a general partner, sole proprietor or single member LLC, there's no discount. You could be assessed 100% of the 941's! (Which also shows that if you are forming a business that has employees - you should go for Corp or multi member LLC as a safety valve!).
Once a business dissolves and the debt is assessed personally, you can then look at avenues to resolve the case personally.
WATAX can report: 941 cases are NOW at the top of the IRS queue!
