Salt Lake City, Utah - As I mentioned in an earlier blog, a lot of people ask me why I help "deadbeat taxpayers" who have no money. What I remind people is that if a taxpayer did not make much in the way of money then they are not a deadbeat taxpayer. Why? Between the Earned Income Tax Credit and other tax credits under the Affordable Care Act, why would a taxpayer not making much money not file to get whatever tax credit is available. As I remind individuals, these tax credits are IRS entitlement welfare. It is almost always those with resources who have difficulty in paying taxes. If a taxpayer's filing status is single, then income over $89,075 is taxed at 24% and quickly climbs to 37%. This is why they have tax problems.
The above analysis is what brings me to payroll taxes. Before we look at various resolution options associated with payroll taxes, it is important to understand the IRS’s perspective when it comes to these taxes. Payroll taxes are a significant constant stream of revenue for the US Government. Of the $4.1 Trillion in taxes collected by the IRS in 2021, $1.2 trillion was collected in Federal Insurance Contributions Act (“FICA”) taxes and $1.9 trillion was collected in income taxes withheld by employers. The total taxes paid by employers on behalf of employees represents more than 75% of all taxes collected by the IRS in 2021.
Income taxes and FICA taxes are withheld from each employee’s paycheck by his or her employer and paid to the US Government on either a weekly, monthly, quarterly or annual basis depending upon the size of the employer’s payroll. The amounts withheld by the employer from the employee’s share of the FICA Taxes and federal income tax are referred to as “Trust Funds” because the employer is holding these funds in trust for the IRS.
To protect this revenue source, Congress created Code Section 6672. If payroll taxes are not paid by an employer, Section 6672 allows the IRS to assess a penalty against individuals and/or the business the IRS deems to be responsible for the unpaid Trust Funds. The penalty is equal to 100% of those Trust Fund taxes not properly accounted for and paid to the IRS by the employer. This means that there can be both a personal as well as a business tax liability.
In my upcoming blog I will look at Trust Fund Investigation Strategies.
If you receive an IRS letter and are unsure how to respond, please give us a call. Tax problems are legal problems, and we solve both. If you or someone you know has an IRS Tax Nightmare, we can help, please contact us by either phone at (801) 323-2112, or by email and kbrown@strongandhanni.com or go to my personal webpage at: https://strongandhanni.com/attorneys/attorney-kent-brown/
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