What Happens if I Do Not Pay My Payroll/Employment Taxes to the Government?

In 2010, the IRS investigated 166 businesses for employment tax evasion. Of those 166, 115 were prosecuted with an average incarceration rate of 82.3 percent. They spent an average of 19 months incarcerated. In addition to being incarcerated, all had to pay back the taxes owed with interest, fees, and prosecution costs. Even worse, their names, city and state of residence, and crimes are published on the IRS website for the world to see.

It is the responsibility of an employer to withhold and match federal and state payroll/employment tax amounts and file quarterly tax documents with the IRS, making all necessary payments for your employees and company. Failure to do so will initiate an investigation by the IRS. Similar to individuals who fail to pay taxes, the first step that the IRS takes with businesses is one of education and assistance. The IRS agents will explain current tax policies and procedures and even assist business owners in filling out and filing their payroll tax documents. In fact, as a general courtesy, the IRS will even send quarterly paperwork to business owners to make the process that much simpler.

Should you still refuse to pay, the IRS will file a formal prosecution recommendation. This means that the IRS is charging you with the crime of Employment Tax Evasion. At that point, a formal investigation has begun and fines and fees will start accumulating. The current penalties for Employment Tax Evasion include fees as high as 10 percent of the weekly accumulated debt and interest as high as 25 percent. If found guilty, these amounts and all owed taxes are taken from your liquidated business and personal finances.

The consequences of your failure to pay employment taxes effects your employees as well who are still liable for the full amount of tax owed. Furthermore, if you had been withholding funds from employee’s pay checks, you may also be found guilty of tax fraud and embezzlement on the criminal side and fraud on the civil side.

Failure to pay taxes of any kind, including employment taxes, is a federal crime. In the case of employment taxes, the fees and fines associated with such a decision are severe and can ruin a business in a matter of months. Even worse, the public humiliation and jail sentencing eliminate your chances of ever running a business again. When tax money is withheld from an employee’s pay check for the purposes of paying taxes, it is well established that the funds strictly go to this purpose.

Get your business off to the right start by withholding the proper amount from your employees and filing your quarterly returns. For further information on how to report employees income and file the employment tax papers, visit the Business and Employment handout area on the IRS website.