A busy entrepreneur needs to know when to delegate. As your business grows, you have to trust vendors and employees to do more. But as a man once said, “trust, but verify.” The “verify” part is especially important in dealing with your payroll taxes.
A Des Moines businessman has learned this lesson the hard way. Somehow — perhaps as a result of an employee dropping the ball, but it’s not certain — his distribution company got behind on its payroll taxes. The federal courts found that he paid other vendors before he got the payroll tax debt straightened out. When a “responsible person” does so “willfully,” he becomes personally liable for the payroll taxes, even if the business is incorporated. The court ruled that the businessman was on the hook:
“The term willfully does not connote a bad or evil motive, but rather means a voluntary, conscious, and intentional act, such as the payment of other creditors in preference to the United States.” Willfulness is generally a question of fact, but if a responsible person knew of payments to other creditors after he was aware of the failure to pay over withholding taxes to the government, his actions are willful as a matter of law.”
So can you wash your hands of the problem by outsourcing the payroll function? No. If you provide cash to the payroll service and they fail to remit it — maybe because they steal it — the IRS will come looking for the money. They don’t count stolen tax deposits as payment of withheld payroll taxes.
As we said, the entreprenuer can’t do everything. You have to trust, but you can verify your payroll taxes. If your business is enrolled in the Electronic Federal Tax Payment System (EFTPS), you can go online to make sure your payroll taxes are being deposited. Whether you outsource your payroll or do it in-house, it only takes a minute to check your payments.
Getting behind on payroll taxes can be enough to sink a business. That’s why you entrepeneurs should bookmark the EFTPS website, know your password, learn how to access your account, and at least once in a while, verify.
