Why withheld taxes are treated seriously
Income tax and the employee share of Social Security and Medicare taxes withheld from paychecks are considered held in trust for the government. If a business does not pay them over, the IRS can pursue certain individuals personally, typically people with authority over which bills got paid who chose to pay others instead. New York State has its own rules that can make responsible persons liable for unpaid state withholding. Personal liability can reach owners and officers, and sometimes bookkeepers or other employees with check-signing authority, depending on their actual role. In serious cases, failing to pay over withheld taxes can also be investigated as a crime.
Records that show who decided what
Gather payroll tax returns, bank statements, and notices from the IRS and the New York State Department of Taxation and Finance. Records that show who signed checks, who controlled bank accounts, and who decided which creditors were paid often decide personal liability. If the IRS asks you to sit for an interview about your role, speak with counsel before answering, because that interview is used to decide whether you will be assessed personally. Keep filing current returns even if you cannot pay in full, and stay current on new deposits where you can, since continuing to fall behind usually makes the situation worse.
Options to discuss
We look at the periods involved, the amounts, and whether penalties may be reduced. We review whether you were truly a responsible person, and whether others share that responsibility. Installment agreements and other resolutions are sometimes available, and the business's current compliance often affects how those discussions go. If workers were treated as independent contractors when they may have been employees, withholding exposure can extend to that issue as well. When the business is also considering bankruptcy, these taxes need special attention, because they often survive a discharge. A proposed personal assessment can usually be appealed, and the response window is short.
