Payroll Taxes and Personal Liability

Problem: Although the employer is responsible for depositing federal and state taxes, the person who actually remits the taxes can be held personally liable for monies withheld but not deposited.

In other words, personal liability can be imposed upon the person “responsible” for paying them to the government, including, in certain cases, the bookkeeper.

Internal Revenue Code Sec. 6672(a), referred to as the “100% penalty,” is used to recover employer payroll taxes from bookkeepers responsible for withholding and paying them.

Even check-signing authority not involving payroll or payroll taxes can trigger personal liability if the signer’s job includes paying creditors and tax authorities deem that such funds “came from” payroll taxes withheld and therefore “belong” to them.

If the IRS thinks it can’t recover from a firm, it may sue the employee. The IRS may even sue the employee before (or instead of) attempting to recover from the firm, because anyone responsible for withholding and paying taxes is as liable as the employer.

Solution: Don’t be the only signature on checks. Authority to sign a check represents authority to disburse funds and can trigger personal liability if withheld taxes are not paid. You are protected against the liability of “final authority” if your firm requires all checks to have a second signature of a supervisor or corporate officer after you have signed it.

Note: If you have to sign paychecks, temporarily (an owner is out of town) or permanently (you are at a remote location), your only protection may be to have your employer give someone else “final authority.”

–AIPB Bookkeeping Tips

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