payroll - Linkenheimer LLP CPAs & Advisors

6 Essential Tips for Small Business Payroll Tax Compliance

Staying compliant with payroll tax laws is crucial for small businesses. Mistakes can lead to fines, strained employee relationships and even legal consequences. Below are six quick tips to help you stay on track.

1. Maintain organized records

Accurate recordkeeping is the backbone of payroll tax compliance. Track the hours worked, wages paid and all taxes withheld. Organizing your documentation makes it easier to verify that you’re withholding and remitting the correct amounts. If you ever face an IRS or state tax inquiry, having clear, detailed records will save time and reduce stress.

2. Understand federal withholding

Federal income tax. Employees complete Form W-4 so you can determine how much federal income tax to withhold. The amounts can be calculated using IRS tax tables.
FICA taxes (Social Security and Medicare). Your business is responsible for withholding a set percentage from each employee’s wages for Social Security and Medicare, and you must match that amount as an employer. The current tax rate for Social Security is 6.2% for the employer and 6.2% for the employee (12.4% total). Taxpayers only pay Social Security tax up to a wage base limit. For 2025, the wage base limit is $176,100. […]

By Linkenheimer LLP|2025-04-04T19:09:36+00:00April 4th, 2025|payroll|0 Comments

A Refresher on the Trust Fund Recovery Penalty for Business Owners and Executives

One might assume the term “trust fund recovery penalty” has something to do with estate planning. It’s important for business owners and executives to know better.

In point of fact, the trust fund recovery penalty relates to payroll taxes. The IRS uses it to hold accountable “responsible persons” who willfully withhold income and payroll taxes from employees’ wages and fail to remit those taxes to the federal government.

A matter of trust

The trust fund recovery penalty applies to employees’ share of payroll taxes, including withheld federal income taxes and the employee share of Social Security and Medicare taxes.

These monies are considered trust funds because they’re the property of the federal government, held in trust by the employer. The penalty amount is 100% of the unpaid taxes plus interest — it essentially serves as an alternative tax-collection method.

A responsible person

The trust fund recovery penalty is particularly dangerous because it can ensnare persons who ordinarily are protected against personal liability for business debts. As stated in the tax code, the penalty provides that:

Any person required to collect, truthfully account for, and pay over any tax imposed by this title who willfully fails to collect such tax, or truthfully account […]

By Linkenheimer LLP|2023-10-13T20:41:06+00:00October 13th, 2023|payroll, trust|0 Comments