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Don’t ‘call in sick’ to avoid employment-tax obligation

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in Discrimination and Harassment,Human Resources,Small Business Tax,Small Business Tax Deduction Strategies

If the 100 percent federal employment tax penalty  doesn’t strike fear in the hearts of small business  owners, it

Why? That tax-code provision requires the person  “responsible” for unpaid employment taxes to  personally pay 100 percent of the amount withheld  from employees’ paychecks. (That’s why it’s  called the 100 percent penalty.)

You’re still potentially on the hook for the  100 percent penalty even if you delegated the job  to someone else or you otherwise thought the  taxes were paid on time. You can skip out on  the tax bill only if you can show that your failure  to pay was due to reasonable cause and not willful  neglect.

Alert: Illness or disability is generally not considered  “reasonable cause.” As a recent court case  shows, illness doesn’t absolve you of the responsibilities  in this area.

Here’s what happened: Due to severe health  problems—including obesity, high cholesterol,  diabetes and gout—a company CEO started cutting  back his hours in 1998. In 1999, he suffered a  heart attack, followed by an angina attack in  2000.

Nevertheless, the CEO still exerted significant  control at the company, including the ability to  write and sign checks, choose one creditor over  another and supplement corporate accounts with  personal funds.

Yet his company still failed to pay its employment  taxes. After looking at all the facts, the  District Court imposed the 100 percent penalty on  the CEO. (Savage, DC-Cal., 2/22/06)

  Advice: Even if you’ve assigned the  job to a tax pro, you can still get walloped  if the taxes aren’t paid on time.  So, follow these simple safeguards: 
  • Make one employee responsible for  paying the taxes and another for verifying  the payments.

  • Assign backups to both employees in  case of illness, vacations or other  absences. 

  • Require those employees to issue a  report to you (in paper or e-mail) stating that  they completed the responsibility. 
  • Circle the payroll deposit due dates on your  desk calendar or use another visible reminder.

  • Keep our 2006 Federal Tax Calendar handy. 
Last, but not least: Check your books and  tax records to see that payments were made on  time. It’s your money at stake here, so the onus is  on you.

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