Employers in Ohio and across the U.S. are obligated to collect, report, remit, and document taxes withheld from employees that are paid over to state coffers and the U.S. Treasury. Failure of that duty can lead to personal liability for business taxes or even criminal tax charges.
While employers and employees alike grumble about payroll taxes—these funds enable important services like Medicare and Social Security benefits for retired workers. Federal taxes also fund national defense, community development, social programs, and programs for veterans and foreign affairs.
Just as in other states, Ohio employers are required to withhold state taxes for employees. In Ohio, the law requires income tax be withheld on salaries, tips, bonuses, all wages, and commissions that are paid to an employee. If your employee is an independent contractor, you are not required to withhold Ohio state income tax but may do so by request of the contractor. Most business owners that employ workers also pay federal and state unemployment taxes. As with federal payroll tax, Ohio business taxes can be paid electronically. Ohio offers specific information about remitting payroll taxes to the feds as well.
What about failure to pay employment taxes?
Because of the importance of payroll taxes to good governance, the Internal Revenue Service (IRS) prioritizes the review and pursuit of employers who do not collect and pay over wages withheld on behalf of their employees.
For many business owners, proximity to the payroll tax trust fund can lead to temptation. Whether it’s the lure of a luxury item or the fear of a sinking bottom line, otherwise responsible parties use payroll tax funds with an internal promise of “just this once,” or “I’ll pay it back.” We routinely work with clients who made these promises and need good legal help resolving the inevitable consequences.
To discourage the pilfering of payroll taxes, the IRS enforces the Trust Fund Recovery Penalty (TFRP). This penalty for collection of employment taxes due can be assessed even if the business is operating in the black. Consider these quick facts about the TFRP:
- The TFRP consists of your own withheld FICA taxes plus the entirety of unpaid withheld taxes.
- The penalty is charged against the individual or group responsible for collecting and paying over payroll taxes or directing others to do so. In this way, the penalty can be assessed against an individual, a corporate shareholder or director, an officer of the corporation, a third-party payer, the accountant, or others who are responsible for or charged with the duty. The penalty is unique because there is no business shield—if you are responsible for paying the taxes, payment of the missing payroll taxes falls to you.
- To be held accountable, the IRS must find that the responsible person willfully plundered the payroll trust fund, disregarded the law, or was aware of the requirement to pay over withheld payroll taxes.
If you have questions about Ohio state taxes, federal payroll taxes, or are concerned about potential trust fund penalties, speak with an experienced tax attorney before engaging with the IRS.
Contact an experienced Ohio Tax Attorney about tax challenges or IRS litigation
Talk to the tax group at Robert J. Fedor, Esq., LLC when you have concerns about tax compliance, payroll tax issues, or other tax controversy. With offices in Chicago and Cleveland, our knowledgeable tax group is here to help. For more information, contact our office or call us at 800-579-0997.
