First of all, fire them!
So many business owners come to me in an absolute panic because on the advice of their Accountant, they have not had the cash to pay their payroll taxes, so they have only been paying net payroll. This means that quarter over quarter their tax bill has been growing and growing. The penalties and interest alone get out of hand.
Payroll taxes are very special and very complex. Unlike income tax, which is maintained in the entity in which it is assessed, payroll tax includes a trust fund, which means that you are holding money that belongs to your employees in trust. They gave you the money in the form of federal withholding, state with holding, social security and medicare tax, which was deducted from their paycheck and they trust you to pay their money to the proper government agency.
The IRS goes crazy when you do not pay payroll taxes. They are like HOLD UP! You are not paying the payroll tax that you owe, but then you took money from your employees that belongs to us and you did not give us the money they owe us either…..UH UH, NOT GONNA WORK!
A trust fund penalty can be assessed to you personally, meaning your business and you personally are responsible for payment of the trust fund. You never want to be on the wrong side of paying your payroll taxes because you can very easily accidentally put your foot on the line of having a criminal tax matter. Don’t do it. Pay your payroll tax. Avoid even having your name said in the same sentence as the word “criminal” and “tax”.