Employers have an obligation to pay their employees’ wages per the amounts stated in their employment contracts. Besides paying wages, the employer must withhold federal income taxes, one-half of social security and one-half of Medicare taxes from their employees’ paychecks. Additionally, employers must match one-half of social security and one-half Medicare for each employee. The total federal income tax withholdings, social security and Medicare taxes must be paid to the taxing authorities in a timely manner.
Unfortunately, when employers are experiencing financial difficulties, they may choose not to pay the payroll taxes to the appropriate taxing authorities in order to pay for their business operating expenses to keep the doors open. Employers usually have the intention to pay back the taxes by the end of the tax period, but when it is the end of the tax period, the employer does not have the funds to pay the taxes in full. Now the employer has to pay the taxes due, and the associated penalties and interest for not making the payments timely. Very often, the employer gets in a situation where they continue to owe payroll taxes for several tax periods and find themselves deeper in a hole that seems almost impossible to get out of.