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Payroll tax violations can lead to criminal charges

On Behalf of | Oct 10, 2015 | Tax Law

If you own and operate a business in Ohio, you probably know that you have to pay taxes. Knowing that you must pay your income tax, the income tax of the business and some other taxes is  common knowledge. There are also various state taxes and, depending on where you live in Ohio, some local taxes.

If it is just you, you can probably keep track of these tax payments and avoid difficulty with the Internal Revenue Service and the Ohio Department of Taxation. But the complexity can develop quickly. With the addition of a few employees and a corporate tax structure, the mechanics of calculating, withholding and paying all of these taxes can rapidly become very complex.

And if you are tied up in the operations of your business, you may find this all an annoying distraction from your real job. You know you can contract it out to an accounting or payroll firm, but that is another expense that you would prefer to avoid.

One of those “other taxes” that you may wish you could overlook are your payroll taxes. These typically consist of the Social Security taxes, the employer portion of Medicare tax, and state and federal unemployment and workers’ compensation taxes.

For Social Security, an employer is obligated to withhold 6.2 percent of a workers income and an additional 6.2 percent as the employer’s contribution. If your employee makes $20,000, that means $2,480 in withholdings.

The important element to remember about this withholding is that as an employer, you are viewed by the IRS as a fiduciary when controlling these funds and hold them in trust. Failing to withhold and remit to the IRS this money is a federal crime.

And it will be treated as a theft crime and is likely to bring prosecution from the U.S Attorney’s Office. This is very bad, leading to fines of $10,000 and five-year prison terms. Speak with an accountant or tax attorney if you have questions regarding these taxes, as it is far preferable to seeing your name printed on an indictment from the Department of Justice.

Source:, “Garrettsville executive accused of pocketing employees’ payroll tax withholdings,” Beacon Journal staff report, October 15, 2015