Knowledge is protection when the IRS is involved. I'm Darrin Mish, a tax attorney in Tampa with 32 years of experience representing taxpayers nationwide. Here's what I want you to understand.
If you owe money to the IRS, you’re not alone. Even some governments owe taxes. Tribal governments, cities and nonprofit organizations in Alaska find themselves in debt to the tune of $4.4 million due to unpaid payroll taxes and penalties.
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Payroll taxes are the portion of employees’ paycheck that goes to pay for income tax, Social Security and Medicare. It is the responsibility of employers to deduct this amount from employees’ salaries and remit it to the IRS.
Due to a variety of reasons, small tribal governments, cities and some nonprofits find themselves behind in these payments and in debt to the IRS.
The Kuskokwim Native Society, a nonprofit organization based in the town of Aniak, owes the IRS $2.6 million. This largely came about due to a lawsuit it lost in 2002 where it had to pay a former employee hundreds of thousands of dollars in back pay. To fund its annual operational costs of $1.5 million, the nonprofit relies on grants which are largely used to run specific programs like scholarships, meals to elders and fisheries programs, leaving only a token amount for running costs.
In the city of Kivalina, City Manager Janet Mitchell said the city owes $132,000 in a payroll tax lien for 2002 to 2005 and although it makes monthly payments to clear the debt, the amount hardly makes any significant difference. But she has vowed to carry on trying to find ways to repay the debt.
When city governments and nonprofits renege on their responsibility to pay payroll taxes, it may give rise to further problems. Grants may be withdrawn from nonprofits that are in debt and individual employees may lose out on credits towards Social Security benefits. As it turns out, the state of Alaska drew up a list of city governments with tax liens against them in 2007. This list may be a source of information to government agencies and foundations that provide grants on the groups that are in debt and could potentially misuse the grants by using it to pay the IRS.
However, the law states that employees are not legally liable for errors by their employers in payroll taxes. Individual employees who find any mistakes or discrepancies in their Social Security accounts can rectify them by calling their local Social Security office.
The law is no respecter of persons, organizations or even governments. Taxes have to be paid by taxable individuals and payroll taxes have to be paid by organizations and governments.
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