Businesses have an obligation to withhold a certain amount of money from employees’ paychecks and remit it to the IRS or the DC government to pay for government services, including Social Security and Medicare. The employer also contributes tax to the IRS, and these filings must usually be done quarterly, not just once a year by Tax Day. Learn more about employee and employer taxes in Washington DC, and how a trust fund recovery penalty lawyer could help if a business fails to remit them to the government as required.
Are All Businesses Required to Hold a Portion of Their Worker’s Pay in DC?
All businesses are required to hold a portion of their worker’s pay in trust. The District of Columbia, through their Office of Tax and Revenue, requires a business to withhold and annually file a Form FR-900-Q to report and pay quarterly withholdings to the city. Some employees may be exempt from having the city tax withheld if they live in Maryland or Virginia, and only work in the District. The IRS version of this withholding is a Form 941, submitted quarterly by the employer, based on the employees’ W4.
Both the IRS and the city have progressive tax systems, which means that the higher one’s income, the higher the tax rate and other withholding amounts would be.
The Employer’s Obligations
For DC employment taxes, the business is only required to withhold and remit taxes on behalf of its employees, and responsible parties will be personally assessed for any unpaid employment taxes. The business is required to hold income taxes and sales taxes in trust. Typically, the business will collect sales tax or withholding tax from the employees’ compensation and remit those amounts to the DC government.
For payments to the IRS, the employer also contributes a tax to the trust fund.
What Happens If Businesses Do Not Fill Out These Forms?
Employers are required to file and remit payment for a Form 941 with the IRS every quarter. If employers do not fill out these employment tax forms and file them quarterly, then they will be subjected to civil penalties, including a failure-to-file penalty at 5% of the unpaid tax per month, up to a max of 25%. There may also be failure-to-pay penalties if the payments were not submitted timely, which can start at 2% and go up to 50%, as well as interest would continue to accrue. Owners and Officers of the company can be held personally liable for amounts that have been withheld from employee paychecks but not paid to the government by the deadline. The IRS can then collect these amounts directly from the Owners and Officers through enforcement actions like wage garnishments and bank levies.
Call Our Washington DC Office if You Failed to Submit Employee and Employer Withholdings
Whether you are remitting trust fund taxes to the IRS or to the District of Columbia, a business must be on top of all its tax obligations. Failure to do so could lead to penalties that can reach the business owners personally. Reach out to our tax lawyer if you are facing the prospect of trust fund recovery penalty or need to come into compliance with all required filings.