Payroll Tax Liability during Chapter 11 Bankruptcy

Payroll taxes include the Medicare and Social Security taxes that you have to withhold from each employee's check. Filing chapter 11 bankruptcy does not get rid of your obligation to pay these taxes, but you do have options. Considering that you face serious consequences if you fail to pay, it is wise to find out more about payroll taxes and chapter 11 bankruptcy.

Penalties for Failing to Send Payroll Taxes

Chapter 11 bankruptcy is meant to allow you to reorganize your business so that you can continue to operate it while working out a plan to repay your debts. However, if you neglect to give the government payroll taxes, you run the risk of losing your business entirely. The IRS could force you to liquidate your assets, ensuring they get the right amount of payroll taxes eventually. In fact, you can also lose personal assets, such as your house. Additionally, the IRS can criminally prosecute business owners who refuse to pay these taxes, so you may face jail time. If you plan on paying the taxes late without first clearing this with the IRS, you can expect to be charged extra. Not only will you have to pay fines on the late payment, but you will also be charged interest.

Working out an Agreement with the IRS

Learning the facts about payroll taxes and chapter 11 bankruptcy, such as the penalties, is not meant to scare you. By contrast, it displays the importance of communicating with the IRS about your inability to pay right now. Chances are good that the government already knows you are struggling financially during a bankruptcy, which is why you have options. If you have most of the money for payroll taxes, the IRS may accept an offer in compromise, in which you pay a reduced amount. This way, the IRS gets paid now, and you do not face penalties. Another option involving payroll taxes and chapter 11 bankruptcy is the creation of a payment plan. In this case, you would pay a portion of the payroll taxes every month until they are paid off. As long as you have steady income, the IRS may accept this option.

Getting Legal Help

If you used a lawyer to declare bankruptcy, ask about your options for paying your company's payroll taxes. Your lawyer may suggest a particular route that suits your situation best. If you have gotten through most of the bankruptcy on your own and are not sure how to deal with payroll taxes and chapter 11 bankruptcy, now is the time to get legal help. Even attending an initial consultation with an attorney can lead you in the right direction to avoid having to close your business, sell your assets or face jail time.