WorldWide Drilling Resource

53 WorldWide Drilling Resource ® JULY 2015 Drilling Into Money Not Boring by Mark E. Battersby Avoiding Expensive Payroll Tax Confusion and Fraud The complexity of payroll tax rules may be why almost 40% of small busi- nesses use a third-party payroll service for tasks ranging from paying employ- ees to administering federal employment taxes. While outsourcing the drilling oper- ation’s payroll processes to an outside company or bank may help with on-time returns, employment tax withholding, and forwarding - and even the payroll itself - it is still the employer who remains liable in the eyes of the IRS (Internal Revenue Service). While the IRS is attempting to col- lect withheld payroll taxes from a drilling business which failed to forward or pay as required, they can, and do, go after all “responsible persons,” levying a “Trust Fund Recovery Assessment” against every responsible person. To the IRS, “responsible person” means not only the operation’s book- keeper or accountant, but the owner, offi- cers, directors, and in fact, anyone who makes decisions about who to pay or has check signing authority. Among the nastiest and most feared taxes currently imposed is the “Trust Fund Penalty Tax,” a whopping 100% penalty on payroll taxes withheld from a drilling operation’s employees, but not forwarded to the federal government. An employer who decides to hire a third-party vendor can only hope the ven- dor understands how to fill out the nec- essary forms; comply with the Patient Protection andAffordable CareAct report- ing obligations; and properly calculate and timely pay withheld taxes and both the employee and the employer’s share of employment taxes. Unfortunately, there are many situ- ations where an employer will discover the money set aside from employee in- come tax withholdings, and the employ- er and employee share of payroll taxes, does not get paid over to the Treasury. Many employers receive a further shock when they discover they, the employer - not the payroll service company - are liable for all unpaid income and employ- ment taxes. When the Treasury Department’s Inspector General recently looked at the handling of payroll taxes, the IRS was faulted for not catching errors quickly enough. Because of the snowballing nature of payroll tax liabilities, it is im- portant for the IRS to detect and respond immediately when payroll tax defaults occur - whether by the employer or a third-party. Understanding the basic rules for withholding payroll taxes - and paying withheld amounts - is a good start. Checking the actions contracted for with a payroll service is also important. Overall however, guidance and advice from a competent, qualified advisor is virtually a necessity. Mark Mark E. Battersby may be contacted via e-mail at michele@ worldwidedrillingresource.com