Diary of a Bad, Bad Bookkeeper (Day 195) – The IRS

Dear Diary,

Today I got a notice from the IRS.  Luckily, the receptionist passed the letter to me unopened before the boss saw it (she didn’t know what it was), and he doesn’t know it’s here.

Opening the letter, I was shocked.  The IRS said that the company owned payroll taxes on the paychecks for the last three months that I’ve been here, and since we hadn’t paid when we were supposed to, we now owe penalties and interest.  Apparently, payroll taxes are due within three business days of cutting payroll checks, and the IRS considers that money “they’re money.”  All I can say is…”WHOOPS!”

So now I have a dilemma.  Do I show the boss the letter and have him cut the check right away?  Or, do I just hide this letter and try to deal with it a little at a time, without the boss knowing?  Obviously, the first choice comes with the unfortunate consequence of the boss coming to believe that I don’t know how to do my job when I do (I mean – Seriously!  It was one simple mistake).  The latter choice means that he continues thinking I’m brilliant, and that the company is doing better in my hands…

Hmmmm…choices, choices.

Although, now that I think about it, I see a third option here.  I could always continue to fill out the payroll tax forms, but instead of cutting the IRS checks, I could just take the payroll tax money and enter the taxes as “Paid” in the bookkeeping program.  The boss will think that I’m paying the taxes, and I can make a little extra on the side.  Then, if the IRS does ever come calling, I can just explain it away as, “the bookkeeping program must have made an error in calculating the payroll taxes.”  After all, it’s not like the boss would expect me to stay on top of all the interest rates.

And how often does the IRS come calling?  I mean, Really?

You know what they say, “Ignorance is bliss.”

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Keeping a Clean Bill of Health with the IRS

I’ve often told my clients, “The IRS is an unforgiving mistress.”  Would this piss the IRS off to hear?  Sure…but I think they would rather keep their intimidating reputation than have people painting them as sweet and kind.

The facts are these…The IRS considers themselves debt collectors for the people.  The money that a business is supposed to pay does NOT belong to the business, but to the business’s employees the moment those checks are cut (at least in the IRS’s point of view).  What that means is, they will NOT negotiate on when you can and cannot pay payroll taxes.  You should pay it within three business days of the checks being cut, PERIOD.  And if you ask employees to hold off on cashing their checks until you can get some money in the bank account, you could suffer fines as high as $25,000 per Employee Check.  (Imagine it…your business is strapped for cash, and so you ask your employees to wait a week to cash their checks.  Then you fire a bad employee.  What will they do?  They’ll run to the IRS and report you, and BAM – bye, bye business.)

The point I’m dancing around here is that – YOU DON’T MESS WITH THE IRS!  You – whether you’re the bookkeeper or the business owner – need to make sure the taxes get paid on time.  Since payments can now be made over the phone directly from a checking account, the business owner will likely never see a payroll tax check to cut.  That means, the business owner needs to check up on their bookkeeper and make sure the taxes were paid, or you could suffer huge fines.

To Make Sure the IRS Taxes are Being Paid

This step merely comes down to one thing yet again. Open your bank statements and look at it.  You will probably see the payments listed near the top, detailed out as an EFTPS payment to the IRS.  It’s that simple.  If you don’t see the payments cut as often as payroll is cut, get it taken care of immediately.

One Last Note for Small Business Owners

The mistake of not paying the payroll taxes is VERY common with a lot of bookkeepers.  The biggest reason is that many bookkeepers are office managers that were handed a company’s check register and told to “take care of it.”  So, just because payroll taxes may not have been paid at your company, doesn’t mean your bookkeeper is an embezzler.  It could just mean that they aren’t on top of everything they’re supposed to be doing yet.  Make sure your bookkeeper is on top of the IRS forms, and definitely talk to your accountant for help.  That’s an accountants main job – to deal with the IRS.

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10 Responses to Diary of a Bad, Bad Bookkeeper (Day 195) – The IRS

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  2. Great info Erica. Employers should never use their employees money to float their own expenses! However, there are actually two pay schedules-Monthly and Semi-Weekly. Monthly schedule depositors have until the 15th day of the following month to make the deposit. Semi-weekly schedule depositors paying on Sat, Sun, Mon, or Tues must deposit by the following Friday and by the following Wed if paying on Wed, Thur, or Friday.
    They love to make it complicated! If you’re an employer and in doubt of when to pay…use the 3-day “rule” to be safe.

    • E.T. Barton says:

      Hey Reesa, Thanks for sharing. I guess I’m always getting caught up in the easier “safer” rules – like just pay it in 3 days. Without my problems of procrastination (a really bad problem to have for a bookkeeper), I find it’s better just to set those deadlines early and focus only on those. So again – thank you for sharing. It’s always nice to have other bookkeepers chime in.

  3. I have to say, Erica, don’t stop the Bad Bookkeeper series. Love it! Keep them coming…

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