When business owners file bankruptcy, questions regarding back taxes may arise. Although some taxes can be forgiven others may not. If the question is can I discharge unpaid employee payroll tax, this is a problem. Many taxes may be forgiven but if you haven’t paid the employees tax withholding’s you will have a problem.
Payroll Tax Chapter 7
In a chapter seven bankruptcy you will not be able to discharge that portion of the payroll tax that was paid by your employees to you. This is because you hold the tax in trust for later payment to the internal revenue service. This makes sense because that portion of the payroll tax didn’t belong to you. It was not a debt you owed but rather was money you held in trust for your employee. The tax was levied to pay the employees social security disability and other federal tax due from the employee.
Not all of the tax withheld from payroll checks is treated the same in a bankruptcy. Some of the tax is tax withheld for the employees benefit while other tax is not. If the portion of the tax owed was your contribution that’s different. In this situation its not money held in trust. Rather its your contribution to tax not part of a withholding. An example is that in addition to the withholding for the IRS you have to contribute an additional percentage. In this case the tax may be forgiven but limitations apply.
Payroll Tax Chapter 13
In an chapter 13 Bankruptcy you’ll also be unable to discharge the employee portion. The advantage of a chapter 13 is that you’ll be allowed to pay the debt over a five year period. This tax debt is a priority debt. Priority debts get paid before many other unsecured debt. If the tax is employee payroll tax you will have to pay the entire tax debt.
If the employee payroll tax owed is your contribution you will be able to discharge it. But how much is forgiven depends on the portion of unsecured debt you are required to pay back. In a chapter 13 bankruptcy this percentage depends on many factors. One such factor is the amount of disposable income you have.
As you can see answering the question Can I Discharge Unpaid Employee Payroll Tax is a resounding depends but probably not. If you’d like to speak to an Oklahoma Bankruptcy attorney about your case call 918.637.1546 or email me today.