Penalties for Skipping the Employment Tax

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Employers are responsible for withholding federal income tax and the employee's share of Federal Insurance Contributions Act taxes (FICA, which consists of Social Security and Medicare taxes) from the wages it pays to that employee. Beyond just withholding these Federal Taxes for their employees, they are also responsible for their share of FICA taxes and Federal Unemployment Tax Act (FUTA) taxes.

If an employer does not withhold, file and pay these taxes correctly, they are subject to civil and criminal penalties.

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While most employers who fail to report & pay these taxes do not do it willfully, the government can and will impose a 100% trust fund recovery penalty under Sec. 6672 on "responsible persons" who were required to pay over the money or who controlled the funds that should have been deposited. Many people associated with a business may be found to be a responsible person, including corporate officers, treasurers, managers, and even bookkeepers, in certain circumstances.
 
In addition to the civil trust fund recovery penalty, when an employer willfully fails to pay over employment taxes, the Justice Department can pursue criminal prosecution under Sec. 7202.
 
Nonpayment of employment taxes is a felony under Sec. 7202, punishable by a fine of up to $10,000, imprisonment up to 5 years, or possibly both depending on the circumstances. When an employer withholds money from its employees' paychecks and then does not pay it over to the Treasury, this act is considered embezzling money from the U.S. Treasury and a very serious criminal offense.
 
Here is some useful information from IRS.gov on everything you should know about your employment tax responsibilities:
 

Federal Income Tax

Employers generally must withhold federal income tax from employees' wages. To figure out how much tax to withhold, use the employee’s Form W-4 and withholding tables described in Publication 15, Employer's Tax Guide.

You must deposit your withholdings. The requirements for depositing, as explained in Publication 15, vary based on your business and the amount you withhold.

Social Security and Medicare Taxes

Employers generally must withhold part of social security and Medicare taxes from employees' wages and you pay a matching amount yourself. To figure out how much tax to withhold, use the employee’s Form W-4 and the methods described in  Publication 15, Employer's Tax Guide and Publication 15-A, Employer's Supplemental Tax Guide

For 2016, the employee tax rate for social security is 6.2%. The social security wage base limit is $118,500.

Additional Medicare Tax

Beginning January 1, 2013, employers are responsible for withholding the 0.9% Additional Medicare Tax on an employee's wages and compensation that exceeds a threshold amount based on the employee’s filing status. You are required to begin withholding Additional Medicare Tax in the pay period in which it pays wages and compensation in excess of the threshold amount to an employee. There is no employer match for the Additional Medicare Tax.

Federal Unemployment (FUTA) Tax

Employers report and pay FUTA tax separately from Federal Income tax, and social security and Medicare taxes. You pay FUTA tax only from your own funds. Employees do not pay this tax or have it withheld from their pay. Refer to Publication 15, Employer's Tax Guide and Publication 15-A, Employer's Supplemental Tax Guide for more information on FUTA tax.