As a business owner, you should be aware of the 2013 tax law changes impacting your business and, more importantly, your cash flow. Most notable are the changes in payroll taxes that employers are responsible for paying federal and local tax agencies on behalf of their employees. Here are some of the changes to expect.

Social Security Payroll Tax - As of January 1, 2013, the Social Security payroll tax rate increased from a rate of 4.2% to 6.2% on the first $113,700 in wages.

Medicare Tax - The Medicare tax withholding rate is 1.45%; however, employers must withhold an additional 0.9% for Medicare tax from any income in excess of $200,000 that is earned by an employee.

Income Tax - For individuals making more than $400,000 a year, or married couples making more than $450,000 per year, the tax rate will increase from 35% to 39.6%.

Consequences Of Failure To Pay Payroll Taxes

Employers should be aware of the consequences of not making payroll tax payments to the IRS. The IRS will aggressively pursue a company that fails to file and pay income taxes, Medicare, and/or Social Security payroll taxes on time. Consequences include:

• Penalties and interest
• Personal liability and individual penalties
• Business foreclosure
• Criminal charges

Payroll tax money collected by employers is called “trust fund” money and is required to be sent directly to the IRS. If a company fails to file and/or pay this trust fund money, the IRS may assess penalties known as a Trust Fund Recovery Assessment, which is a 100% penalty and may be assessed against every responsible person.

Failure to pay payroll taxes may also result in the loss of your business. The IRS can legally take your business, sell any assets and keep any cash paid by your customers in order to pay the tax liability. 

In addition to stiff penalties and fines that may be imposed, the company’s owners or any persons responsible for collecting the payroll taxes for the company could also face criminal charges if they intentionally do not file or pay payroll taxes.

How To Make Payroll And Pay Payroll Taxes

Unfortunately, when cash flow gets tight, the temptation to use withheld taxes as working capital may arise. But, as noted above, the consequences of doing so are extremely severe. Instead, the best plan is to get the proper business funding in place to ensure your company makes payroll and pays the required payroll taxes.

One of the most flexible forms of payroll financing is factoring. Factoring is simply selling your accounts receivable to a factoring company and receiving a discounted advance against those receivables (typically 85% to 90% of the amount of the invoices).  When the factoring company receives the payment, the remaining funds are returned to you less any applicable factoring fees.

Benefits Of Utilizing Factoring For Payroll Financing

• Fast – After a factoring line has been put in place with a factoring company, funding is usually received within 24 - 48 hours.

• Flexible - Some factoring companies allow you to pick and choose the customer and invoices you want to factor. This gives you the choice of factoring all of your invoices for a steady and consistent stream of cash coming in, or submitting invoices when extra cash is needed to cover payroll.

• Short-term - Factoring facilities are short-term in nature so you are not indebted to a lender for a significant period of time.

• Cost-effective - Factoring fees are based on the amount of your factored invoices and the length of time the invoice is outstanding. Be wary of fixed fees such as account management fees, collateral management fees, audit fees or minimum fees.

If you are stressed about how to make payroll or pay your required payroll taxes, look into utilizing factoring for your payroll financing needs. Factoring has a positive impact on cash flow by providing adequate business funding to support your business.

Dispel the myths you may have heard about online factoring by clicking below to download our free tip sheet: Online Factoring: Myths vs. Facts. If you're ready to get started with your factoring program today, call 888.833.2286 or fill out this form to speak with a Cash Flow Consultant.