Because our product is people, staffing firms handle a lot of payroll items: wages, garnishments, taxes, etc. And because so much of our money can be tied up in things like payroll taxes, it might be tempting to dip into that reserve in times when cash is low.
But please, please, please don’t do it!
This article from Flexible Funding outlines the many dangers of using payroll taxes as operating capital. From that article:
- When agencies delay tax payments, IRS notices start arriving in the mail, though many basically ignore them figuring they have a loan from the U.S. government until the day they show up on the doorstep. Some agencies will stop paying taxes for a while, then start paying again in small amounts when feasible.
- It’s a big mistake to start paying again after a skipped payment and think, “the IRS won’t file a tax lien as long as I keep throwing them bones.” And it’s a big mistake to think you can deal with the IRS yourself.
- When money is sent without clearly specifying what quarter it is to be applied to, somebody at the IRS will apply it to whatever quarter they want, which usually makes the situation worse. If you or a naive bookkeeper sends a check to the IRS indicating that it is for a specified past quarter(s), you may also be making the situation worse.
- Beyond the costs of interest and penalties, you need costly expert help to guide you in applications. Don’t let the IRS apply payments to whatever they want to, and money should not be haphazardly applied to past quarters at the expense of keeping current. If you are not current, the IRS won’t work out an installment deal with you.
- It is not wise to deal with the IRS yourself. You have to get to the right office at the IRS, and the right person, in the right time windows, regardless of what may be indicated in mailed IRS notices.
- Over the years we’ve seen a number of staffing agencies receive liens out of left field, such as liens initiated from offices, divisions, managers, or supervisors that haven’t contacted the staffing agency before. IRS agents that were already in communication with the staffing agency were quite surprised themselves. At the IRS the right hand doesn’t always know what the left hand is doing.
If you need additional operating capital or payroll funding, please contact our Integrated Partner Advance Payroll Funding. Just, whatever you do, don’t dip into the kitty marked “IRS.”