What do I do with the money I withhold?

On: June 30, 2019

  Open a separate payroll bank account and deposit the employee wages expense to be paid into it. Have this account set up to directly pay the IRS the taxes you withhold from your employees’ wages. We recommend using ADP or Paychex to handle your payroll account. These are companies that specialize in payroll, allowing you to get on with the business of making money. Keeping track of your expenses is part of being a business owner. You probably heard it said that you need a separate business bank account in addition to your personal bank account. But, you might not be familiar with a payroll account. What is a payroll account, and should you consider opening one for your small business? What is a payroll account? A payroll account is a separate bank account for your business that is strictly used for payroll. Instead of lumping all your business expenses into one account, you will pay employee wages with your payroll bank account. The money going into the payroll account will only be used for payroll. For example, you won’t write checks to vendors from your payroll account. You would make checks out from your main business bank account. Companies can choose to separate business income and expenses by account. In some cases, a payroll account covers employee wages, payroll tax liabilities, and employer contributions. However, companies might want to separate employee wages from payroll taxes. If the payroll account is just used for employee wages, you would withhold taxes and deposit into a separate account. Then, you would deposit only the employee’s net wages into the payroll account. Some of the most serious trouble we see business owners getting into involves payroll tax. Too often, business owners feel forced to dip into payroll tax withholding to pay necessary business expenses, like the wages themselves. The IRS takes a very dim view of this and sees it as stealing from your employees and the US Government. They are prepared to shut such businesses down and can, in extreme cases, pursue criminal action against the owner.