3 Key Things to Remember About Payroll Tax Liability: Is It Possible to Be Personally Held Liable as an LLC Owner?

As a business, you already know that liabilities are part of the core of what you do. You’d have heard the term over and over again, no matter what kind of business you are, but a common occurrence is to see the term thrown up around payroll; aka, paying your employees for the work they do.

As a responsible business owner, you need to make sure you’re not neglecting your employees or delaying paying them, otherwise, you could be dealing with some very unhappy employees, and a lot of legal problems. However, this is just the surface. Let’s get into everything you need to know about payroll liabilities.


  • What a Payroll Liability Is

First things first. A payroll liability is any kind of payment related to your payroll that hasn’t been paid. This could be employee wages that haven’t been paid out, taxes you’ve held back from your employees, and any other costs relating to your payroll processes.

This means if you have a new employee start on the first of the month and they work daily, even cent they earn is a liability to your company until you’re able to pay them on whatever date you’ve predetermined. This includes not paying payroll tax.

  • What Happens If You Don’t Pay Payroll Tax?

If you don’t pay your payroll taxes, whether purposefully or by mistake (such as not paying the right amount of payroll tax), you are neglecting your position as a business owner since this is a core responsibility. In the eyes of the IRS, this is a version of fraud, and you may be faced with a penalty for not paying.

Some of the payroll taxes you’ll need to think about include; Federal, state, and local income tax, Social Security and Medicare taxes (FICA tax), and unemployment taxes, and state-specific taxes, such as the Oregon Transit Tax. Of course, there are reasons you might not pay, such as the event of a natural disaster or simply forgetting, but you can be chased up and fined.

  • Who Gets the Fine, Me or the Company?

If you’re a sole trader and the main person in charge of paying taxes, then you would be held liable for not paying your taxes and would get the fine and penalty in your name. However, what if you’re part of an LLC company. Would you or the company get the fine?

In some cases, yes, and others no. If you’ve signed a personal guarantee with the LLC company, have overpaid yourself from your company account using an overdrawn director’s loan, have given away company assets below their market value or for free, or have prioritized shareholders over creditors, then yes, you would be liable for not paying payroll tax as an individual. If you find yourself in this position, then you’re going to need some of the best and brightest tax attorneys to ensure the best legal outcome for yourself.


As you can see, even if you’re a director of an LLC company, that doesn’t mean you’re exempt from being liable when you don’t pay your taxes or problems you may have when paying. Make sure you’re doing everything by the book to ensure you avoid legal trouble where you can.