Final answer:
Employers who are late in remitting withholdings face penalties such as fines and interest charges. They are responsible for both employee deductions and their share of payroll taxes like Social Security and Medicare. Independent contractors must self-pay the full payroll tax, and late payments can result in additional fees.
Step-by-step explanation:
The penalties for an employer that is late in remitting withholdings or deductions can be significant. Employers are responsible for timely withholding taxes such as income tax, social security contributions, and insurances from their employees' wages, alongside paying their own share of payroll taxes. Failure to comply with these requirements can result in fines, interest charges on the amounts owed, and potentially more severe legal consequences.
For example, paycheck deductions for Social Security are split between the employer and the employee, each paying 6.2%. Similarly, Medicare tax is divided, with 1.45% being deducted from the employee's paycheck. While it appears that both parties share the burden, many economists argue that the employer's share effectively lowers the employee's wages. Thus, employees might indirectly pay the full amount of payroll taxes.
With respect to independent contractors, who often receive a 1099 tax statement under the 'gig economy', they must cover both the employee and the employer's side of the payroll tax. Delays in remitting these payroll taxes can lead to penalties analogous to how a credit card company charges for late payments. Late payroll tax payments may incur an initial fine plus additional costs for each day the payment is overdue. Businesses must be diligent in adhering to the deadlines, typically quarterly and annually, to avoid these penalties.