The United States Treasury Inspector General for Tax Administration (TIGTA) recently released a report finding “billions of dollars of employment taxes are uncollected.” As a result, the Internal Revenue Service (IRS) is focusing in on businesses that have allegedly unreported and underreported their employment taxes.
Who is responsible for unreported or underreported employment taxes?
In most cases, employers are responsible for withholding funds to cover employment taxes. These obligations extend beyond income tax. Employers should also withhold funds to cover Social Security and Medicare taxes.
A recent report in Crain’s discussed the move, noting that the vast majority of employment tax noncompliance issues are the result of “inadvertent errors.” These errors occur commonly in smaller companies that attempt to manage their own payroll matters. This is not an easy task. Payroll matters involve not just making the payments on time, in the right amount to the right employee but also meeting all state and federal tax obligations.
Penalties for a failure to comply are severe. A simple mistake that results in a late payment by 10 days can cost a business a penalty fee of 15 percent of the tax owed.
These penalties increase in severity in the event the IRS deems the mistake “willful.” A willful, or intentional, mistake can put not just the business. In these cases, the owners and other individuals that are accused of the intentional mistake can be at risk for personal liability.
Tips for businesses with employment tax issues
Businesses that believe they may have an employment tax issue should consider the following two tips:
- Attempt to come into compliance. It is possible that the IRS will reduce the severity of the penalties that are applied in the event the business works to come into compliance.
- Seek legal counsel. It is important to note that dealing with the IRS about employment tax issues is a serious matter. In these situations, it is generally best to seek legal counsel to help advocate for your business interests. An experienced attorney can review what options for compliance are available and counsel you on the best course of action.
Business owners that find themselves’ navigating these issues are not alone. Experienced legal counsel can provide guidance and discuss the various options that are available for your specific situation.