Payroll Tax Audit

Timely reminder for small businesses

November 11, 2008 | Mike Habib, EA

Timely reminder for small businesses to steer clear of trouble on payroll tax and retirement plan contributions IRS Employee Plan News (Fall 2008)

In these trying times, with cash scarce and credit hard to find, a small business might be tempted to “temporarily” use money it deducts for taxes and retirement plan contributions from employees’ wages. The Fall 2008 issue of IRS’s Employee Plans News [https://www.irs.gov/pub/irs-tege/fall08.pdf] suggests that practitioners remind clients that failing to remit payroll taxes and retirement plan contributions in a timely manner not only would violate an employer’s legal obligation, but also could subject them to heavy penalties.

Payroll taxes. IRS suggests that small business employers be reminded that when they deduct income and Social Security taxes from employees’ wages, the money is not theirs to use, even for a short period of time. Deducted amounts must be remitted, along with their portion of payroll taxes, by the next scheduled Federal Tax Deposit deadline. An employer that doesn’t deposit the money on time could be hit with:

penalties for making late deposits and for not depositing the proper amount; and
penalties for failing to file returns and pay taxes when due, for filing false returns, and for submitting bad checks.

The rate of these penalties increases with each passing day until deposits are made. Interest is also charged on the total unpaid tax and the penalty. These penalties and interest can add up quickly and lead to even bigger financial troubles for noncompliant businesses.

Employment / Payroll Tax Adjustments

July 1, 2008 | Mike Habib, EA

Final regs include new process for reporting employment tax adjustments and refund claims T.D. 9405, 06/30/2008, Reg. § 31.6011(a)-1, Reg. § 31.6011(a)-4, Reg. § 31.6011(a)-5, Reg. § 31.6205-1, Reg. § 31.6302-1, Reg. § 31.6402(a)-1, Reg. § 31.6413(a)-1, Reg. § 31.6403(a)-2

Mike Habib, EA

IRS has issued final regs on employment tax adjustments and refund claims, effective Jan. 1, 2009. The final regs modify the process for making interest-free adjustments for both underpayments and overpayments of Federal Insurance Contributions Act (FICA) and Railroad Retirement Tax Act (RRTA) taxes and Federal income tax withholding (ITW).

State Employment Tax Changes

June 20, 2008 | Mike Habib, EA

Recap of recent state employment tax laws, developments, and changes taking effect in July

Several states and localities are making employment tax changes that take effect in July. In addition, several new employment tax laws and developments have occurred recently. Here are some of the highlights from the following states:

Alabama
Unemployment. Effective for benefit years beginning after July 5, 2008, a claimant must serve a one-week waiting period prior to receiving unemployment benefits. The maximum weekly benefit will also increase from $235 to $255 [L. 2008, H427].

IRS Employment / Payroll Tax Focus

June 2, 2008 | Mike Habib, EA

IRS focusing efforts on four employment tax initiatives

American Payroll Association 26th Annual Congress May 13-17 (Austin, TX)

John Tuzynski, IRS Chief, Employment Tax Operations, told attendees at APA’s 26th Annual Congress that the IRS is focusing its efforts on the following four key employment tax initiatives: (1) worker classification, (2) tip reporting compensation, (3) officer compensation, and (4) fringe benefits.

Payroll Tax Audit? Now What Are Your Options?

May 4, 2008 | Mike Habib, EA

IRS or State Payroll Tax Audit & Employment Tax Audit

The word audit can strike a very real sense of fear into the hearts of even the most courageous of men. When you own a business, there is even more at stake than a few minor penalties or fees; you can lose everything you’ve worked so hard to create. If you are facing a payroll tax audit you need to make every effort to cooperate with your auditor. The best way to prepare for a payroll tax audit, and therefore survive the audit, is to keep excellent records for several years past on hand and have them stored completely and according to year in case you are faced with an audit many years after the fact.

The first thing you need to do in order to keep everything straight when it comes to surviving a payroll tax audit is to keep your accounting practices current. Many businesses do this by either outsourcing their payroll responsibilities to firms that deal exclusively with payroll matters, including payroll taxes, or hiring an in-house bookkeeper to handle their payroll. The benefits of either of these is great because laws regarding payroll taxes and withholdings change regularly and are so complex in general.