IRS Employment / Payroll Tax Focus

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.

Worker classification. Approximately 30% of IRS audits focus on the employee vs. independent contractor issue. The IRS may further review a personal income tax return which, over a period of several years, has only included 1099-source income.

Tip reporting. The IRS is looking for voluntary compliance in this area. Tuzynski believes some employers in the food and beverage industry may not be aware of the Attributed Tip Income Program (ATIP). ATIP provides benefits to employers and employees similar to those offered under other tip reporting agreements, including protection from audits. However, ATIP does not require employers to meet with the IRS to determine tip rates or eligibility.

Officer compensation. There are many S corporations with significant distributable income that report very little officer compensation, even though the officer provided key services to the corporation. These corporations may not be paying their fair share of employment taxes.

Fringe benefits. The IRS continues to target improper employee tool and equipment expense reimbursement plans.

New initiative. The IRS does not currently follow up on notices that it sends to employers asking them to begin backup withholding on employees with mismatches between their name and taxpayer identification number. Tuzynski said that the IRS will soon have a new initiative in this area.