For business owners, understanding and navigating the numerous tax rules and regulations can be challenging. This is often particularly true when it comes to employment taxes. Legally, employers must deduct certain taxes from their employees’ paychecks including those that go towards funding Social Security and Medicare. In an effort to ensure that these government programs remain viable, employment taxes must be deposited on either a monthly or semi-weekly basis and again accounted for at the end of the tax year.
In cases where an employer fails to make the required employment tax deposits by the determined due date, he or she is subject to a “failure-to-deposit penalty” which could total up to 15 percent of the total tax due. While employers are expected to know and meet the tax deposit deadlines, the IRS has instituted a new program which aims to identify and alert employers if they miss a deposit deadline via what’s known as a 903 letter.
The purpose of the letter is twofold; not only does it alert an employer that he or she missed a deposit and should take action to rectify the delinquent tax payment as soon as possible, but it also serves as a paper trail in the event that the IRS later chooses to take legal action against an employer or business. Employers who continue to miss additional deadlines may receive a friendly phone call reminder from the IRS or even an in-person visit from an IRS agent.
In some payroll tax fraud cases, a business owner or employer may be unaware that monthly or semi-weekly deposits are not being made by an employee who is attempting to divert or steal funds. Business owners, tax preparers and any other employee who plays a role in a business’ tax preparation and execution can be held responsible for any tax errors or acts of fraud.
The IRS’ new program for alerting employers who are delinquent in payroll tax deposits may be effective in stopping such illegal activities and protecting unsuspecting business owners. Additionally, because payroll tax deposits must be made using the IRS’ electronic funds transfer system, business owners can subscribe to receive automatic alerts when such payments are made.
Source: Forbes, “IRS Employment Tax Enforcement: Three Traps for the Unwary,” Josh Ungerman, Feb. 12, 2016
IRS.gov, “Understanding Employment Taxes,” Feb. 16, 2016