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Collecting Payroll Taxes from Businesses – IRS to be More Aggressive

  • IRs recently launched two new programs. Both initiatives indicate the IRS will be more aggressive collecting payroll taxes from businesses. The first initiative is to identify and contact businesses much quicker. Previously, the IRS would wait until after payroll reports were filed before contacting a business for late and missing payroll tax deposits. Now they will attempt to identify patterns and reach out much sooner in the process.  The second initiative, while more global than just payroll taxes, is focused on collecting delinquent payroll taxes using private debt collectors.

    IRS Launches Early Initiative for Collecting Payroll Taxes

    The IRS’ newly launched initiative is aimed at reducing the number of delinquent payroll tax deposits. Launched in early December, 2015 it will attempt to quickly identify employers falling behind on employment taxes. In its notice, IR-2015-136, the IRS states they will “help them get caught up on their payment and reporting responsibilities.”  It goes on to state: “The initiative will seek to identify employers who appear to be falling behind on their tax payments even before an employment return is filed. The IRS will offer helpful information and guidance through letters, automated phone messages, other communications and in some instances, a visit from an IRS revenue officer.” In other words if you choose to skip payroll tax deposits be prepared for an increased number of interactions with the IRS.

    Previously, it could be months after quarterly payroll reports were filed before an employer received a notice from the IRS. The more payments missed the more in debt the business falls. With each missed tax deposit it becomes less likely the IRS ever collects 100% of delinquent payroll taxes owed.  The objective by the IRS is to catch missed employment tax payments early on in the process, and to remind employers of their payroll tax obligations.

    About two-thirds of federal taxes are collected through the payroll system. It is the employers’ responsibility, mandated by law, to withhold and pay federal taxes, Social Security, Medicare taxes, state and local taxes where applicable. The payment schedule for employers is dependent on its tax obligations. New businesses start off as monthly tax depositors. Tax deposits are due on the 15’Th of the month for the preceding month, i.e., January’s payroll taxes are due February 15, February’s payroll taxes are due March 15 and so on. Once a business owes more than $50,000 in taxes during a lookback period the business has semi-weekly tax deposit obligation. Simply put the IRS requires the business to make payroll tax deposits within days of paying its employees. The IRS will send you a notice informing you of your payroll tax deposit schedule change. The IRS knows your required deposit schedule and based on the IRS notice issued, they intends to track and monitor for skipped or declining payroll tax deposits.

    The Upside to the IRS Initiative Payroll Taxes

    While no one wants to see a much more aggressive stance by the IRS, there are some positive aspects of the program. The IRS initiative to identify Payroll Taxes Graphic Image potential issues with a company before they spiral out of control can lead a cash-strapped to reprioritize what expenses are paid. We have seen it all too often, where a company delays paying payroll taxes in favor of other investments and expenses. The company’s payroll taxes quickly escalate and they are never able to recover. This initiative should help companies realize that payroll tax deposits need to be one of the highest priorities on list of expenses to be paid each month. Payroll taxes withheld for employees are not the company’s money to spend on other priorities. It is wages paid to the employee and is the responsibility of the employer to pay those taxes on behalf of its employees. Not paying them is blatant payroll theft.

    An early alert by the IRS can stop a problem before it becomes unmanageable. Missing payroll tax deposits costs a business a significant amount of money in penalties and interest charges. Before an owner or corporate officer even receives an IRS notice that there is a problem the business can be tens or even hundreds of thousands of dollars behind in payroll taxes.  In addition to costing the business  money, criminal charges can be brought against the owner or corporate officers. If payroll tax payments are missed, regardless of whether it is processed in-house or outsourced, the employer is responsible.

    IRS to be Outsource Debt Collection to Private Companies

    Have you ever had a call from a debt collector? You know how aggressive they can be. The IRS is now required to outsource its debt collection. On December 4, 2015 President Obama signed into law the FAST Act (Fixing America’s Surface Transportation). As with most bloated bills past recently this bill was used to pass a new tax policy law. The IRS is now required to use private debt collection agencies. Check out Kelly Phillips Erb article posted on Forbes’ website. The article is: Congress Orders IRS to use Private Debt Collection Agencies. In the article Kelly Phillips Erb outlines how the IRS has no discretion for collecting “inactive tax receivables.” In her article she details inactive receivables as: “Any tax debt that has been:

    • Removed from the active inventory for lack of resources or inability to locate the taxpayer;
    • For which more than 1/3 of the applicable limitations period has lapsed and no IRS employee has been assigned to collect the receivable; or
    • For which, a receivable has been assigned for collection, but more than 365 days have passed without interaction with taxpayer or a third party for purposes of furthering the collection.”

    For business owners and corporate officers who  avoid paying payroll taxes and ignore notices and contact with the IRS, not only can you face criminal charges, but you will also have private debt collection agencies hunting you down.

    Payroll Tax Guide Ebook