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Take Three Steps Now to Help Avoid Tax Penalties Later

Payroll tax fraud. These three words likely strike fear into many organizations – and with good reason. The IRS is watching closely and is especially vigilant about collecting payroll taxes and penalizing employers for failure to pay or for late payments. The penalties can be steep, even including jail time for those responsible.1

When a tax shortfall occurs, the IRS can assess a Trust Fund Recovery Assessment (also known as a 100-percent penalty)2 against every individual who is responsible for collecting or paying payroll taxes and willfully fails to do so. Paying other expenses instead of payroll taxes is not an excuse; in fact, payment of other expenses is considered “willful behavior.”

Simply hiring a payroll service doesn’t take care of an organization’s liability. The IRS is very clear that even if you outsource your payroll tax filings and payments, the employer is still on the hook if things aren’t done correctly (even if your contract says that the payroll service is liable).3

So what can an organization do that can help avoid tax penalties and punishments?

  1. Choose your payroll tax service wisely. Outsourcing the payroll tax function is a great start, but there’s more to the story. Find a payroll tax service that keeps you up-to-date on all of the transactions that are made for your organization. And be sure to choose a service that doesn’t allow you to use the payroll tax money for any purpose other than taxes.
  2. Verify that all details are correct. In a perfect world, you could let the payroll tax service handle everything without supervision. But it’s up to you to ensure that all of the “i’s” are dotted and the “t’s” are crossed. Ultimately, it’s your business and your responsibility.
  3. Get help early. If you do run into any issues or problems with payroll taxes, don’t wait to get help. Work with the government and at least make minimum tax payments. Don’t run the risk that the government will shut down your operations because your business is getting deeper and deeper into tax debt.

For more about tax penalties and consequences, this recent article in Forbes magazine has some great information.


[1] https://www.irs.gov/uac/Examples-of-Employment-Tax-Fraud-Investigations-Fiscal-Year-2015

[2] https://www.irs.gov/Individuals/International-Taxpayers/Trust-Fund-Recovery-Penalty

[3] http://www.forbes.com/sites/robertwood/2015/04/09/newest-tax-fraud-threat-your-payroll-tax/#56081ef3458a