Payroll Tax Audits are conducted on companies that have or had employees and either failed to file and pay the payroll taxes on Form 941 Employer’s Quarterly Federal Tax Returns, misclassified workers as independent contractors when in fact they are employees or there’s a mismatch between the W-3 Transmittal of Wage and Tax Statement, W-2 Wage & Income Statement and the Form 941 Employer’s Quarterly Federal Tax Returns.
An employment tax auditor will seek out bank statements, payroll bank statements, copies of Form 941 Employer’s Quarterly Federal Tax Returns for a particular period, DE-9 Quarterly Contribution Return and Report of Wages and any other form or document that they believe will assist them in determining if all the employee’s wages/salaries were accounted for on the tax returns filed.
For men and women who were incorrectly paid as independent contractors, laborers who actually should have been reported as employees. Then, that’s when the misclassification of worker audits steps to the investigation.
Internal Revenue Service and the State tax agencies have identifying variables for determining when a person should be an employee or independent contractor.
Common Law Rules
1. Licensed: Does the employer control or have the right to control what the worker does and how the worker does their job?
2. Financial: Are the business aspects of the worker’s job controlled by the payer? (these include things like how worker is compensated, whether costs are reimbursed, who supplies tools/supplies, etc..)
3. Type of Relationship: Are there written contracts or employee kind benefits (i.e. pension plan, insurance, holiday pay, etc.)? Will the relationship continue and is the job performed a key aspect of the business?
Computer payroll audits are easily calculated by the tax return and statements filed by the employer. Letters, Notices, and outcomes are issued to the employer. The audit result is generally recorded as due on the last quarter of the year in which the alleged mismatch was identified.
An employer is provided with a deadline to respond to the changes. Furthermore, you might have appeal rights. Always read all of the notices, letters you get. Lots of people do not open government issued letters and then they lament on the consequences for not complying with response time frames.
A payroll tax audit can cause large tax bills that create financial havoc on companies. Large expenses that are paid to Accountants, Tax Debt Resolution Pros and Tax Attorneys to represent a company who has misclassified workers and currently owe payroll taxes for the unreported wages/salaries paid to employees who should have been reported as workers in the first location.
Furthermore, if negotiations are not successful the tax agency will seize and sell your company to secure payment of the taxes overdue.
Do not try tax debt negotiations without seeking professional aid. The IRS Collection Officers are expected to follow specific regulations, tax processes and procedures before implementing their collection efforts. If you do not know what resolution option it is possible to request and what the prerequisites are for resolution. Then, your organization might be subject to financial havoc and possible closure.
Don’t overlook or shred notices and letters sent to you by tax agencies or personnel of these tax bureaus. There are so many appeal rights, time frames that require a response by particular dates. If these time frames and dates are not complied with. Then, the IRS Auditor or Collector will have no option but to proceed with another action that is required based on your case.
Liens filed against your company will affect your ability to borrow and will encumber any and all property your company owns and potentially you as the owner, officer, member and or manager of the entity that owes payroll taxes.
Yes, there is a potential individual liability for non payment of payroll taxes. Basically, the IRS is required to compute the amount of tax withholding, social security and Medicare taxes due. Then, letters are sent or provided to the potential responsible people or entities who failed to report properly and pay the taxes accordingly.
These letters provide for 60 day time period to request an appeal prior to the tax agency being able to create a tax invoice against the individuals or entities that failed to abide by the payroll tax rules and regulations.
Business owners, Directors, Officers and general public believe that because an entity is a Corporation, Partnership, Non-Profit or Limited Liability Company that this in itself protects them separately from being responsible for unpaid payroll taxes which the thing failed to forward to the authorities.
It’s not smart to confront the IRS Auditor or Collector on your own. Even the best tax resolution experts encounter obstacles to negotiate audits and debts. You only have to do your research and interview several tax professionals to confirm which one will work in your very best interest.