Payroll Tax Errors: Who Does the IRS Hold Accountable?

If you are an employer or employee who has fallen behind on payroll taxes and are now facing a hefty bill from the Internal Revenue Service, ignoring it will not make it go away. When it comes to unpaid payroll taxes, the IRS often comes down much harder on taxpayers than they do with unpaid income taxes. There have been countless instances where the IRS has gone as far as closing down a business or sending the owners of those businesses to prison for back payroll taxes. But, who does the IRS hold accountable for payroll tax errors?

What Is the Employer’s Responsibility?

According to the IRS, employers are responsible for reporting the income and employment taxes that are withheld from their employee’s paychecks. This information is required to be reported on the Employer’s Quarterly Federal Tax Return form, also known as Form 941. The employer is also responsible for the depositing of these reported taxes, in full, to a bank or other financial institution that is authorized in compliance with Federal Tax Deposit Requirements. Employers are also required to submit a Federal Unemployment Tax (FUTA) return each year and deposit those taxes as well.

What Is the Employee’s Responsibility?

Employees who do not have their taxes withheld are responsible for the reporting and payment of all income and employment taxes to which they are required to pay. If an employee feels that their employer is improperly withholding their federal taxes, or that they are failing to withhold their taxes, they should contact the IRS immediately to report their employer. If an employee fails to receive a W-2 form from their employer, they should complete Form 4825—a substitute for a W-2—and attach it to their tax return. This is for the purpose of paying their income and employment taxes using the best information they have.

Penalties for Payroll Tax Errors

If an employer refuses to withhold an employee’s employment taxes, or if the IRS is unable to collect these taxes, the employee still has the legal responsibility to pay all due income tax and their share of FICA taxes. Those who fail to pay their share of employment taxes may lose access to social security, Medicare, or unemployment benefits. Similarly, employers who fail to comply with employment tax laws may face severe penalties, including criminal or civil sanctions.

Author: Venar Ayar