Criminal Employment Tax Violations 

Criminal Employment Tax Violations

Criminal Employment Tax Violations 

When it comes to Voluntary Disclosure, while the most common reason for submitting to the Internal Revenue Service is for matters involving offshore and international tax in compliance –– there are various other domestic tax reasons a US person may want to seek to enter the voluntary disclosure program. Outside of offshore disclosure — employment tax violations tend to comprise a large portion of the submissions received by the U.S. Government. Oftentimes, this may involve construction businesses or other types of businesses in which the organization may be treating employees as independent contractors and/or various withholding tax requirements were not met and therefore the employer committed a form of fraud. By submitting to the voluntary disclosure program and gaining acceptance to the program — an employer can avoid even larger fines and penalties, and possibly a criminal investigation.

DOJ and Employment Tax Enforcement

As provided by the DOJ: 

      • Civil and criminal employment tax enforcement is among the Tax Division’s highest priorities. Employers have a legal responsibility to collect and pay over to the Internal Revenue Service (IRS) taxes withheld from their employees’ wages. These employment taxes include withheld federal income tax, as well as the employees’ share of social security and Medicare taxes (collectively known as FICA taxes). Employers also have an independent responsibility to pay the employer’s share of FICA taxes.

      • When employers willfully fail to collect, account for and deposit with the IRS employment tax due, they are stealing from their employees and ultimately, the United States Treasury. In addition, employers who willfully fail to comply with their obligations and unlawfully line their own pockets with amounts withheld are gaining an unfair advantage over their honest competitors.

      • The Tax Division pursues civil litigation to enjoin employers who fail to comply with their employment tax obligations and to collect outstanding amounts assessed against entities and responsible persons. The Tax Division also pursues criminal investigations and prosecutions against those individuals and entities who willfully fail to comply with their employment tax responsibilities, as well as those who aid and assist them in failing to meet those responsibilities. Examples of some of the more prevalent employment tax schemes can be found here.

      • Unpaid employment taxes are a substantial problem. Amounts withheld from employee wages represent nearly 70% of all revenue collected by the IRS and, as of June 30, 2016, more than $59.4 billion of tax reported on Employer’s Quarterly Federal Tax Returns (Forms 941) remained unpaid. When last measured, employment tax violations represented more than $91 billion of the gross Tax Gap and, after collection efforts, $79 billion of the net Tax Gap in this country.

      • The Tax Division works with its partners in the IRS and the Offices of U.S. Attorneys to seek money judgments, permanent injunctions, and criminal convictions that often carry substantial prison sentences, restitution and financial penalties. Examples of recent IRS employment tax fraud investigations are found here. These cases are sending the clear message that this conduct will not be tolerated, and the Tax Division remains committed to addressing this serious issue.

IRS Employment Tax Explained

As provided by the IRS:

      • Federal Income Tax

        • Employers generally must withhold federal income tax from employees’ wages. To figure out how much tax to withhold, use the employee’s Form W-4, the appropriate method and the appropriate withholding table described in Publication 15-T, Federal Income Tax Withholding Methods.

        • You must deposit your withholdings. The requirements for depositing, as explained in Publication 15, vary based on your business and the amount you withhold.

      • Social Security and Medicare Taxes

      • Additional Medicare Tax

        • Beginning January 1, 2013, employers are responsible for withholding the 0.9% Additional Medicare Tax on an employee’s wages and compensation that exceeds a threshold amount based on the employee’s filing status. You are required to begin withholding Additional Medicare Tax in the pay period in which it pays wages and compensation in excess of the threshold amount to an employee. There is no employer match for the Additional Medicare Tax.

        • For additional information see our questions and answers.

      • Federal Unemployment (FUTA) Tax

      • Self-Employment Tax

        • Self-Employment Tax (SE tax) is a social security and Medicare tax primarily for individuals who work for themselves. It is similar to the social security and Medicare taxes withheld from the pay of most employees.

Recent Employment Tax Criminal Investigations

Here is a list of recent criminal employment tax cases from the Department of Justice:

February 10, 2022

About Our Tax Law Firm

Golding & Golding specializes in IRS voluntary disclosure (Tax Amnesty) and compliance.

Contact our firm for assistance.