Contents
- 1 Criminal Employment Tax Violations
- 2 DOJ and Employment Tax Enforcement
- 3 IRS Employment Tax Explained
- 4 Federal Income Tax
- 5 Social Security and Medicare Taxes
- 6 Additional Medicare Tax
- 7 Federal Unemployment (FUTA) Tax
- 8 Self-Employment Tax
- 9 Recent Employment Tax Criminal Investigations
- 10 About Our Tax Law Firm
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:
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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.
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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.
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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.
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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.
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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.
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IRS Employment Tax Explained
As provided by the IRS:
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Federal Income Tax
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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.
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You must deposit your withholdings. The requirements for depositing, as explained in Publication 15, vary based on your business and the amount you withhold.
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Social Security and Medicare Taxes
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An employer generally must withhold part of social security and Medicare taxes from employees’ wages and the employer additionally pays a matching amount. To figure out how much tax to withhold, use the employee’s Form W-4 and the methods described in Publication 15, Employer’s Tax Guide and Publication 15-A, Employer’s Supplemental Tax Guide.
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You must deposit the taxes you withhold. See requirements for depositing.
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The social security wage base limit is $137,700 for 2020 and $142,800 for 2021. The employee tax rate for social security is 6.2% for both years.
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Additional Medicare Tax
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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.
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For additional information see our questions and answers.
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Federal Unemployment (FUTA) Tax
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Employers report and pay FUTA tax separately from Federal Income tax, and social security and Medicare taxes. You pay FUTA tax only from your own funds. Employees do not pay this tax or have it withheld from their pay. Refer to Publication 15, Employer’s Tax Guide and Publication 15-A, Employer’s Supplemental Tax Guide for more information on FUTA tax.
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Self-Employment Tax
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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.
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Recent Employment Tax Criminal Investigations
Here is a list of recent criminal employment tax cases from the Department of Justice:
February 10, 2022
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California CEO Sentenced to Prison for Employment Tax Crimes
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Virginia Business Owner Charged with $1.5 Million Employment Tax Fraud
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Chief Financial Officer for Oklahoma Business Found Guilty of Employment Tax Fraud
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North Carolina Couple Convicted in Employment and Income Tax Scheme
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Former Long Island Construction Business Owner Sentenced to Prison for Employment Tax Fraud
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Owner of Brooklyn Ambulance Service Business Pleads Guilty to Not Paying Employment Taxes
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New York Plumbing Contractor Sentenced to 20 Months in Prison for Employment Tax Fraud
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Owner of Montana Construction Company Sentenced to 15 Months in Prison for Employment Tax Fraud
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Owner of Plumbing Businesses Pleads Guilty to Employment Tax Fraud
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Restaurant Chain Manager Pleads Guilty to Employment Tax Fraud
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North Carolina Couple Indicted for Failing to Pay Employment Taxes and Failure to File Tax Returns
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Owner of North Carolina Temporary Staffing Firms Sentenced to Prison for Employment Tax Fraud
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Owner of Montana Construction Company Pleads Guilty to Employment Tax Fraud
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Owner of Long Island Diner Pleads Guilty to Not Paying Employment Tax
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President of Consultant Firm Pleads Guilty to Employment Tax Fraud
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Federal Court Permanently Shuts Down Texas Tax Return Preparer
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Owner of Michigan Payroll Tax Services Firm Charged With Employment Tax Fraud
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Greensboro Business Owner Sentenced to Prison for Employment Tax Fraud
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Virginia Resident Indicted for Employment Tax Evasion and Obstructing the IRS
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Las Vegas Dentist Indicted on Income and Employment Tax Charges
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About Our Tax Law Firm
Golding & Golding specializes in IRS voluntary disclosure (Tax Amnesty) and compliance.
Contact our firm for assistance.