Payroll Tax Problems
What is tax evasion?
Simply put, tax evasion is any action taken by a taxpayer to avoid remitting tax money to the Internal Revenue Service. Tax evasion is a prevalent issue in the United States today, costing the government a substantial amount of money every year. Some sources report that tax fraud and tax evasion costs the United States government as much as $5 billion dollars every year. Undoubtedly, incompliant taxpayers have a considerable effect on the government's finances.
Because of this, the Internal Revenue Service (IRS) aggressively seeks out businesses, companies and individuals who attempt to evade tax payment. In fact, the IRS convicts thousands of people of tax evasion every year - but this doesn't mean that every case initiated by the IRS should result in a criminal conviction. At Okabe & Haushalter, we are dedicated to helping people facing criminal allegations of tax fraud, evasion and other crimes brought against them by the IRS.
Employment Tax Evasion
Incompliant taxpayers use a multitude of tactics and schemes to avoid tax payment. Many tax evasion schemes are quite simple; others are elaborate, often involving foreign bank accounts, fraudulent businesses and other variables. Employment tax evasion is an umbrella term that describes several common criminal practices, such as:
- Employment leasing
- Cash payments
- False payroll tax returns
- Failing to file payroll tax returns
According to the IRS, pyramiding refers to an employment tax evasion scheme in which a business withholds tax money from its employees' paychecks but never remits the money back to the IRS. When practice intentionally, pyramiding is a crime punishable by incarceration and up to $500,000 in fines. Many companies that attempt this form of tax evasion avoid any financial liability associated with their crime by filing bankruptcy. After filing for bankruptcy, the individuals responsible for the pyramid scheme may try to open a new business to continue evading taxes.
Employment leasing is not always illegal. Sometimes, companies contract outside help to handle all of their administrative, personnel and financial matters for employees. This practice is easily abused. These companies can easily collect tax payment and fail to actually give any money to the IRS. Like companies that practice pyramiding, fraudulent employment-leasing companies usually dissolve, leaving millions in unpaid taxes. Other employers attempt to avoid payroll taxes by give them employees cash. This may seem like a simple, harmless tactic; in reality, it costs the government money and leaves the employees with lost or reduced Medicare and social security benefits in the future.
Employer and Employee Payroll Responsibilities
According to the IRS, employers are responsible to report their employees' income and withhold the correct amount of employment taxes from their paychecks. These withholdings must be deposited (in full) to an authorized bank or financial institution in compliance with Federal Tax Deposit Requirements. Employers who fail to do this may be subject to investigation, criminal charges, criminal convictions and harsh penalties. Even if no affirmative action is taken to avoid tax payment, the IRS has the authority to press charges for willfully failing to pay taxes.
Employees are not obligated to personally withhold taxes from their income. However, employees should make sure that their employers are withholding tax payments and giving them to the IRS. If the IRS believes that an employee allowed his/her employer to keep tax payments, criminal charges may be pressed and the employee may be held partially liable for his/her employer's incompliance with federal tax laws. If an employer refuses to withhold payments, employees are then responsible to turn over tax payments to the IRS. Ultimately, the employee must make sure that taxes have been properly withheld from his/her income.