Who owes the IRS millions? Uncle Sam

That's right. A substantial number of federal agencies, along with their state government cousins, have not been sending in the payroll taxes they collected from their employees.

As of December 2006, federal government entities owed approximately $45 million in delinquent employment taxes, according to the Treasury Inspector General for Tax Administration (TIGTA) in a report issued last week.

"Government entities, including those in the Federal Government, are not exempt from meeting employment tax deposit and reporting requirements," noted TIGTA investigators. "It is critical to the image of the United States that Federal Government entities be held to the same standards as private employers."

Ya think?

Not to be outdone, as of this January, state government offices had not submitted to the IRS around $254 million in payroll taxes for those employees.

To correct this problem, TIGTA recommends that, among other things, the IRS expand its efforts to identify and address the reasons why the government agencies are delinquent and strengthen its controls over case processing and enforcement actions in these situations.

IRS management agreed with TIGTA's recommendations (like it had any choice!) and procedures have already been implemented to start bringing in some the owed money.

Who has to pay? While it gets a lot of attention when the feds don't follow their own laws, the TIGTA report on government payroll tax problems notes that the public sector represents only a small portion of overall U.S. payrolls.

Around 86,000 federal, state and local government offices account for payroll tax collection. Overall, there are almost 6 million total employment tax filers in the United States, which make up the bulk (about 80 percent) of payroll taxes collected and paid.

When any of those companies fail to submit any of their payroll taxes, which include income, Social Security and Medicare (Federal Insurance Contributions Act or FICA on your pay stub) and federal unemployment (FUTA) taxes, the IRS goes after the business.

Employers who do not comply may be subject to criminal and civil sanctions. Not only is the company legally liable, but firm executives and officers might also be held personally liable for the payments.

The IRS outlines its enforcement rules here. And the agency maintains a Web page devoted to employment tax fraud and what happened to some of the businesses and their owners who didn't remit the required taxes.

The National Federation of Independent Business also has put together this fact sheet for employers.

What about the workers? Technically, you are responsible for paying your taxes, regardless of the mechanism, withholding in this case, used. But if your boss has been taking out payroll taxes from your check, the IRS typically seeks to get the money that you paid, but that your employer neglected to pass along, from the company.

When the IRS doesn't get your withheld income taxes, you'll likely hear about that sooner rather than later. In the case of FICA or FUTA payments, however, you might not notice the non- or underpayment until much later, when you go to collect the benefit.

That's why it's important for you to pay attention to those mailings that the Social Security Administration regularly sends out detailing your expected benefits. If you haven't gotten one lately, or can't find the last one you received, you find out more about the statements and request one here.

Once you have the document in hand, compare the SSA figures with the amounts shown on your pay stubs. Sometimes it's slightly different because of a reporting time lag. If, however, you notice a substantial difference, you need to check into it.

And ultimately, the IRS has the authority to come after you for the full payment of all your taxes.

According to the IRS, "if the employer refuses to withhold employment taxes from these wages and the IRS is unable to collect the employment taxes from the employer, the employee still has the responsibility to pay income tax and is ultimately responsible for his/her share of the FICA tax."

Details on employer and employee payroll tax payment responsibilities can be found at this IRS Web page.

And if you're worried that your employer is collecting tax money of any type from you and your coworkers but not delivering it to the U.S. Treasury, you can call the IRS at 1-800-829-1040 or check out this page for details on other ways to alert investigators.

Comments

[Adam Wieder]

WRT contractors, the real question is why do we continue to re-award work if they are not meeting their obligations under the law. A lack of enforcement breeds continued contempt. Imagine how quickly those funds would hit our coffers if one well-known integrator did not receive award based on failure to comply with the already stated requirement to pay their fair share of taxes--problem solved.

[Jeff Day]

The IRS website says that the tax gap was $290 billion for 2001. The last year they have figures for.

So now if you read this posting it says in essence that 10% of the tax gap is brought about by the various government agencies themselves? Or do you suppose that the government ignores these lack of payments in their computation?

The law says that it is unlawful to take a deduction for an illegal payment. It is illegal to pay an illegal immigrant anything by definition. Therefore it is unlawful to take a deduction on a tax return for any payments to any illegal immigrants.

The IRS sure are experts at picking and choosing what regulations they want to enforce, then the IRS wonders why so many taxpayers have no respect for their agency?