Payroll tax audits are conducted at companies that have or had employees and did not file or pay payroll taxes on Form 941 of the employer’s quarterly federal tax returns, misclassifying workers as independent contractors when they are actually employees or there is a mismatch between the W-3 Transmission Wage and Tax Return, the W-2 Wage and Income Statement, and the Employer’s Quarterly Federal Tax Returns Form 941.

When a payroll tax audit is selected to be audited, the case is assigned to the Employment Tax Examination Program and then assigned to one of the employment tax auditors.

An employment tax auditor will look for bank statements, bank payroll statements, copies of the Employer’s Quarterly Federal Tax Returns Form 941 for a specific period, DE-9 Quarterly Tax Return and Wage Report and any other forms or documents that you believe will help them determine if all of the employee’s wages / salaries were accounted for on the tax returns filed.

For people who were incorrectly paid as independent contractors, workers who in fact should have been reported as employees. So that’s when the misclassification of employee audits comes into the investigation.

The Internal Revenue Service and state tax agencies have identifying factors in determining when a person should be an employee or an independent contractor. File a Form SS-8 Determination of Workers’ Status for federal employment tax and income tax withholding purposes if you, as an employer, are unsure how to treat a worker.

Common law rules

The facts that provide evidence of the degree of control and independence fall into three categories:

1. Behavior: Does the company control or have the right to control what the worker does and how he does his job?

2. Financial: Are the business aspects of the worker’s job controlled by the payor? (These include things like how the worker is paid, whether expenses are reimbursed, who provides the tools / supplies, etc.)

3. Type of relationship: Are there written contracts or employee-type benefits (ie, pension plan, insurance, vacation pay, etc.)? Will the relationship continue and is the work done a key aspect of the business?

Discrepancy between the Employer’s Quarterly Federal Tax Returns from Form 941, the W-2 Wage and Income Statement, and the W-3 Tax and Wage Statement may result in a computer audit.

Computer-based payroll audits are easily calculated from your tax return and employer-filed returns. Letters, notices, and results are sent to the employer. The result of the audit is generally recorded due in the last quarter of the year in which the alleged mismatch was identified.

An employer has a deadline to respond to changes. Also, you may have appeal rights. Always read all the notices, letters you receive. Many people do not open government-issued letters and then lament the consequences of not meeting response deadlines.

A payroll tax audit can generate large tax bills that wreak financial havoc on employers. Large expenses paid to accountants, tax debt resolution experts, and tax attorneys to represent a company that has misclassified workers and now owes payroll taxes on undeclared wages / salaries paid to workers that should have been declared as employees in the first place.

A payroll tax debt can result in the recording of tax ties, liens (liens) issued to accounts receivable, documents receivable, and bank accounts. Also, if negotiations are unsuccessful, the tax agency will sell your business to ensure payment of past due taxes.

Don’t try to negotiate your tax debt without seeking professional help. IRS collection officers are required to follow certain tax regulations, processes, and procedures before implementing their collection efforts. If you do not know which resolution option you can request and what the resolution requirements are. So your business may be subject to financial chaos and possible closure.

Do not forget or destroy notices and letters sent to you by tax agencies or employees of these tax agencies. There are so many appeal rights, deadlines that require a response before certain dates. If these deadlines and dates are not met. Then the IRS auditor or collector will have no choice but to go ahead with the next action required based on your case.

Links filed against your business will affect your ability to borrow and will tax each and every property owned by your business and possibly you as the owner, officer, member or director of the entity that owes payroll taxes.

Yes, there is a possible individual liability for non-payment of payroll taxes. Read Internal Revenue Code 6672. Basically, the IRS is required to calculate the amount due with taxes, social security, and Medicare. The letters are then mailed or delivered to the possible responsible persons or entities who did not report correctly and did not pay the taxes accordingly.

These letters establish a period of 60 days to request an appeal before the tax agency can create a tax invoice against persons or entities that did not comply with the rules and regulations of payroll taxes.

Business owners, directors, officers, and the general public believe that because an entity is a corporation, partnership, not-for-profit, or limited liability company, this in itself protects them individually from being liable for property taxes. unpaid payroll that the entity did not send to the government.

It is not advisable to face the IRS auditor or collector on your own. Even the best tax resolution experts encounter barriers to negotiating audits and debts. You just have to research and interview various tax professionals to see which one will work in your best interest.