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Whether you are your own employer, or you employ a workforce of thousands, you are required to comply with the federal employment tax rules that apply to your business. Failure to comply is all but guaranteed to eventually result in a tax audit and/or IRS criminal investigation, with a myriad of negative consequences for your business. Not only will your reputation be damaged, potentially shrinking your client base; you could also lose vital licenses and certifications that are necessary to perform your work. Moreover, you could be heavily fined or even imprisoned, depriving you of your most basic freedoms.
These types of outcomes can weaken or even bankrupt your business, while in some cases, simultaneously saddling you with a criminal record. However, it may be possible to mitigate or avoid certain civil and criminal penalties by working with an employment tax lawyer for businesses in Sacramento. Whether you are under investigation for alleged employment tax fraud, need assistance preparing your business for a worker classification audit, or simply have general questions about payroll tax compliance, rely on the business tax attorneys at the Tax Law Office of David W. Klasing for skillful, strategic support throughout Sacramento.
What Are Employment Taxes?
Like their name suggests, employment taxes are federal and state taxes for which employers are responsible. Certain employment taxes, such as Social Security taxes, must be withheld from employee wages and matched by the employer. Others, such as the Additional Medicare Tax (AMT), must be withheld from wages but are not subject to an employer match requirement. Conversely, there are some employment taxes which are paid by the employer only, without any requirement to withhold the tax from employee wages. The Federal Unemployment Tax, or FUTA, is an example. Finally, there are certain employment taxes which are unique to freelancers, sole proprietors, and other individuals who work for themselves, aptly called “self-employment taxes.”
Note that employment taxes are also imposed at the state level. For assistance with state payroll taxes, contact our California employment tax attorneys right away.
See our Employment Tax Law Q and A Library
Common Types of Employment Tax Evasion Schemes the IRS, FTB and EDD Looks For
Due to the complexity of the Internal Revenue Code, and California tax law there are many ways an employer can inadvertently fail to comply with federal or California employment tax laws. If the error is intentional, or “willful,” such as willful failure to remit withheld payroll taxes, it constitutes fraud and could expose the taxpayer to a risk of federal or California criminal tax prosecution. If the error was unintentional and non-willful, the taxpayer may not be criminally prosecuted, but can still be heavily fined civilly.
Some types of employment tax fraud schemes are more prevalent than others. If your business is engaged in any of these practices, you need immediate legal assistance from a competent and dedicated Sacramento tax attorney for businesses. Examples of common employment tax evasion schemes include:
- Employment leasing schemes
- False returns and non-filing
- Paying employees in cash (“under the table”)
- Pyramiding or “flipping” schemes
- Employing illegal aliens
- Paying employees in part unreported cash and part reported W2 wages
- Failing to issue subcontractors 1099s
- Misclassifying employees as subcontractors
For more information, you may be interested in our articles discussing how criminal employment tax fraud happens, how noncompliance with employment tax regulations can lead to jail time for business owners, or how the IRS develops an employment tax fraud case from the first indication of fraud to a criminal indictment (formal criminal charge).
Penalties for Payroll Tax Fraud
The IRS has identified payroll tax fraud as a top enforcement priority. In fact, businesses that fail to comply with employment tax laws are often pursued even more aggressively than individual taxpayers who fail to comply with income tax laws. If you have improperly classified workers in order to avoid payroll tax obligations (i.e. misclassifying employees as independent contractors), have failed to turn over the taxes you withheld from employee wages, or have other unresolved compliance issues, you could be audited and or criminally investigated for employment tax fraud.
See our Criminal Tax Law Q and A Library
There can be extremely severe civil penalties for employers who fail to comply. For example, the Trust Fund Recovery Penalty (TFRP), equaling up to 100% of the unpaid balance, can be imposed on any “responsible person” (including corporate officers, board members, and shareholders) who deliberately fail to collect and/or pay withheld employment taxes. In terms of criminal penalties, 26 U.S. Code § 7202 (willful failure to collect or pay over tax) establishes a maximum fine of $10,000 and a maximum prison sentence of five years.
Sacramento Employment and Payroll Tax Lawyers for Small Businesses, LLCs, and Corporations
With more than 20 years of tax and accounting experience serving sole proprietors, independent contractors, freelancers, LLCs, partnerships, corporations, family businesses, startups, and non-profit organizations, the Sacramento tax lawyers at the Tax Law Office of David W. Klasing are your trusted resource for all business tax compliance issues. From sophisticated criminal tax defense, to basic accounting services for first-time business owners, our versatile attorneys and CPAs have all of your employment tax needs in Sacramento covered.
For a reduced-rate consultation, contact our Sacramento tax office at (916) 290-6625, or contact us online. Please note all meetings at our Sacramento location must be scheduled in advance.
Note: If you have concerns about the privacy of our initial or subsequent communication and are unable to easily travel to our Irvine / Orange County Main Office, consider scheduling a GoToMeeting to safely and securely establish an initial or maintain an existing attorney client relationship. With end-to-end encryption, strong passwords and top-rated reliability, no one is messing with your meeting. To schedule a reduced rate initial consultation via GoToMeeting follow this link. Call our office and request a GoToMeeting if you are an existing client. We are generally happy to travel to any of our appointment only satellite offices for a subsequent meeting in appropriate circumstances once a relationship is established via a signed engagement letter and the payment of an initial retainer or where enough retainer is available where a current client to cover the reasonable travel time and time required for the meeting.
Will it cost me more to hire the Tax Law Offices of David W. Klasing, who’s main office and the vast majority of the firm’s staff is located in Irvine California, but an appointment only Satellite office is close to my location, as opposed to a local company? Absolutely not! See our policies that address this issue here
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