Tax Debt Solutions Blog

Small Business Tax Relief Help

Correct Classification of Employees

Incorrect classification of workers can end in problems with the IRS.  You must understand ‘IRS audits and employee classification assessments’.   The IRS regards an incorrect classification as an attempt to deny workers their tax advantages e.g. saying an employee is an independent contractor.  In such a situation the IRS will expect the employer to reimburse the worker for any tax benefits denied.      

According to TheStreet.com, US businesses underpay worker taxes by more than $14 billion annually.  There are those purposefully doing this to skip out on giving 401K plans and health insurance to workers.  Others simply don’t know how to correctly classify their employees.  Only accuracy can avoid tax troubles and audits.  If the right tax forms containing accurate information are not filed in time the IRS assessment is regarded as the right one. There are a number of actions you can take as a safety measure.  It does help to plan your taxes in advance and to make use of existing IRS electronic payment schemes.

A small company without a tax expert is vulnerable. In one instance, a company failed to recognize mistakes in IRS employment tax appraisals. They filed 1099 Form (payments to employees) when the IRS appraised the taxes.  The IRS appraisal was incorrect however, because the company’s forms were filed after the appraisal, not before, the company was not allowed to use section 503 as a safety mechanism at a federal district court.  This was due to not filing the right forms in time.    

Avoid Common 941 Payroll Tax Mistakes

941 Tax Mistakes

Many new employers find payroll reporting confusing. Currently the 941 Payroll Tax Form must be filled in the 2^nd quarter of 2010. The new Hiring Incentives to Restore Employment Act (or HIRE) adds further confusion.  According to this Act, all employers who hired new staff members later than February 3, 2010, who were out of work for the last sixty days or who worked under forty hours, get a tax break for each employee.  It is usual for an employer to pay what the employee pays towards the withholding of Medicare and Social Security.  Due to the Hiring Incentives to Restore Employment Act, an employer is exempt from paying the Social Security share for those fresh employees.

A BNA article claims 941 difficulties are being noticed by the IRS.  The 941 forgiveness modification is presently made after working out the complete amount of Medicare and Social Security.  Employers are placing the forgiveness modification on the incorrect row.  EIN and math errors are occurring, and the IRS must attempt to make corrections but, if the corrections cannot be made, employer will be asked to supply further information.  If the employer fails to provide the information requested, the 941 will be processed with no forgiveness adjustment.

The IRS intends to audit the HIRE stipulation.  It is likely they will request proof in the form of an affidavit that an employee meets the necessary work standards and was not fired so the employer could gain.  The IRS will check so employers don’t receive payroll forgiveness and Work Opportunity Tax Credit (or WOTC) in respect of the same worker.  WOTC gives recompense if eligible fresh employees work for 52 weeks. The maximum amount awarded is the lesser of $1000 per employer or 6.2 percent of the 52 week salary-- an employer may not have both.  An employer may alter a 941 to the latest 941X if he/she sees there is more credit from WOTC than payroll forgiveness.  

 

Tax Relief: Imposed Action for the Collection of Taxes

Enforcement action can take the form of issue of a Notice of Levy.  This is carried out on a salary and any additional income, bank accounts or property that is lawfully confiscated to fulfill the tax debt.  Assessing a Trust Fund Recovery Penalty is on behalf of particular employment taxes that are unpaid.  Issuing a Summons to a third party or directly to a taxpayer is carried out to acquire information to be used to get ready tax returns that are unfilled or to find out the capacity of the taxpayer to make payment.

 

It is important the taxpayer knows that to bring in illicit tax debts there must be specific federal payments (federal employee travel, vendor, federal salary, OPM and SSA) by the Department of the Treasury and Financial Management Service that may be incur a levy via the FPLP (Federal payment Levy Program).

 

Employees must understand what makes up employment taxes:

 

Quantity of social security tax and Medicare tax paid by the employer for the employee

Quantities that must be withheld by the employer from the employee for medical tax also known as withheld or trust fund tax

 

An employee may be held liable for the payment of extra penalties as well as interest if employment taxes are paid late.  The extra penalties and interest is paid on balances that are overdue.  FTD or Failure to Deposit could result in a fine up to fifteen percent on the overdue amount of tax that is late.  The amount of the fine is based on the number of late days.  It is possible the IRS may request, under penalty of prosecution, an employer initiates a bank account only for withheld amounts or that employment taxes be paid and filed every month instead of quarterly.                         

 

An employer can assist employees in keeping up with tax payment requirements by signing up and paying existing tax deposits via EFTPS or Electronic Federal Tax Payment System.