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IRS Announces Payroll Tax Initiative

IRS Announces Payroll Tax Initiative

The IRS recently announced the introduction of a new program specifically designed to help

businesses with payroll tax compliance. This plan of action, called the Early Interaction

Initiative, is designed to identify and notify employers who fall behind on their payroll tax

obligations. Once identified, the program includes follow up communication with the

delinquent employers informing them of their payroll tax responsibilities and outlining the

steps necessary to achieve compliance.

Until recently, the IRS only contacted an employer after the filing of a quarterly payroll tax

return indicated that they were behind on meeting their payroll tax obligations. However, with

the launching of the Early Interaction Initiative, the agency can identify potential problems

much earlier. Payroll tax payments, which include income, Social Security and Medicare taxes

together with matching amounts from the employer, are typically made electronically though

the Electronic Federal Tax Payment System. The new program allows the IRS to monitor these

payments and notify employers when the payment schedule is not being met.  The hope is that

this early warning will help businesses bring their payroll tax obligations into compliance before

they spin out of control.

Payroll taxes make up over two thirds of the taxes collected by the federal government so the

IRS is naturally very serious about collecting them. Because of this, penalties for noncompliance

are very steep. In fact, the Trust Fund Recovery Penalty, which is imposed on any business that

owes back payroll taxes, is equal to 100% of the tax amount owed. This penalty is imposed in

addition to the standard penalties and interest that are assessed on any back tax balance.

Because of the stiff consequences of owing back payroll taxes, a business can quickly get into

serious financial trouble when these tax payments are not submitted on time. The new Early

Interaction Initiative is designed to assist businesses in avoiding these consequences before

they become unmanageable.

Payrolls tax delinquencies can occur for a number of reasons. One of the more common ones is

that a business, short on operating capital, will divert payroll tax funds to other areas and then

not be able to meet the set payroll tax payment deadlines when they occur. Another common

source of payroll tax delinquencies is miscommunication between a company and its payroll

services provider over some issue such as the scheduling of payroll tax deposits.  It is problems

such as these that are targeted by Early Interaction Initiative. In the words of IRS Tax

Commissioner John Koskinen, the program should benefit businesses by allowing the IRS to

“offer help weeks or even months sooner, when it can often do the most good.”

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