Civil and criminal employment tax enforcement is among the Tax Division's highest priorities. Employers have a legal responsibility to collect and pay over to the Internal Revenue Service (IRS) taxes withheld from their employees’ wages. These employment taxes include withheld federal income tax, as well as the employees’ share of social security and Medicare taxes (collectively known as FICA taxes). Employers also have an independent responsibility to pay the employer’s share of FICA taxes.

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When employers willfully fail to collect, account for and deposit with the IRS employment tax due, they are stealing from their employees and ultimately, the United States Treasury. In addition, employers who willfully fail to comply with their obligations and unlawfully line their own pockets with amounts withheld are gaining an unfair advantage over their honest competitors.

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The Tax Division pursues civil litigation to enjoin employers who fail to comply with their employment tax obligations and to collect outstanding amounts assessed against entities and responsible persons. The Tax Division also pursues criminal investigations and prosecutions against those individuals and entities who willfully fail to comply with their employment tax responsibilities, as well as those who aid and assist them in failing to meet those responsibilities. Examples of some of the more prevalent employment tax schemes can be found here.

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Unpaid employment taxes are a substantial problem. Amounts withheld from employee wages represent nearly 70% of all revenue collected by the IRS and, as of June 30, 2016, more than $59.4 billion of tax reported on Employer’s Quarterly Federal Tax Returns (Forms 941) remained unpaid. When last measured, employment tax violations represented more than $91 billion of the gross Tax Gap and, after collection efforts, $79 billion of the net Tax Gap in this country.

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The Tax Division works with its partners in the IRS and the Offices of U.S. Attorneys to seek money judgments, permanent injunctions, and criminal convictions that often carry substantial prison sentences, restitution and financial penalties. Examples of recent IRS employment tax fraud investigations are found here. These cases are sending the clear message that this conduct will not be tolerated, and the Tax Division remains committed to addressing this serious issue.

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1. If your federal employment tax deposit is one to five days late, the Internal Revenue Service (IRS) imposes a 2 percent penalty.

2. If your deposit is six to fifteen days overdue, you can be charged a 5 percent penalty.

3. If your deposit is late by sixteen days or more, there is a 10 percent penalty.

4. If the IRS sends you a notice stating that you owe federal employment taxes and you pay the deposit directly to the IRS within ten days of the notice, you'll be charged a 10 percent penalty.

5. If the IRS sends you a notice stating that you owe the taxes but you wait more than ten days before complying, there is a 15 percent penalty

6. A 10 percent penalty applies if you make the deposit at a financial institution that is not an authorized financial institution.

7. For every month or partial month that you fail to file a return, the IRS imposes a penalty of 5 percent of what the return should have shown, up to a cap of 25 percent.

8. For every month or partial month that you withhold federal employment taxes but pay them late, the IRS imposes a penalty of 0.5 percent of the tax amount, up to a cap of 25 percent.

9. If you don't withhold income and FICA taxes as you are required to do, or if you withhold the taxes but don't pay them to the IRS, the IRS is authorized to penalize you up to 100 percent of the taxes owing.

10. If you willfully try to evade the federal employment taxes, you commit a felony and can be punished by a fine, and you could be imprisoned for up to five years.

11. If you willfully fail to collect or pay to the IRS any federal employment tax, you commit a felony and can be fined and you could go to prison for years.

12. If you willfully fail to file a return, keep federal employment tax records, or give the IRS information it requires, you commit a misdemeanor and face a step financial penalty, and you could go to jail for a year.

13. If you willfully submit a false IRS form you could be fined and go to jail for up to one year.

14. If you are the person responsible for withholding, collecting, accounting for, and paying the federal employment taxes and you willfully sign or submit a document that you know contains false statements, you are guilty of a felony and could face a financial penalty and imprisonment for years.(findlaw, 2018)