IRS Clamps Down on Small Business Payroll Taxes

The Internal Revenue Service has launched a new initiative that will identify employers who are falling behind on their payroll taxes long before they file their tax forms.

Under the Early Interaction Initiative, the IRS will offer information and guidance through letters, automated phone messages, other communications, and in some instances, a visit from an IRS revenue officer, the agency said.

By law, employers must withhold federal income, Social Security, and Medicare taxes from employees’ wages, and two-thirds of federal taxes are collected through the payroll tax system. But until now, the IRS did not review whether taxes were being paid until after the forms were filed, and the business already was in arrears.

The IRS now will monitor the deposit patterns of businesses and identify those whose tax payments are declining or being paid late.

“Employers identified under this initiative may receive a letter reminding them of their payroll tax responsibilities and asking that they contact the IRS to discuss the situation,” the IRS said in announcing the program. 

Two-thirds of federal taxes are collected through the payroll tax system. By law, employers must withhold federal income, Social Security and Medicare taxes from employees’ wages.

“Employers play a key role in our tax system, and we want to offer them the information and assistance they need to carry out their responsibilities,” said IRS Commissioner John Koskinen. “With early interaction, we will be able to offer help weeks or even months sooner, when it can often do the most good.”