If you are receiving Social Security Benefits from the federal government, this is an issue you should care about. According to a recent report by the Government Accountability Office (GAO), 1.6 million businesses owe the federal government more than $58 billion in payroll taxes, interest and penalties. This shocking lack of compliance with US tax law is caused not only by unscrupulous business owners, but also by the IRS’ own ineffective efforts at collecting what the government is owed.
Sure this is a terrible problem, you might agree, but why should you care? Well, when businesses fail to pay taxes that they’ve withheld from employee salaries, the Social Security and Hospital Insurance Trust Funds have fewer financial resources available to cover current and future benefit payments. What happens is that the General Fund ends up having to cover the trust funds for amounts IRS is unable to collect in payroll taxes from employers. Greedy employers are effectively stealing from your Social Security benefits!
If the General Fund has to cough up money to pay for Social Security benefits, this means that there could come a day when unpaid payroll taxes mean that there isn’t enough money for disability payments. All because employers are taking advantage of our largely honor-based tax collection system.
How bad is the problem?
Among findings in a recent GAO report:
- 1.6 million businesses owe the IRS in excess of $58 billion in payroll taxes, interest, and penalties
- $58 billion is the amount accumulated over a period of ten years
- Taxes that have been owed for longer than ten years may have been permanently lost, due to a statute of limitations
- Recent data indicates that the cumulative shortfall increases by an additional $2 billion to $4 billion annually because of uncollected payroll taxes
- Over a quarter of payroll taxes are owed by businesses with more than 3 years (12 tax quarters) of unpaid payroll taxes
- While the IRS has powerful tools to force compliance with tax laws, they tend to rely on voluntary compliance – which encourages abuse of the system
- The IRS has failed to protect the government's interests by failing to promptly filed liens against businesses and take timely action to hold responsible parties personally liable for unpaid payroll taxes
- The IRS does not assess penalties to individuals responsible for not remitting business’s payroll tax debts in a timely manner
According to the GAO, the top industries with unpaid payroll tax debt included:
- Construction ($8.6 billion)
- Professional services ($4.4 billion)
- Healthcare ($4 billion)
Recommendations to improve tax collection
In order to address the problem of unpaid payroll taxes, the GAO made six recommendations to IRS to address their deficiencies. These recommendations included asking the IRS to develop processes and performance measures to monitor collection actions against egregious payroll tax offenders, and to develop procedures to file tax liens and assess penalties in a timely manner to hold responsible business owners and officers personally liable for not remitting withheld payroll taxes.
According to the GAO, the IRS has agreed to all six of their recommendations. We hope that the IRS doesn’t just agree to the recommendations but actually enacts them, so greedy business owners will no longer be able to steal from the pockets of hard working Americans.
Markhoff & Mittman, P.C.
14 Mamaroneck Avenue
White Plains, NY 10601
Toll Free: 866-205-2415
Phone: (866) 205-2415
Fax: (914) 946-0810