The Better Business Bureau is reminding employers that failing to properly file and pay employment taxes is a crime, which could result in stiff financial penalties or even prison time.
The BBB of Southeast Texas says businesses offer a variety of excuses for not withholding taxes from employee paychecks or for neglecting to file and pay employment taxes. Excuses can range from the employer "borrowing" the money for a while with the intent to pay it back later, collecting and keeping the taxes because of temporary financial difficulties, blaming disreputable third-party payers and ignorance of the law.
"Whatever the 'reason,'employers that willfully attempt to avoid filing and paying employment taxes are committing a crime that can result in financial penalties and even prison," the BBB warned in a recent press release.
These taxes consist of federal income tax withholding, Social Security and Medicare taxes and unemployment taxes, as well as any withholding requirements mandated by a particular state.
"The Better Business Bureau of Southeast Texas joins with the Internal Revenue Service to warn businesses to avoid engaging in tax evasion schemes," the press release stated.
Among the most common forms of employment tax non-compliance, as identified by the IRS, are:
Most Payroll Service Providers and Professional Employer Organizations provide upstanding service. But there are a few less-than-reputable third-party payers who fail to pay the collected taxes to the IRS. Employers should check with the BBB at www.bbb.org to find a trustworthy third-party payer, and once hired, regularly verify that payments are being made on their behalf.
Unscrupulous promoters use misleading arguments to encourage businesses to avoid paying employment taxes. Don't fall victim to incorrect interpretations of tax laws or the improper use of Form 941c to attempt to secure a refund of previously paid employment taxes.
Don't do business with shady promoters affiliated with offshore companies who misuse the otherwise legal business practice of employee leasing. Consult with reputable legal and tax experts before entering into employee leasing arrangements.
Don't be tempted to incorrectly treat employees as independent contractors to avoid paying employment taxes. If the employer has the right to control what work will be done and how it will be done, the worker is an employee.
There is nothing wrong with compensating an employee in cash, so long as the business recognizes that employment taxes are owed regardless of how the employee is paid.
Preparing false payroll tax returns or understating the amount of wages on which taxes are owed is illegal.
For more information about BBB and to see and access new products and resources, visit www.bbb.org. In Southeast Texas, call 409/835-5348 or 800/685-7650.