Effective January 1, 2017, employers with 10 or more employees are required to electronically file and pay their EDD employment tax returns, wage reports, and payroll tax deposits. All other employers will be subject to this requirement effective at the start of 2018.
Although it is common practice for corporate officers to take shareholder loans from company coffers, weak or inconsistent recordkeeping can turn this into a serious problem during California payroll tax audits - undocumented loans are often picked up by state tax agencies as unreported "wages." In order to avoid scrutiny, or a possible tax assessment for failure to report wages, businesses must make sure that their shareholder loans are defensible as bona fide loans, and not advances on payments for services rendered, i.e. wages.
The Internal Revenue Service has launched a new initiative "designed to more quickly identify employers who are falling behind on their payroll or employment taxes and then help them get caught up on their payment and reporting responsibilities."The initiative will seek to identify employers who appear to be falling behind on their tax payments, in the hope that the employer can avoid the penalties and interest associated with late payment of payroll taxes. This new IRS initiative will monitor deposit patterns and identify employers whose payments decline or are late, who may receive a letter, or automated phone message reminding them of their payroll tax responsibilities and asking that they contact the IRS to discuss the situation. Is some situations, ostensibly more severe, an IRS revenue officer will also contact an employers at their place of business.Click here for more details.
The IRS continues to battle identity theft of taxpayers and is proactive for 2016 filing with its authenticity verification test when taxpayers e-file their income tax returns. The IRS is working with specific Payroll Service Providers to use a verification code on a test population of W-2s. For more information, click here.
In an effort to assist employers in understanding and meeting their payroll tax obligations, the IRS has initiated an Early Interaction Initiative in which the IRS will be alerted when an employer has a reduction in payroll tax deposits. Some employers will receive letters of inquiries asking the employer to contact the IRS with an explanation regarding the decline in payroll tax deposits. Employers should reply promptly to ensure their compliance and to reduce or eliminate potential penalties if the employer has made an error.
On May 5, 2015, the Department of Justice Tax Division announced Kevin Bertram, former CEO of Distributive Networks LLC (a wireless technology company), was sentenced to serve 30 months in federal prison, followed by three years of supervised release, and ordered to pay restitution in the amount of $897,921 to the IRS for failing to pay nearly $1,000,000 in payroll taxes.