IRS Looking To Increase Tax Compliance

As the Internal Revenue Service (IRS), looks to Increase Tax Compliance and Raise more Revenue for the Federal Government, Underpaid Employment Taxes are a Top target.

Money lost from Unpaid Payroll Taxes is Huge. Unreported or Under-Reported Employment Taxes make up a Big chunk of the overall Federal Tax Gap.

$77 Billion of Payroll Taxes fell through the cracks yearly from 2011 theough 2013, from a 2019 IRS calculation. Over 50% of that figure is from Self-Employment Taxes.That number is much higher today, given the growth in Freelance Service gigs, much of it through the sharing Economy from Online sites such as: DoorDash, Etsy, Uber, etc.

The IRS is using a Two pronged approach of Enforcement and Outreach:

Enforcement - Employment Tax Fraud is a Major focus area. IRS and the Justice Department (DOJ), are striking hard at Schemes used by Small Businesses and their Owners to Avoid Payment of Social Security and Medicare Taxes on Wages:

- Employers Withholding Taxes from Workers' Paychecks, but Spending the Withheld Funds on Personal Expenses or to Pay other Creditors rather than sending the Money to the IRS.

- Businesses Paying their Employees in Cash for the purpose of Lowering their Employment Tax Obligations.

- False Tax Filings.

- Serial Offenders with Unpaid Payroll Taxes over $100,000 are feeling the Heat. Prior to Covid-19, Revenue Officers popped-in Unannounced at Firms with large Outstanding Payroll Tax Withholdings that they didn't Forward to IRS after multiple mail contacts. Expect this Project to stsrt-up again as Covid-19 eases.

- Misclassified Workers remain a Priority. IRS knows that some Firms circumvent Payroll Taxes by trating their Employees as Independent Contractors. Workers classification issues come to light during Audits and from SS-8 filings. Workers can file the SS-8 to ask that the IRS settle whether thay are Employees or Independent Contractors for Tax purposes. Companies can also file such requests. Agrowing number of SS-8s have been filed in recent years by Gig Economy Workers.

Outreach - IRS wants to raise Public awareness of the Tax Rules for Gig Workers. many of them are unaware of their Tax obligations. they don't see themselves as Self-Employed and Fail to Pay Self-Employment Tax.

A page on the IRS website is devoted to helping People who get Paid for their Activities in the Sharing Economy. The IRS also uses Social Media to increase Communication and Outreach.

A New Law changing the 1099-K reporting Rules should hike Compliance in this area. Presently, Third-Party Payment Networks must send 1099-K to Payees who have over 200 Transactions and were paid more than $20,000 during the year. Starting in 2023, these Payers must send 1099-Ks to Payees who are Paid over $600, the same Threshold for the filing of Form 1099-NEC on Payments to Nonemployees, regardless of the numnber of Transactions. More People than ever will get 1099-K Forms that they'll use when filling out Individual Income Tax Returns for 2022 an going forward.










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