The IRS recently 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.” This effort is cleverly called the Early Interaction Initiative (Ell). In other words, the IRS doesn’t think tardiness is cool.
Need a refresher on payroll tax? As an employer, you pay your employees. It’s not just their wage earnings you have to take into account, however. Payroll taxes must also be withheld from an employee’s paycheck. These generally include the following:
- Federal income tax
- Social security tax
- Medicare tax
- State income tax
- Various tax withholding (think city, county, school district)
According to the IRS, nearly 2/3 of federal taxes are collected through the payroll tax system. So the IRS would really appreciate you not being late for class. Before this new initiative, the IRS had a hard time monitoring late payments (we’re talking weeks or even months). However, under Ell, they’ll be able to catch your tardiness right away and hopefully keep you from repeating the pattern.
Why is this such a big deal? Sometimes employers have cash flow problems. An employee’s tax withholding dollars may seem like a great short-term loan to solve the issue. By issuing Ell, the IRS is sending a very clear message that this is not the way to earn your spot at the cool kids table.
In fact, they’re making it super easy for you to get caught. Under Ell, the IRS will now do one or more of the following:
- Monitor employer withholding deposit patterns to identify those employers whose payments decline or are late.
- Send a letter to any identified employer reminding them of their responsibility to make timely and complete payroll filings and deposits.
- Make automated phone calls providing information related to payroll withholding and payment requirements and offering assistance.
- When deemed appropriate, dispatch an IRS revenue officer to the employer’s place of business.
The moral of the story: payroll taxes are an important (and necessary) part of doing business, not something to skim over.