The IRS has announced that it has developed a new initiative to remind employers of their payroll tax obligations and to prevent the pyramiding of missed deposits. The Early Interaction Initiative will make expanded use of federal tax deposit alerts (FTD Alerts) to help taxpayers maintain payroll tax compliance.
Comment. Many employers use payroll service providers to file employment tax returns and make deposits. Compliance has sometimes been a problem in that area as well. In response, the Tax Increase Prevention Act of 2014 instructs the IRS to create a certification program for payroll service providers.
There are two schedules for making deposits of payroll taxes: monthly and semi-weekly. The timing and frequency of an employer’s deposits for an employer that files Form 941 are determined on an annual basis based on its deposit history during a look-back period ending on June 30 of the preceding year. An employer is a monthly depositor for the entire calendar year if the aggregate amount of employment taxes reported for the look-back period is $50,000 or less. Employers that accumulate a tax liability of $100,000 or more on any day during a deposit period must deposit the tax by the next business day, whether the employer is a monthly or semiweekly schedule depositor.
The IRS routinely assigns FTD Alerts when records show a decline in an employer’s payroll tax deposits. Field collection staff will contact the taxpayer to determine if there was a missed deposit and what actions may be taken to maintain payroll tax compliance.
The IRS reported that it is working to issue FTD Alerts more quickly. When the IRS identifies a decline in payroll tax deposits, taxpayers will be contacted, in many cases, by letter. The letter will ask the taxpayer to contact the agency (by phone or letter) to explain any reason for the decrease in payroll tax deposits. Other FTD Alerts will be assigned to field collection staff with priority given to cases where the employer has preexisting delinquencies.
Field collection staff will work with taxpayers to return them to compliance as soon as possible. Cases will be closed, the IRS explained, if an employer has an explanation for the decline in payroll tax deposits, such as a reduction in workers.