Q&A: Employer tax compliance

Q: I have heard the IRS is cracking down on employer withholding tax compliance. What are the specifics?

A: You may be referring to The Employment Tax Audit Initiative that the IRS launched in February 2010 in which 2,000 U.S. companies will be audited annually for the next 3 years. Businesses will be subject to comprehensive audits of their payroll tax practices.

The IRS' focus during the audits will be worker classification (employee vs. independent contractor), owner/officer compensation, fringe benefits, and reimbursed expenses.

Fringe benefits to employees should be minimal and if not, employees should be subject to income and payroll tax on the value of the benefits. Reimbursed expenses should be documented by proper accounting records and procedures following written company reimbursement policies.

Answer provided by Ronald J. Knueven, Clayton L. Scroggins Associates Inc., Cincinnati, Ohio. Send your practice management questions to medec@advanstar.com
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