IRS is coming for cheaters
Q: I understand the IRS is stepping up its efforts to crack down on tax fraud. What are they doing?
A: The IRS is using a two-pronged approach of enforcement and outreach. On the enforcement side, employment tax fraud is a major focus area. Both the IRS and the Justice Department are striking hard at schemes used by small businesses and their owners to avoid payment of Social Security and Medicare taxes on wages.
Among the abuses: 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 feds. Businesses paying their employees in cash for the purpose of lowering their employment tax obligations. Also, false tax filings.
Serial offenders with unpaid payroll taxes over $100,000 are feeling heat. Prior to the coronavirus pandemic, 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 start up again as COVID19 eases.
Q: I’m a so-called gig worker but am uncertain about my tax obligations.
How can the IRS help me?
A: The 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 agency’s website — www.irs.gov/ businesses/ gig-economy-tax-center — 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 the 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 number of transactions. More people than ever will get 1099-K forms that they’ll use when filling out individual income tax returns for 2022 and later.
Q: As a self-employed taxpayer, I’m concerned about how to repay deferred payroll taxes. How do I do so?
A: The CARES Act enacted last year allowed employers to defer payment of their 6.2% share of Social Security tax, otherwise required to be made from March 27, 2020, through Dec. 31, 2020. And self-employed individuals could defer payment of a portion of their Self-Employed Contributions Act tax, or SECA tax, owed for the same period. Half of the deferred amount is due Dec. 31, 2021; the other 50% on Dec. 31, 2022.
You can make payments through the Electronic Federal Tax Payment System, or by check or credit card. Don’t send these payments in with other tax remittances.