There are different ways through which people dodge paying employment taxes. Following are few of the most common ways:
This is a method through which business withholds taxes from employees, but do not pay them to the IRS. Such businesses avoid paying taxes to IRS by filing bankruptcy, in this way they are able to discharge the liability of paying taxes. They usually start a new business with a new name, and start a new scheme.
It is a legal business practice; businesses give a contract to an outside company, that company deals with all administrative, personal and payroll concerns of the business. These companies usually withhold taxes from employees, but use them for their personal use or in company expense. Such companies usually dissolve leaving millions in employment taxes unpaid.
Paying Cash to employees
Some companies avoid paying employment taxes by paying employees in cash, so that they don’t have to show any record of money paid. In this way tax revenue to the government is lost.
Filing False Payroll Tax Returns
Some businesses prepare false payroll tax returns. They understate amount of wages on which taxes are owed, or fail to file employment tax returns in both cases they easily evade taxes.
Evasion of Employment Taxes Carries a Price
Evading employment taxes can have serious consequences for employers and the employees. Employers may be subject to criminal and civil sanctions for willfully failing to pay employment taxes. Employees suffer because they may not qualify for social security, Medicare, or unemployment benefits when employers do not report or pay employment and unemployment taxes. Consequently, taxes withheld and paid by compliant employers are used to pay the refunds and social security benefits of employees whose employers did not pay the withheld taxes.
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