'Egregious' non-payment of US payroll tax leaps, according to IRS watchdogs

But even as the number of US employers failing to pay their dues rises, enforcement activity undertaken by the IRS is falling, according the new report.

The number of US employers failing to pay their payroll taxes is soaring, while enforcement by the Internal Revenue Service (IRS) is plummeting due to understaffing, the IRS watchdog has warned.

J. Russell George, the Treasury Inspector General for Tax Administration, revealed in a report that, as of the end of 2015, a huge 1.4 million employers owed approximately $45.6 billion in unpaid employment taxes, interest and penalties. Three quarters of this amount was owed by employers that had failed to pay any taxes at all within the last year, a group that has tripled in size over the last 17 years.

But the number of employers that have been penalised for under- or non-payment has fallen nearly 40% over the last five years, with fewer than 100 criminal convictions per year related to tax evasion.

George said: “Employment tax embezzlement is an especially egregious crime because the employer or payroll service provider violates their fiduciary responsibility to remit the taxes on behalf of their employees.”

These taxes fund schemes such as Medicare, a federal health insurance programme for people over 65 years old and with disabilities, and Social Security benefits.

Some employers miss payroll tax payments out of negligence or because a third party payroll manager fails to pay them. Others do so as a means to free up cash. As a result, the inspector general recommended that the IRS use data analytics tools to try and identify such offenders and refer them for prosecution. Employment tax embezzlement is a felony punishable by up to five years in prison.