An owner and operator of three Missouri billing and claims processing companies has pled guilty to not paying over nearly $2 million in payroll and employment taxes over a four-year period. By pleading guilty, the business owner admitted that she willfully failed to deposit the Federal Insurance Contributions Act and Medicare (FICA) taxes and income taxes that were withheld from her employees’ wages.
On 18 different occasions from the first quarter of 2016 through the fourth quarter of 2019, she withheld payroll taxes from her employees’ paychecks. However, instead of forwarding those taxes to the government, she kept them for her business. The withheld taxes totaled over $900,000. Additionally, she did not pay the government the employer’s portion of the FICA taxes, federal unemployment tax, employment tax, or state withholdings, which totaled over $1 million.
Under federal statutes, the business owner is subject to a sentence of up to five years in federal prison without parole. The sentencing of the defendant will be determined by the court based on the advisory sentencing guidelines and other statutory factors. A sentencing hearing will be scheduled after the completion of a presentence investigation by the United States Probation Office.
Issue:
Payroll taxes must be deducted from each employee’s pay and submitted to the federal government according to the required schedule. Additionally, the employers’ portions of payroll tax contributions are required to be submitted routinely. Many states also have state taxes that are required to be withheld from employees’ paychecks and submitted to the state of residency. To minimize fraud in payroll, it is recommended that payroll steps be broken up between at least two individuals so that no one person is responsible for deductions, payroll processing, disbursement, and distribution of payroll. Violations of payroll management can be considered fraud and can result in fines and imprisonment.
Discussion Points:
- Review your policies and procedures on payroll management, including collecting employment taxes and submitting them to the IRS. Update your policies as needed.
- Train appropriate staff on your procedures for processing payroll, collecting employment taxes, and submitting the taxes to the IRS. Document that these trainings occurred, and file the signed document in each employee’s education file.
- Periodically audit the payroll process to ensure that employment taxes have been collected appropriately and that these taxes have been reported to the IRS, including employer contributions.
