IRS Increases Number of Workplace Audits
The IRS estimates that employers underpay $14 billion in employer taxes each year. To recoup these costs, beginning in February, the IRS will target 6,000 businesses for workplace audits over the next three years. Of those, roughly 1,500 organizations will be tax exempt. Employers will be chosen randomly, without regard to size.
The auditors will focus on three areas:
- Worker classification. The IRS will focus on exempt status as well as an employer’s utilization of independent contractors. Classifying workers incorrectly results in a loss of revenue for the government, in the form of nonpayment of taxes for those incorrectly classified as independent contractors, as well as additional taxes on overtime wages not paid to employees who were misclassified as exempt.
- Benefits. The IRS will focus on whether employers properly included taxable benefits in wages. Since some benefits are taxable, an employer could find itself responsible, for example, for failure to pay taxes on benefits that should have been offered to a worker incorrectly classified as an independent contractor. The government will also scrutinize expense reimbursement practices.
- Executive compensation. The IRS will look at regular compensation, as well as nonqualified deferred compensation structures.
Employers are encouraged to review their workplace procedures and practices.