The Federal Insurance Contributions Act (“FICA”), I.R.C. §§ 3101-3128, requires employers to deduct a tax from the wages paid to employees, but it has an exception for wages paid to students. See I.R.C. § 3121(b)(10). For a number of years, the question whether medical residents qualified for this exception was disputed. The official position of the IRS was that medical residents did not qualify for the student exception, but it allowed both residents and hospitals to file protective refund claims. Then on March 2, 2010, the IRS issued an announcement that it would honor refund claims previously filed for periods prior to April 1, 2005, when a relevant regulation took effect.… Read More
Employers serve as tax collectors under the Internal Revenue Code: In addition to paying its own FICA and FUTA obligations, an employer must withhold FICA and income tax from its employees’ pay. See I.R.C. §§ 3102 (FICA “shall be collected by the employer of the taxpayer, by deducting the amount of the tax from the wages as and when paid”); 3402 (“every employer making payment of wages shall deduct and withhold upon such wages a tax determined in accordance with tables or computational procedures prescribed by the Secretary”).
For good measure, Congress included a mechanism to ensure compliance; if an employer fails to withhold and pay over the tax, responsible parties affiliated with the employer can be assessed with the trust fund recovery penalty under section 6672 of the Code, which makes these individuals liable if they willfully fail to assure that the taxes are paid.… Read More
Employers are required to withhold FICA and income tax from employees’ pay checks and make periodic deposits of the amounts withheld. If the taxes are not withheld and paid over to the IRS, the employer is subject to monetary penalties and individuals affiliated with the employer may face personal liability for the trust fund recovery penalty. See I.R.C. §§ 6656 (employer penalty); 6672 (trust fund recovery penalty).
The failure “to collect, account for, and pay over” these taxes is also a felony. I.R.C. § 7202. While payroll tax violations were rarely prosecuted historically, times have changed, and the Tax Division has made employment tax prosecutions a priority.… Read More