Sept. 13, 2019, 9:01 AM
Tax fraud in the construction industry has caught the attention of federal and state tax authorities across the nation. Recently, a Long Island construction business owner failed to pay nearly $1 million in payroll tax withholdings and now faces a maximum five year prison sentence.
Although most employers do not intentionally break the law, employment tax compliance is often a focus for tax authorities, and in addition to incarceration of responsible persons, construction companies can face thousands of dollars in penalties for failure to comply with tax laws. Construction businesses can reduce the risk of an audit by understanding employment tax rules and avoiding common pitfalls.
Employment Tax Basics
Construction companies, like most businesses, are generally required to withhold from their employees’ paychecks and pay to the IRS federal employment taxes. The term “employment taxes” generally is used by the IRS to refer to:
- Amounts withheld from employees’ paychecks for federal income taxes;
- Amounts withheld from employees’ paychecks for Federal Insurance Contribution Act (FICA) taxes, which are Social Security and Medicare taxes that are matched by amounts employers are required to contribute for Social Security and Medicare; and
- Federal Unemployment Tax Act (FUTA) taxes, which are taxes paid by employers into workers’ compensation and unemployment funds.
These taxes are commonly referred to as “trust fund” taxes because the money withheld is being held in trust by the employer for the benefit of government. Employers generally must electronically deposit theses taxes with the IRS either monthly or semiweekly and file a Form 941 or 944. The IRS’s employment tax rules can be found in IRS Publication 15. State employment tax laws vary by jurisdiction and construction companies should consider any local laws as well