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Payroll Taxes – Beware the Pitfalls of Avoidance


Payroll Taxes – Beware the Pitfalls of Avoidance

Payroll taxes are the taxes paid on the wages and salaries of employees. They are used to finance social insurance programs such as Social Security and Medicare. An employer is responsible for paying half of payroll taxes (7.65%) while the other half should be withheld from employees’ paychecks and deposited to the IRS at regular intervals. The IRS imposes an automatic penalty (the Trust Fund Recovery Penalty) on any individual who is responsible for withholding, accounting for, or depositing or paying payroll taxes, and willfully fails to do so.

Another pitfall of payroll tax avoidance is the mischaracterization of employees as independent contractors. The United States Department of Labor (DOL) has intensified its focus on the misclassification of employees as independent contractors in recent years. Their stance has shifted from impartial educator to supportive advocate for misclassified employees.

In 2015, the DOL issued Administrator’s Interpretation No. 2015-1. This document offered business owners practical guidance on the proper classification of an “employee” versus an “independent contractor.” It identified the following factors to consider:

  1. Is the work an integral part of the employer’s business?
  2. Does the worker’s managerial skill affect the worker’s opportunity for profit and loss?
  3. How does the worker’s relative investment compare to the employer’s investment?
  4. Does the work performed require special skill and initiative?
  5. Is the relationship between the worker and the employer permanent or indefinite?
  6. What is the nature and degree of the employer’s control?

These labor laws intersect with your tax obligations in many ways, so employers should consult legal counsel if they have any concern.  If you have questions relating to the topic of this article, please do not hesitate to contact Global Law PLLC at (703) 712-8000 or e-mail us at


Note: The information contained on this page is meant for general, information purposes only, and Global Law PLLC makes no claim as to comprehensiveness of the information. This information is not a substitute for individualized legal advice, especially not individualized tax advice, and you are encouraged to consult with a tax attorney and/or accountant to ensure compliance with federal, state, and local tax requirements.

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  • 19 Apr, 2017
  • Karina Torres
  • Payroll Tax Avoidance, Payroll Taxes,

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