Payroll Tax Crimes

Federal prosecutors take payroll tax crimes extremely seriously and regularly pursue them to send a deterrent message to business owners and executives.

What Are Payroll Tax Crimes?

Payroll tax crimes generally involve allegations that an employer willfully failed to collect, account for, and pay over employment taxes withheld from employee wages. The most common charges include:

  • Failure to Collect or Pay Over Tax (26 U.S.C. 7202): The most frequent payroll tax crime. This covers situations where an employer withholds income or FICA taxes from employees but does not remit them to the IRS. Each quarter of nonpayment can be charged as a separate felony, carrying up to five years in prison.

  • Willful Failure to File Returns or Pay Tax (26 U.S.C. 7203): A misdemeanor (and sometimes a felony if paired with other conduct) often used when returns are not filed or deposits are skipped.

  • Tax Evasion (26 U.S.C. 7201): Charged if the government claims there was an affirmative attempt to evade or defeat payroll obligations.

  • Aiding and Assisting False Returns (26 U.S.C. 7206(2)): Can apply if payroll companies, accountants, or executives allegedly helped file false employment tax returns.

Why These Cases Are Serious

Payroll tax cases are attractive to DOJ because they involve trust fund taxes—money withheld from employees’ paychecks that is supposed to be turned over to the government. Prosecutors regularly argue that failing to pay over those funds victimizes the employee.

These cases often involve:

  • Multiple Quarters and Years—Each quarter may be a separate count of indictment.

  • Large Alleged Tax Loss—Tax loss calculations aggregate across quarters and years, potentially reaching millions.

  • Other Charges: In larger cases, payroll tax crimes are charged alongside wire fraud, bank fraud, or money laundering.

  • Reputational Damage: Being accused of payroll tax crimes carries enormous stigma for business owners, especially from the perception of employees and potential employees.

For businesses or executives under scrutiny, an internal investigation by defense counsel can be critical. It may allow the defense to identify the facts quickly, anticipate the government’s strategy, and shape a tailored defense. For example, an internal review may reveal that missed deposits were the product of cash-flow crises, creditor pressure, or other business hardships—not fraud. That distinction matters because the government must prove that any failure to pay over taxes was willful. Showing that nonpayment stemmed from financial strain rather intent to defraud can potentially undermine the prosecution’s theory.

Payroll tax prosecutions can be devasting. They put not only your finances at risk but also your freedom and reputation. The government frequently seeks prison sentences in these cases—especially where the alleged tax loss is large or where nonpayment spans multiple quarters. In fact, the IRS and DOJ usually investigate several quarters at once, because repeated conduct makes it easier for them to argue willfulness. When the stakes are high, seek quality representation.