In the United States, all businesses are required to pay employment taxes. This means they withhold money from employees' paychecks and send it to the federal government. Employment taxes also include Social Security and Medicare taxes. 

Businesses may use a variety of ways to avoid paying employment taxes. These are a few of the more common ways that employers attempt to avoid their tax responsibility. 

Under the Table or Cash Payments 

One of the oldest and most common ways to avoid paying employment taxes is by paying employees under the table or with cash. This potentially eliminates any paper trail and allows both the business and the worker to avoid reporting the payments to the IRS. 

This method remains popular because of its simplicity. Without a paper trail or other evidence of payments, it can be challenging to prove a business is avoiding paying employment taxes. 

Employee Classification 

Companies may incorrectly label employees as independent contractors. This changes the type of tax form a worker receives and relieves the company of its responsibility to withhold employment taxes. 

The IRS doesn't require businesses to withhold employment taxes for legitimate independent contractors. The problem arises when an employer attempts to use the tax laws about independent contractors as a loophole for workers who are actually employees. 

Incorrect Payroll Tax Returns 

A business may attempt to avoid paying employment taxes by filing intentionally inaccurate payroll tax returns. They may also fail to file any returns. 

Pyramiding 

Pyramiding is a legal term for a business that withholds taxes from employees' paychecks but doesn't send those taxes to the IRS. Businesses that engage in pyramiding are guilty of theft. 

Businesses often file for bankruptcy to avoid responsibility for engaging in this practice. They may then reorganize under a different name and begin the scheme all over again. 

If you need help, call Senior Partner, Tax Controversy Attorney, and former IRS attorney Brandon A. Keim at (602) 200-7399 or contact him online to discuss your options.