Don't Become a Victim: How to Prevent Payroll Tax Fraud

Over the past year, much has circulated within the news about payroll fraud, including, most notably, the City of Trenton, which fell victim to fraud and embezzlement last year at the hands of its outsourced payroll provider. Read on for our tips on how to keep your organization safe, both from an external and internal perspective.

Who’s At Risk for Payroll Tax Fraud?

Unfortunately, payroll tax fraud isn’t limited to companies who outsource payroll to independent providers.

Businesses who choose to handle their payroll internally run a similar risk. A payroll employee can easily take a small portion of the taxes owed and transfer it to a personal account. Since, in this situation, some taxes are getting paid, it could take a while for the IRS to reconcile what has been paid and what is still owed, leaving time for the employee to resign and disappear with the stolen money.

Even if a company uses a large national payroll provider, they still run the risk of having their tax deposits submitted under an incorrect Federal Employer Identification Number (FEIN) or state Tax ID. While this doesn’t constitute fraud, it nonetheless creates a large headache in trying to sort everything out.

So how can employers ensure their payroll taxes are being filed, and being filed correctly?

Federal Payroll Taxes

Every employer with a FEIN can enroll to obtain a unique login and password to the IRS website. This allows employers to see payment dates and amounts posted by the IRS as the result of a payment being received – whether by an external provider or in-house employee.

Visit to enroll.

State Wage and Unemployment Taxes

New Jersey
Every organization with employees in New Jersey can call the state at 609-633-6905 to obtain a PIN number that will allow them to log into the New Jersey Division of Revenue’s website. This site allows employers to see when taxes have been filed and payments have been posted.

Businesses with employees in Pennsylvania can visit the state’s Department of Revenue website to create an account and view their State Income Tax payments. To view PA Unemployment Tax payments, employers can visit the PA Department of Labor and Industry website.

Employers with employees working in Delaware can visit the State’s website to check State Income Tax payments, and  here to view Unemployment Tax payments.

What to Do If You Suspect Fraud?

If you notice a missing payment for any tax jurisdiction in which you’re filing payroll taxes, take immediate action.

You should demand from whoever is handling your payroll a complete accounting of the deposits made to the federal, state and local tax authorities where you have employees. If that demand isn’t met within 10 business days, you should then call in the accounting and legal professionals.

Diligence and persistence is key in ensuring that your business doesn’t become the latest victim of payroll tax fraud.


Tags: Payroll, Tax