University of Iowa is in hot water. Due to a technical error, the educational institution failed to collect taxes for over 2,700 student employees. This has resulted in a backlog of over $834,000 in payroll taxes.
What happened? According to a recent report in The Gazette, a local newspaper near the university, the United States Payroll Services discovered that the students did not pay their taxes.
In general, students that take at least three credits do not need to pay Social Security or Medicare taxes. The students were not enrolled. As a result, the taxes were due.
What does this mean? The students are expected to make up these payments over the next three months. The Internal Revenue Service (IRS) states that the bill owed by the students totals $417,000. Anyone that has spent time as a college student can relate to the financial difficulty this will likely cause. College students are generally on tight budgets, and making up these payments will likely cause some financial strain.
However, it is important to point out that the students are not the only ones facing financial strain as a result of the error. The university matches Social Security and Medicare tax payments. As such, it is also on the hook for $417,000 in back taxes.
What can others learn from this payroll tax issue? The problem serves as reminder to businesses across the country, large and small, of the difficulties that can arise when payroll taxes are missed. The IRS is aggressive in collecting these missed taxes and an allegation that a business failed to make these payments should be taken seriously.
Aggressive tactics to regain payment can vary. In this instance, it appears the agency is demanding payment and the University is meeting its obligation. Not every business can pay this bill as the IRS demands. Any business that receives notice from the IRS is wise to seek legal counsel. An experienced attorney can help a business navigate payroll tax problems and help come up with a resolution that protects your business interests.
Robert J. Fedor and his team of attorneys specialize in helping clients find solutions to complicated tax issues including IRS Audits and appeals, tax litigation, offshore tax issues, tax liability, Chapter 11 business or personal bankruptcy. If you want to learn about the IRS and wage garnishments, download our eBook.