Experts warn payroll tax fraud can leave workers with lower Social Security benefits. Here’s how the scheme works, the warning signs and how to protect yourself.
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Here’s how the scheme works, the warning signs and how to protect yourself. Most workers assume that when payroll taxes are deducted from their paychecks, that money is being sent to the federal government to fund programs like Social Security and Medicare. A little-known crime called payroll tax fraud occurs when employers withhold payroll taxes from employees’ paychecks but fail to turn that money over to the government. Instead, they keep it.
The scheme can generate huge sums of money for dishonest business owners, sometimes reaching millions or even tens of millions of dollars. At first glance, many workers may think payroll tax fraud only hurts the government.
However, experts say employees can also pay a steep price. Payroll taxes help fund Social Security benefits, and a worker’s retirement payments are based largely on earnings reported throughout their career. If wages are not properly reported or payroll taxes are not paid as required, workers could find themselves receiving smaller Social Security benefits when they retire. That’s why IRS investigators urge workers to pay close attention to their earnings records and payroll documents.
According to IRS Criminal Investigation Special Agent Rodrick Benton, employees should regularly review their pay records and maintain copies of paychecks, pay stubs and tax documents. Those records can help workers identify discrepancies and protect themselves if questions arise later about an employer’s payroll practices. Experts also recommend creating an account with the Social Security Administration and periodically reviewing your earnings history to ensure your wages are being accurately reported.
Just two months ago, a business owner was sentenced to federal prison for withholding payroll taxes from employees and failing to pay them to the government. According to federal prosecutors, Harry Lamar Curtis III, the owner of a cybersecurity company, was sentenced after failing to pay approximately $1.6 million in payroll taxes. Federal authorities say cases like that serve as a reminder that workers should never assume payroll taxes are being handled properly behind the scenes.
The best protection is vigilance. Keeping pay stubs, W-2 forms and other payroll records could help workers spot problems early and avoid discovering years later that their retirement benefits have been affected. For employees, payroll tax fraud isn’t just a crime committed against the government. It can also be a crime that quietly steals from their financial future.
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