Payroll tax noncompliance is exploding, the IRS inspector general for taxes warned in a report made public Wednesday.
The inspector general said that as of the end of 2015, 1.4 million employers owed approximately $45.6 billion in unpaid employment taxes, interest and penalties. Three-quarters of that was owed by employers who hadn't paid payroll taxes in a year. That group of non-compliers has tripled in the past 17 years.
While that noncompliance has been soaring, however, IRS enforcement has been waning because of understaffing at the agency.
The number of employers penalized for underpaying payroll taxes is down nearly 40 percent in the past five years, and there are fewer than 100 criminal convictions a year related to evasion.
"Employment tax embezzlement is an especially egregious crime because the employer or payroll service provider violates their fiduciary responsibility to remit the taxes on behalf of their employees," said J. Russell George, the IRS inspector general for taxes.
Those taxes fund programs such as Medicare and Social Security.
In some cases, employers miss payroll tax payments out of negligence or because a third-party payroll manager fails to pay them. Payroll tax noncompliance received special attention in January with the revelation that President Trump's nominee for budget director, South Carolina Rep. Mick Mulvaney, had failed to pay employment taxes for his nanny. Mulvaney, who said that he wasn't aware that the taxes were owed, paid back taxes and was confirmed.
In other cases, however, businesses can skip employment tax payments as a way of freeing up cash. The inspector general recommended that the IRS use data analytics to try to root out such offenders and refer them for prosecution.