Tons of small business owners get letters from the IRS.
A majority of letters are payroll-related, and many aren't inherently a sign you’re doing something wrong. They can still feel pretty intimidating to respond to, though.
If you’ve been doing your own payroll, you need to respond. But if you’ve been working with a full-service payroll provider, they can handle it for you since they can vouch for your payroll history.
CSI Accounting & Payroll provides full-service payroll and has worked with small businesses for 60 years. We’ve seen plenty of IRS letters and have responded on behalf of our clients with records that show we’ve run their payroll accurately.
In this article, we’ll talk about:
At CSI Accounting & Payroll, we say that about 80 percent of government letters are regarding payroll.
Why are there more payroll letters than accounting letters? Because payroll has strict compliance guidelines and way more tax returns each year! If anything is missing or uncertain, it triggers an automated letter.
Typically, when you get a payroll-related IRS letter, it says one of the following statements:
You may also receive a letter about a payroll tax audit, which is rare.
No payroll provider can truly respond to a government letter if that letter isn’t regarding their work. They don’t have the records to defend any payroll they didn’t process, and doing so could put you at higher risk.
One exception: If you switched providers partway through the year, your new provider can typically respond to letters about earlier payrolls from that same year.
If you work with CSI Accounting & Payroll and receive a government letter regarding work we did for you (or work a former provider did that year), then we can use these records to respond and vouch for you:
At CSI, we stand behind our work. We can confirm your numbers are accurate because we calculated and filed them.
Another exception: If you’re not confident in your payroll history and worry that you may owe back payroll taxes, CSI can help you. If it’s the current year, we can rebuild your payroll for an additional fee if we get all of the necessary reports. If it’s a previous year, we can still help by reconstructing your payroll for that period. That way, we could vouch for its accuracy.
You get that government payroll letter. Now what? It depends on your situation.
See the section above about what CSI does to help. Don’t try to do anything yourself (including making any payments) until you’ve talked to your payroll provider.
Notify your payroll provider of your letter, and they can respond on your behalf, confirming the accuracy of your payroll and payroll taxes.
If they notice they actually made an error that triggered the automated letter, then they have the power to fix it. Quality payroll providers should guarantee accuracy in their work and fix their errors at no charge to you.
Who can help you? It depends on who completed the work that the letter is referencing. This provider will respond to the letter and vouch for their work. (See the section above.)
If you’re not sure who to talk to, start by asking your new provider if they did the work. If they did, then they can handle it for you.
If they didn’t do it, trying to vouch for work they didn’t do could put you at even more risk. It’s best to talk to your prior provider and have them resolve the issue.
Don’t have a payroll specialist who does your payroll for you? Then you need to respond to the letter yourself.
Don’t panic. Do your due diligence to make sure the letter is legitimate. Then, you’ll need to make note of the response deadline. Responding too late reflects badly on you.
Finally, start fulfilling the request. These letters typically ask you to verify that you filed a tax return or made a payment, or you’ll need to submit payroll records to verify any mismatched numbers.
If you go through this even once, you probably won’t want to do it ever again. Compliance doesn’t need to be on your shoulders. Consider outsourcing your payroll.
Now that you know why most IRS letters are about payroll, why payroll providers can only help with payroll they’ve processed, and what to do when you get a payroll letter, are you ready to check out payroll services?
If so, please consider CSI Accounting & Payroll! To see if we can be a good fit for your business, click the button below for a free consultation:
Not ready to talk? That’s okay! First, learn more about what your payroll investment may look like by trying our Pricing Calculator.