Tax Administration: Billions in Self-Employment Taxes Are Owed
GGD-99-18
Published: Feb 19, 1999. Publicly Released: Mar 23, 1999.
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Highlights
Pursuant to a congressional request, GAO provided information on: (1) the number and characteristics of self-employed taxpayers who receive social security credit for self-employment earnings when they are delinquent in paying the self-employment taxes on those earnings; (2) why self-employed taxpayers who have not paid their self-employment taxes are allowed to receive social security credit; and (3) any potential actions that could enhance the collection of self-employment taxes.
Recommendations
Recommendations for Executive Action
| Agency Affected | Recommendation | Status |
|---|---|---|
| Internal Revenue Service | To better inform taxpayers of the importance of filing tax returns within the statutory time limit, the Commissioner of Internal Revenue should revise IRS' self-employment publications, including those given under its Non-Filer Program, to ensure that self-employed taxpayers know about the need to file tax returns with self-employment earnings within 3 years, 3 months, and 15 days after the end of the calendar year in which the self-employment income was earned in order to get social security credit for those earnings. |
The IRS included this information in Publication 533, "Self-Employment Tax for 1998" and the 1999 version of Publication 583, "Starting a New Business and Keeping Records." It also included the recommended language in the 1999 version of Publication 334, "Tax Guide for Small Business," and in nonfiler notices.
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| Social Security Administration | To better inform potential social security recipients of the importance of filing tax returns within the statutory time limit, the Commissioner of Social Security should revise SSA's publications for self-employed individuals to inform them about the need to file tax returns with self-employment earnings within 3 years, 3 months, and 15 days after the end of the calendar year in which their self-employment income was earned in order to get social security credit for those earnings. |
In December 1999, SSA updated Publication 05-10022, "If You Are Self-Employed," to include the recommended language.
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| Internal Revenue Service | To reduce self-employed tax delinquencies, the Commissioner of Internal Revenue should undertake a pilot project to test the feasibility of sending notices to noncompliant self-employed taxpayers who in the current year had not made estimated payments and in the previous year had filed a Schedule Self-Employed and were assessed an estimated tax penalty. |
In June 2000, the IRS conducted a test similar to what GAO recommended, but for repeat nonfilers. The IRS found that sending notices did not significantly increase return filing and as such it did not perform a test for noncompliant self employed taxpayers.
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Topics
Delinquent taxesGovernment collectionsSelf-employedSocial security benefitsSocial security taxesStatistical dataTax administrationTax nonpaymentTaxpayersVoluntary compliance