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What is the IRS (Internal Revenue Service)?

The IRS is the federal tax collection agency of the United States, responsible for tax collection and tax law enforcement.

IRS operates under four divisions: Large Business and International (LB&I), Small Business/Self-Employed (SB/SE), Wage and Investment (W&I), and Tax Exempt & Government Entities (TE/GE).

The form of a business (e.g., S Corporation, LLC, etc.) determines what taxes the company must pay and how they are paid. Types of business taxes overseen by the IRS include:

  • Income tax
  • Estimated taxes
  • Self-Employment tax
  • Employment taxes
  • Excise tax

For employment taxes, companies must:

  • Obtain an Employer ID Number (EIN)
  • Withhold federal income taxes from employees’ wages
  • Withhold part of social security and Medicare taxes from employees' wages, and pay a matching amount
  • Pay the Federal Unemployment (FUTA) tax
  • Deposit and report on these taxes with the IRS

Failure to withhold, deposit, or report on these taxes can result in penalties and interest. Many employers opt for an automated system or vendor to handle employer taxes.

In addition, the IRS enforces a portion of the Affordable Care Act (ACA). Employer functions related to ACA compliance include:

  • Benefits administration
  • Payroll, taxes, and fees
  • Employee communication
  • Data collection and reporting

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