Tax Notice
A tax notice is a letter from the Internal Revenue Service (IRS) that alerts a taxpayer about an issue with their account or tax return.
A tax notice, or tax assessment, is a document regarding your company’s account status, new filing frequency, or rate assignments. These are typically either informational in nature or require action you can easily resolve, and are received via standard mail from the IRS or another tax agency.
What is a tax notice, and why did I receive one?
Taxing authorities commonly send letters to taxpayers notifying them of changes to their account, upcoming deadlines, new tax rates, and any discrepancies such as overages, underpayments, or missing filings. Tax notices generally fall into two categories:
- Informational (e.g., new tax rates, updates to your account, upcoming deadlines)
- Amount due
What is an informational tax notice?
Most unemployment taxing authorities will send you a notice at the start of the new calendar year letting you know what your tax rate will be for the coming year. Sometimes the rate may go up or down depending on the agency’s determination of your experience rating.
What is an amount due tax notice?
Tax agencies can assess an amount due for both tax due and penalty/interest fees. The reasons vary but generally fall into the following categories:
- Missing payment: If an agency has a missing payment in their system, many will automatically generate a tax notice without reviewing the account. The payment may have been sent but not posted due to a delay or TIN error (in which case proof of payment usually resolves the notice), or a business may have switched payroll providers without properly authorizing payment for part of the tax period.
- Late payment: If an agency assesses a penalty for a payment not sent on or before the due date, there may be no tax due, but they will issue an amount due notice for the penalty and possibly interest assessed.
- Tax assessment: If an agency, usually an unemployment taxing authority, does not receive a filing for a given tax period, they will issue an estimate of the wages and associated tax due. These notices are not a reflection of the actual amount due, so the filing will need to be completed to determine how much, if any, tax is owed.
Tax adjustments and errors
When a previously filed amount is corrected due to changes in wage or tax information, the additional amount due should be paid along with the corrected filing. Possible causes of an amount due notice resulting from a correction include:
- The corrected filing was processed by the agency at a different time than the additional amount due.
- The agency has assessed a penalty for the increase in tax liability.
Possible filing errors resulting in an amount due include:
- If a business has switched payroll providers and both the previous and new providers were authorized to file for the same tax period, it can result in an overstatement of taxable wages. In this case, the previous provider must work with the agency to back out their erroneous filing.
- An incorrect tax identification number was used when filing or paying taxes.
- Tax returns or corresponding payments were not properly posted.
What is the history of tax notices?
Payroll taxes are not a new concept. The practice of tax notices can be traced back thousands of years. However, official documentation of contemporary examples in the U.S. dates to the 1700s, directly tied to Britain’s imposed tea, sugar, and stamp taxes. The practice was given a more formal approach in 1861 with the implementation of the Revenue Act of 1861, intended to assist with funding the Civil War. The Bureau of Internal Revenue, now known as the Internal Revenue Service (IRS), was created the following year in 1862.
Summary
A tax notice is a letter a company receives from the IRS or another governmental tax agency requiring action. It may also provide pertinent information regarding relevant tax requirements.
