So, you've received notice that you're going to be audited. Don't panic. Most audits are routine and selected at random. Your notification gives you the date, time, and place of the audit. It also specifies the period of time the audit will cover and provides a list of the business records you must provide the auditor. Use this opportunity to contact the auditor to confirm the appointment and introduce yourself. The auditor will be able to explain the steps that will follow.
After the audit is completed, the auditor will review the results with you. If there are additional taxes due, and you are in agreement, you will be asked to pay any amounts due. If you disagree, the auditor can explain what to do next. On the bright side, many audits result in no additional taxes due or reveal an overpayment that can be refunded to you. Make your audit an opportunity to become familiar with the Ohio Department of Job and Family Services. If you have questions, ask them. The auditor might not have all the answers, but he or she can point you in the right direction.
Why does the Ohio Department of Job and Family Services (ODJFS) perform audits?
Ohio unemployment compensation law (Ohio Revised Code chapter 4141) gives ODJFS the right to inspect employers' records in order to ensure that employers comply with unemployment tax laws.
There are several reasons why ODJFS audits employers.
- ODJFS samples employers for compliance by size or type of firm and by random selection.
- A former employee may have filed an unemployment claim then found the wages reported to the state were different from their records. You may have not regarded the person as an employee.
- The wages you reported to the federal government on your Federal Unemployment Tax Act (FUTA) form 940 are different from what you reported to Ohio.
- The U.S. Department of Labor requires ODJFS to randomly audit a percentage of Ohio employers every year.
What will the auditor look for?
An auditor will confirm that all wages have been reported correctly and that all taxable wages have been computed correctly. The most common types of payroll not reported involve payments for casual and contract labor, commissions, remuneration to corporate officers and independent contractors.
What if I paid for services from people not on my payroll? Can I be taxed for these payments I don't regard as wages?
Often employers pay for what they believe are independent contractors; not subject to the law. Later, it is found that these people are employees and tax payment should have been made. You may also have liability over casual labor, commissions, payment or other remuneration to corporate officers. The auditor will make findings using clear legal and administrative guidelines. Any findings will be explained in an exit conference.
How far back will the audit cover?
A normal audit is for one calendar year, but an audit can cover up to four years. If there is an exception, the auditor will explain the situation to you.
What records will be needed?
Records reviewed include payroll records, W-2 Forms, 1099s, IRS forms, state tax forms and general disbursement records such as your check record journal, invoices and canceled checks.
How long is it likely to take?
It depends on the number of employees, the condition of your records, and any irregularities that are found. The auditor will be better able to answer this after a preliminary review of your records.
But what if I don't have any employees?
ODJFS may still want to conduct an audit to confirm this
Where will the audit take place?
At the employer's place of business, unless the employer has completed the Audit Authorization form. You may bring your records to the ODJFS auditor's office if you prefer.
Should my accountant be present?
That's up to you. Perhaps, if you feel the accountant has a better grasp of the records than you.
When can I expect to hear the results of the audit?
You will get the results when the audit is completed.
What if ODJFS finds I owe tax, but I can't pay?
Any tax and interest due must be paid. If you can't pay the entire amount immediately, the agency can usually arrange a payment schedule.
If I owe to ODJFS, will I also owe more to IRS and/or other Ohio tax agencies?
You need to contact the other agencies to determine if you owe them additional tax.
What if I don't agree with the auditor's findings?
You may file an appeal in writing. The Notice of Employer's Liability and Contribution Rate contains the final date by which you must file your appeal. The request must be in writing and state why you believe the notice is incorrect.
Does my hearing request stop interest from accruing?
No. You only do that by paying the amount ODJFS believes you owe. Your money will be refunded if you prevail at the hearing.