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Can employers go to prison for payroll tax theft
|Thanks for visiting Spodek Law Group. We’re a second-generation law firm managed by Todd Spodek, with over 40 years of combined experience handling federal criminal cases. We’ve represented clients in cases that captivated national attention – Anna Delvey’s Netflix series, the Ghislaine Maxwell juror misconduct case, stalking allegations involving Alec Baldwin. If you’re reading this, you’re probably facing a payroll tax investigation or you know the IRS is circling. You need to understand what prison time actually looks like for payroll tax theft, what the government has to prove, and what defenses exist.
Can employers go to prison for payroll tax theft? Yes – and they do, regularly. Over 60% of convicted payroll tax defendants receive prison sentences. The average federal sentence is 16 months, but sentences range from probation to eight years or more depending on the amount stolen and your cooperation level. The IRS Criminal Investigation division prosecuted payroll tax cases with a 97.3% conviction rate between 2022 and 2024. In 2025, enforcement is aggressive. This isn’t about late payments or cash flow problems – it’s about criminal charges that destroy businesses, reputations, and lives.
Payroll tax theft – the IRS calls it employment tax fraud – happens when employers withhold taxes from employee paychecks but never send that money to the government. Social Security, Medicare, federal income tax withholding. Employees see deductions on their pay stubs, they think they’re covered, but the employer pockets the money or uses it for business expenses. The government views this as stealing from employees and from the Treasury. These are trust fund taxes. You’re holding them in trust for the IRS. When you fail to remit them, that’s theft in the government’s eyes.
The federal statute is 26 U.S.C. § 7202 – willful failure to collect or pay over tax. Maximum penalty is five years in federal prison per count, plus fines up to $10,000, plus restitution for the full amount owed. Multiple quarters of non-payment means multiple counts. A three-year pattern of not remitting payroll taxes could result in twelve separate felony counts. Do the math – twelve counts times five years equals sixty years of potential exposure. Judges don’t impose consecutive maximums, but prosecutors use that exposure to force plea agreements.
To convict you under § 7202, federal prosecutors must prove three elements beyond a reasonable doubt. First, you had a duty to collect, account for, and pay over the tax. If you’re the business owner, CEO, CFO, or someone with signature authority over company bank accounts, you have that duty. Second, you failed to collect or pay over the tax. The government shows this through IRS records and your own 941 forms. Third – and this is critical – willfulness. The failure must be voluntary and intentional. You knew you had a legal duty to pay these taxes and you deliberately chose not to do it.
Willfulness doesn’t require evil motive or bad intent. You don’t have to hate the government or plan to defraud anyone. Financial pressure isn’t a defense. “I needed the money to make payroll” or “I had to pay vendors or the business would collapse” – judges hear these explanations constantly, they don’t care. If you knew about the obligation and made a conscious choice to pay other bills instead of the IRS, that’s willful. Using payroll tax money to keep your business afloat is still theft in federal court.
Real 2025 cases show what sentences actually look like. Luis E. Perez, who owned staffing companies in Orange County, California, pleaded guilty to evading nearly $30 million in payroll taxes. He was sentenced in May 2025 to 96 months – eight years in federal prison – and ordered to pay over $38 million in restitution. Matthew Brown, who operated a payroll services company, failed to remit over $20 million in client payroll taxes and received 50 months in prison. Det Tran, a Massachusetts businessman, paid $8 million in off-the-books cash wages to temp workers and was sentenced to one year and a day, plus $2.5 million in restitution.
Smaller amounts still result in prison time. A Texas CEO was sentenced to 36 months for embezzling employee health insurance premiums and payroll tax evasion in early 2025. A business owner who failed to remit approximately $460,000 in payroll taxes received two years in prison. These aren’t outliers – they’re typical outcomes when employers get convicted.
The IRS and Department of Justice made employment tax prosecutions a priority. The DOJ Tax Division actively pursues criminal investigations against those who willfully fail to comply with employment tax responsibilities. Why? Because the cases are easy to prove. The forensic evidence is straightforward – your 941 quarterly filings show what you withheld, IRS records show what you paid, the gap is the theft. There are multiple witnesses – your employees, your accountant, your bookkeeper. Jurors understand the crime immediately. “The boss took tax money out of paychecks and spent it on something else.” That’s simple, that’s theft, that’s guilty.
Prosecutors often find double books – one set showing actual wages paid, another set for tax purposes. Cash-under-the-table schemes. Employees paid partly by check, partly in cash, with only the check portion reported. This creates additional charges – tax evasion under 26 U.S.C. § 7201, false statements under § 7206, even wire fraud if you filed returns electronically. Each additional count increases your sentencing exposure.
What if you’re under investigation right now? The IRS doesn’t usually announce criminal investigations. You might receive a summons for records. An agent might show up at your business asking questions. Your accountant might get subpoenaed. If you’re facing a civil payroll tax assessment – the IRS sent you a bill for unpaid employment taxes – that’s different from criminal investigation, but it can turn criminal if they find willfulness.
Voluntary disclosure can help, but only before the IRS starts a criminal investigation. If you come forward, admit you didn’t remit payroll taxes, and propose a payment plan, Criminal Investigation might decline prosecution. Once they’ve opened a case, voluntary disclosure doesn’t prevent charges. Cooperation still matters for sentencing – defendants who plead guilty early and cooperate get reduced sentences under the federal sentencing guidelines. Acceptance of responsibility is worth two or three levels, which can mean years off your sentence.
Challenging the willfulness element is the primary defense strategy. Did you actually know about the obligation? Did you delegate payroll to someone else who failed to remit the taxes without your knowledge? Were you misled by an accountant or payroll service? These defenses work, but rarely. If you signed the 941 forms, if you had signature authority over bank accounts, if you made decisions about which bills to pay – prosecutors will argue you knew.
Some defendants try to argue they thought the business would recover and they’d pay the taxes later with penalties. That’s still willful. You knew you owed the money, you chose not to pay it on time, you used it for other purposes. Intent to pay later doesn’t eliminate the crime.
At Spodek Law Group – we’ve handled federal tax cases for over 40 years, we understand how the Tax Division builds these prosecutions. Todd Spodek is a second-generation criminal defense attorney who has represented clients in high-stakes federal cases that others called unwinnable. We’ve seen clients facing decades of exposure negotiate outcomes involving probation or short sentences through early intervention and strategic negotiation. We’ve also seen clients wait too long, refuse to cooperate, and receive maximum sentences.
If you’re an employer and you’ve been using payroll tax withholdings to fund business operations, that situation doesn’t improve on its own. The IRS will assess the taxes, add penalties and interest, and eventually refer the case for criminal prosecution. Every quarter you continue the pattern adds another count. The longer you wait, the worse your sentencing exposure becomes, the less sympathy judges have, the harder it is to argue this was a temporary mistake.
Prison for payroll tax theft isn’t theoretical. It’s the most common outcome for convicted defendants. The sentencing guidelines treat theft of government funds seriously – the base offense level depends on the amount involved, and enhancements apply for sophisticated schemes, role as an organizer, and obstruction. A business owner who stole $500,000 in payroll taxes over three years is looking at a guidelines range around 24-30 months even with no criminal history. Add obstruction or a leadership role, and you’re over 36 months. With a criminal history, you could hit statutory maximum sentences.
Restitution is mandatory. Every dollar you failed to remit, you’ll be ordered to repay. The IRS will file a civil assessment on top of the criminal restitution. You’ll lose your business, likely lose personal assets, face liens and levies. Federal probation after release means supervised financial monitoring – they’ll track every dollar you earn, every expense you incur. Violations of supervised release can send you back to prison.
Can employers go to prison for payroll tax theft? Yes. Will they go to prison? If convicted, probably. Federal sentencing guidelines, mandatory restitution, high conviction rates, and aggressive IRS enforcement mean prison is the expected outcome, not the exception. If you’re under investigation or you know you have unpaid payroll taxes, waiting makes everything worse. The criminal statute of limitations is six years for most charges, but the IRS can assess civil penalties going back much further. Every quarter of non-payment is a separate crime.