The Internal Revenue Service (IRS) is the US government agency that’s responsible for collecting taxes and enforcing federal tax laws. 

The IRS operates as a bureau of the US Department of the Treasury, and the agency’s work funds the majority of the federal government’s operations, including public services, national defense, and infrastructure. 

During the fiscal year 2024, the IRS collected more than $5.1 trillion in tax revenue, underlining the invaluable role the bureau plays in supporting the government.

What Does the IRS Do?

The IRS has many areas of responsibility, and its primary functions have a direct impact on both employers and employees throughout the United States. These core responsibilities include: 

  • Collecting Revenue: The IRS collects revenue throughout the fiscal year via payroll deductions and quarterly tax payments from both employees and employers.
  • Enforcing Tax Laws: The agency is also responsible for enforcing the US Internal Revenue Code (IRC). It also has a Criminal Investigation (CI) division that investigates possible criminal violations such as money laundering, tax fraud, and various other financial crimes.
  • Processing Tax Filings: Additionally, the IRS processes annual tax returns, which are primarily filed electronically, to reconcile the amounts paid by taxpayers with the money they actually owe. If an overpayment has occurred, for instance, the agency will issue a refund.
  • Conducting Audits: The IRS will audit a percentage of the tax returns it receives each year to ensure compliance. These audits are generally conducted on a random basis, but if irregularities are flagged, it can prompt an investigation.
  • Assisting Taxpayers: The agency also offers various resources to assist taxpayers in managing their tax obligations. This includes customer assistance, providing online tools, and offering in-person assistance at local offices.

The Anatomy of the IRS

The Internal Revenue Service is divided into four key operating divisions that are designed to serve different types of taxpayers and their needs. These divisions are comprised of: 

  • Large Business and International (LB&I): This division of the IRS administers tax laws for businesses with assets over $10 million.
  • Small Business/Self-Employed (SB/SE): This focuses on tax laws for small businesses and self-employed taxpayers.
  • Tax Exempt and Government Entities (TE/GE): If a business qualifies for tax exemptions or is a government agency, it will be dealt with by this division of the IRS.
  • Taxpayer Services (TS): Serving individual wage earners, this area of the IRS manages tax laws for a far larger volume of individuals.

Employer Obligations for the IRS

There are many different obligations that employers must follow to be compliant with the IRS. This includes obtaining an Employer Identification Number (EIN) from the bureau, which is a nine-digit number that’s required for tax reporting purposes. 

When an employee is onboarded, employers must obtain completed W-4 forms either before or on their first day of work. This information helps to determine how much federal income tax to withhold from their wages. The eligibility of the new employee must also be verified and kept on file via Form I-9. 

Employers must also withhold federal income tax, Social Security tax, and Medicare tax from employee wages. This amounts to shared contributions of 6.2% and 1.45% of wages for Social Security and Medicare tax obligations, respectively.

FAQs

If either an employer or employee needs to get in touch with the IRS, there’s a list of mailing addresses available on the bureau’s website. 

Individuals can also contact the IRS by phone at (800) 829-1040, Monday through Friday, from 7 am to 7 pm local time. 

There’s also assistance in the form of the Interactive Tax Assistant on the IRS website.

The chances that an audit is conducted for individual tax returns are around 0.44%. However, if you’re a high net worth individual earning $10 million or more, the chances of experiencing an audit rise to 8.7%. 

Individuals may be randomly selected but can also trigger an audit due to irregularities in their reported returns.