The Effects of an Employment Tax Enforcement Regime on US Small Business and Proprietor Payment Compliance

This study attempted to identify ways to improve voluntary compliance and minimize taxpayer burden, but also tries to understand the behavior of taxpayers’ compliance given the compliance regimen. Most explicitly, it attempted to identify ways to improve payment compliance using regimens already utilized in other parts of the tax code. The research question was whether different tax regimes, such as safe harbor, can change the behavior of employment tax payment for small business or self-employed taxpayers. The idea was to determine if a safe harbor provision can reduce the proclivity of authorized individuals to implement a payroll tax dilemma strategy and whether or regimen can reduce payment noncompliance in time of economic distress. To answer the research question, an online experiment was employed. The experimental design was an impact study. The population of interest in this study was all authorized individuals from small and self-employed firms. The sample size totaled 205, and it was based on the a-priori sample size calculation. Analysis of variance (ANOVA) was chosen as the data analysis technique, but other nonparametric test and logistic regression models were used to further analyze the data. This study showed that for subjects who did not subscribed to safe harbor provision but experienced an increased probability of apprehension increased their payment compliance. Also, the availability of a safe harbor provision lead to a large numbers to a safe harbor provision subscription in order to avoid enforcement. This study was able to show that individuals were willing to improve their payment compliance rate when enforcement was increased. The General Deterrence Theory explains that increased deterrence will lead to higher compliance. The study showed a 10 percent improvement in payment compliance when safe harbor was implemented. The results from this study also suggest that provisions such as a safe harbor can be a method of reducing filing costs and audit costs and ultimately taxpayer burden. On the other hand, the results of this study were inconclusive in determining if such provisions can improve payment compliance. Nevertheless, the outcome of this study can improve timing and accuracy of employment taxes payments and it may improve the accuracy of employment tax payment