For businesses, each tax presents, in turn, its own set of rules and regulations with its own particular exceptions and unique regulatory requirements. For the small business owner just starting up, these employment tax rules make compliance with the taxes both complex and confusing. Accomplishing the different goals of the various taxes and the policy trade-offs made in their design requires different regulatory schemes. The number and type of state and local tax assessments also vary. 3. Under the federal tax law, however, she will not be liable for FUTA taxes. Compliance with such regulations requires the employer to pay meticulous attention to detailed legal provisions. Since 1988, various federal and state groups have been trying to simplify aspects of the employment taxes. Even the smallest change to the current very complicated regulatory scheme can involve political and economic trade-offs between types of taxes and between federal and state jurisdictions. Notwithstanding the enormity of the challenge, however, we believe that efforts to simplify the tax code are essential to reducing compliance burden, thereby making voluntary tax compliance easier for all types of businesses, large and small.
Why GAO Did This Study

GAO discussed the impact of various employment tax laws and regulations on small businesses hiring their first employees and all employees thereafter.

What GAO Found

GAO noted that: (1) employment tax compliance can be particularly burdensome to employers because of multiple federal, state, and local taxes; (2) each tax generally requires it own unique set of rules, regulations, and exceptions, which makes compliance difficult for employers; (3) the complexities discussed reflect the various trade-offs that have been made to address assorted tax policy issues; (4) these trade-offs include considerations as to the type of tax imposed, the types of compensation to be socially encouraged, and the fiscal requirements of individual governmental units and, consequently, they will not be easy to simplify; (5) respondents to an earlier GAO survey described characteristics of especially troublesome tax provisions, such as ambiguity, frequent changes, expiration clauses, and layers of federal and state regulation; and (6) efforts to simplify the tax code are essential to reducing compliance burden, thus making voluntary tax compliance easier for all types of businesses, large and small.