State or Federal Record Retention Requirements

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Documents may be retained electronically or in paper format.
Documents may be retained electronically or in paper format. (Image: Hemera Technologies/AbleStock.com/Getty Images)

Record retention requirements are imposed by federal and state governments on businesses in order to aid in law enforcement investigations and civil litigation. Records subject to retention requirements include tax records, payroll, immigration compliance documentation, employment records and corporate securities documents. Failure to maintain the required documentation may lead to the imposition of civil or criminal penalties.

Tax Records Retention

The Internal Revenue Service requires individuals and employers to retain income records and expenditure receipts as well as all tax-filing documents in case the IRS needs to conduct an audit of the taxpayer. For a tax return, the filer should retain all forms and supporting documents for a period of five years from the date it is filed, including any extensions. If the taxpayer has more than a 25 percent deficiency in reporting income, then the records must be maintained for eight years. If the taxpayer engaged in criminal fraud in reporting taxable income, the records should be maintained indefinitely. Employers should retain payroll tax records for at least five years.

Employment Verification Records Retention

The Immigration Reform and Control Act requires employers to collect and maintain records proving an employee is lawfully permitted to work in the United States. Acceptable documentation includes a U.S. passport, Green Card, Social Security card or U.S. birth certificate. Employers must retain copies of the required documents while the employee is working and for one year after he ends employment. In the case of an employee who works less than three years with the employer, the records must be maintained for three years from the date of hire.

Employment Records Retention

Regulations issued under Title VII of the Civil Rights Act of 1964 and the Americans With Disabilities Act require employers to maintain all documents created or maintained regarding any employment decision for one year from the date of the action. If a complaint of discrimination is filed within that one-year period, then the employer must retain the documents until the litigation has ceased. This regulation applies to hirings, promotions, terminations, layoffs, transfers or requests for reasonable accommodation.

Corporate Securities Document Retention

Publicly traded companies are subject to the Sarbanes-Oxley Act of 2002, which provides employees a right to sue an employer for retaliation if the employee discloses an improper accounting practice to federal authorities or opposes such practices by the employer. As several statutes of limitations apply under this litigation, employers should retain all documents related to an employee for at least seven years after employment is terminated.

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