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When you run a business, there are a lot of responsibilities involved. One of the biggest is correctly handling payroll taxes. As an employer, you have to ensure that unemployment taxes are paid, state and federal income taxes are withheld, and that a host of other payroll obligations are met. Failure to do so can result in serious financial penalties.
Here are 6 of the most common payroll tax errors and how to avoid them.
Mistake No. 1: Not Understanding the Tax Requirements
All businesses, no matter how large or small, must withhold the correct type and amount of taxes from employee paychecks and remit them as required. Ensure that you or the party responsible for handling payroll taxes understands exactly how much to deduct and where to deposit those deductions.
Mistake No. 2: Failure to Keep Complete Payroll Tax Records
If you have employees or even use independent contractors, you must maintain complete payroll records. In addition to proper tax documentation, keep copies of all time sheets, W-2s and I-9s for at least four years and make them available to the IRS if required.
Mistake No. 3: Classifying Workers Incorrectly
This is oftentimes a more deliberate misstep than an accidental oversight. To minimize costs, some business owners try to classify actual employees as independent contractors. This may save on payroll taxes and benefits expenses, but if you control how, when, or where they work, the IRS will not allow you to treat them as independent contractors for payroll purposes.
Mistake No. 4: No Accountable Plan for Reimbursements
If you are often required to reimburse employees for business or work-related costs, having an accountable plan is a must. It will enable you to deduct these expenses from business taxes and avoid paying payroll tax on the reimbursements.
Mistake No. 5: Borrowing from Withheld Payroll Taxes
It is illegal to use funds collected from payroll taxes to pay business expenses such as rent and utilities, even if the company is in dire financial straits. If you do, the IRS will impose the Trust Fund Recovery Penalty, which is equal to the full amount of the unpaid trust fund tax, plus interest.
Mistake No. 6: Dispensing with Professional Advice
All business owners should retain an experienced accountant and / or attorney to assist them with any financial issues that may arise. These professionals will have the skills and training to ensure compliance with payroll tax requirements and deal with any problems that arise with the IRS.
If you are facing challenges with payroll tax compliance, and need knowledgeable support and guidance, contact the law office of Weisberg Kainen Mark today. We’ll get you back on track right away.
Weisberg Kainen Mark, PL
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