Watch out For These Payroll Tax Mistakes
If you run a small company or a large one… you have many responsibilities. One that can cause quite a bit of headaches is taking care of pay-roll tax obligations. It’s easy to make mistakes and the penalties can be large.
So review these tips to avoid those headaches…
Misclassification of Employees
Hiring independent contractors to avoid paying typical expenses associated with employees is a growing trend. However, there are specific tests to determine whether these “independent contractors” should actually be classified as employees instead. For example, if you control what they do, when they show up for work they are not independent. (You can learn more about employee classification by visiting the IRS site here: https://www.irs.gov/newsroom/understanding-employee-vs-contractor-designation)
If you regularly repay employees for job-related expenses such as traveling on the companies behalf, you need to have a solid system in place to track these expenses and prove they are legitimate business expenses. This way your workers will not pay tax on the reimbursements.
Insufficient Payroll Records
All companies with employees must maintain consistent reliable pay-roll records. This consists of time sheets and pay-roll tax calculations along with copies of W-2s and I-9s. It is important to save these records for at least 4 years.
Making Use Of Withholdings to Pay Other Operational Costs
Never make use of withholdings to cover other company expenses. Regardless of your company’s financial condition, you must ensure those funds are kept separate and untouchable. If you do, you’ll run afowl of the IRS and face significant penalties.
Skimping on Oversight
Yes you can outsource payroll to a 3rd party company. However, you are still ultimately responsible if they make a mistake. As the business owner, you must make sure all reporting is handled properly and is accurate.
For other insights on how we can help you protect yourself from the risks of running a business, be sure to reach out to one of our professionals. We are here to help!