Avoiding Payroll Tax Penalties

If you are an employer, despite whether you have one employee or 500 employees, you are responsible for payroll taxes. Before we get into the nitty gritty, let’s first define exactly what payroll taxes are. Simply put, payroll taxes are the taxes that an employer is required by law to withhold from an employees’ paycheck to pay directly to government agencies. Missteps or withholding the money for payroll taxes can result in hefty penalties, and lead to an IRS audit or an IRS criminal tax investigation.

​

You might be wondering, what exactly do payroll taxes pay for? Wages are taxed by the federal government to mainly fund social security, Medicare, and other social insurance benefits. These tax funds will also go towards things like security and defense. Depending on the state you are in, you will also have to pay state income taxes to go towards a variety of areas, some including education and health care, as well as areas such as transportation, corrections, parks and recreation. Don’t be too overwhelmed with how to handle the complex aspect of payroll though, we can show you some ways to effectively managing your payroll taxes.

​

The first thing you need to figure out is who are your taxable workers? Misclassifying workers tends to be a common mistake that occurs. An employer does not have the ability to select the label for a worker; instead a label depends on whether an employer has sufficient control over the worker. In other words, an employer needs to identify what type each worker is; employee or independent contractor. This is important because payroll taxes are only required for true employees. A company’s only tax responsibility for an independent contractor is issuing a Form 1099-MISC for payments that exceed $600/year. To learn more on classifying workers, check out this document from the IRS: https://www.irs.gov/pub/irs-pdf/p15.pdf

​

Once you know what employees to without taxes for, it is imperative to hit your deadlines. The IRS does not joke around with payroll taxes, and they will penalize if you do not pay payroll taxes on time. If you happen to miss the deadline, take immediate action to get your payroll taxes paid. The fines will continue to increase the longer they are late, and the IRS can even levy your bank account and seize your property. If you truly find yourself in a bind where you simply cannot afford to pay the taxes and the incurring penalties, consider working towards a solution with the IRS and submit an Offer in Compromise. Here are the instructions on how to do that: https://www.irs.gov/payments/offer-in-compromise

​

Another great way to keep your company far away from those penalties is to keep track of everything and be organized! This starts with putting in place effective systems and processes for managing tasks and deadlines. It can entail implementing daily, weekly, monthly and quarterly task lists so payroll managers know exactly what needs to be done. The filing system should also be “universal” within the office, so the file system is easily navigable. Payroll managers and staff work with a vast amount of information like numbers, names, records, and reports daily. Because of the amount of information consumed on a daily basis, along with complying with IRS rules and regulations, an organized system is vital to avoid mistakes and fines from the IRS.

​

For many business owners, the daily operations of a company can be overwhelming enough. Consider hiring a 3rd party vendor like an accounting firm! While managing payroll taxes on your own is possible, it can get complex, especially when it comes to the all of the rules and tracking payments and withholding the right amount of money. Lucky for you, we can handle ALL of your payroll for you so you don’t have to worry about penalties, how much to withhold, or any changing tax laws. We take care of it all for you and make sure that you are in compliance with all tax codes. Not only can we handle your payroll taxes for you, but outsourcing to a 3rd party vendor can often help lower overall payroll costs, and deliver a more competent, timely, and accurate service.

​

For more on our payroll services, you can check out the Services section on our website to learn more about our Payroll Services and more! Feel free to contact us directly! To chat, simply fill out the contact form on the Contact Us page, give us a call at (906) 774-4051, or email us at solutions@f-ccpa.com. We would love to chat!