All too often, businesses get in trouble with the IRS because they do not understand the intricacy of payroll tax laws. Moreover, it is common for businesses to manipulate their employees' pay to save money. For your review, we have listed a number of tips to help you stay in compliance.
Take the time to properly classify your workers
Just because someone agreed to be paid as an independent contractor doesn't mean it's legal to pay him or her as one. If the person performs the same services offered by your business, the person may be considered an employee. You must examine the relationship between the worker and the business. Click here to read IRS Tax Topic 762, "Independent Contractor v. Employee." Additionally, here is a link from the IRS Publication 15, Employer's Tax Guide.
Get Your Employer Identification Number (EIN)
You need an employer identification number (EIN). Once you have this number, you must provide it to the IRS. To get an EIN, contact the IRS at 1-800-829-4933.
Budget your staff's payroll wages AND taxes
You should budget for not only wages, but also federal and state payroll taxes. In addition, you are required to match the Social Security and Medicare taxes and pay federal, and possibly state, unemployment taxes.
Know the penalties for lack of payroll tax deposits
Falling behind on your business' payroll tax deposits can become very costly. Please note that you can be levied a 100% penalty for failure to turn over the withholdings to the government by the due dates. IRS Publication 15 clearly explains when payroll taxes are required to be deposited, as well as the penalties for failing to make timely deposits.
Consider giving your staff a fringe benefit(s) vs. a raise
Consider giving your staff a tax-free fringe benefit(s) such as a child care subsidy, smartphone, iPad, health, dental or vision insurance. Read the IRS Publication 15-B, "Employer's Tax Guide to Fringe Benefits", to see whether the benefit is subject to taxation.
Get educated about the Affordable Care Act
If your business has more than 50 "full-time equivalent employees," educate yourself on the ins-and-outs of this law. Click here to visit HealthCare.gov's employers page.
Executive summary
Tax laws are extremely complex and hard to keep track of. The good news is that you can rely on our expertise in processing payroll to help guide you through the process. We can process your payroll as well as prepare, track and pay your payroll taxes so you can avoid the potential for hundreds to thousands of dollars in payroll tax penalties.
For more information about payroll compliance, contact Cindy McSwain using her information below.
Senior Vice President
Outsourcing Services
Cindy McSwain leads AGH’s outsourcing services group. Her team provides payroll, accounting, funds disbursement, controller, and other financial outsourcing services to numerous clients throughout the U.S. Prior to joining the outsourcing group, Cindy served AGH’s audit clients for 10 years, working with a wide range of middle-market, closely held and family-owned organizations.
Her current clients cross many industry sectors, including manufacturing and distribution, restaurants, retailers, medical and not-for-profit. She has participated in numerous SEC filings and public registrations and has experience in mergers and acquisitions. Cindy is a certified public accountant and a member of both the American Institute of Certified Public Accountants and the Kansas Society of Certified Public Accountants.
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