There is no doubt that the laws surrounding payroll and payroll tax submission are difficult to master, even for the tax accounting specialist. Consider the following statistics:
- The tax code (the basic law written by Congress) is 2,840 pages.
- The IRS regulations add an additional 46,000 pages.
- The combined number of forms for businesses and individuals is now over 480
Internal Revenue Code (IRC) 6656 reviews penalties for late payments of payroll deposits. A deposit only ONE day late will result in a penalty equal to 2% of the delinquent amounts. It jumps to 5% for payments made 6 days late, and doubles to 10% for payments made 16 or more days late. A recent report states that over 1 MILLION tax penalty statements are sent out quarterly.
Three Common Payroll Tax Mistakes
Simple attention to the details can often reduce the risk of missing a tax payment, or making an incorrect deposit. Below are three common mistakes that can typically be avoided easily:
1. Submitting Deposits Late
Once you have withheld taxes from the employee, it is important to know when and how these taxes, along with the employer contributions, must be paid. There are many regulations at the Federal and State levels that dictate when and how payments are to be remitted. If payments are late, penalties and interest can be assessed. Contact your accountant, bookkeep or payroll vendor to find out your payment obligations.
2. Late or Incorrect Payroll Tax Return Filings
There are numerous Federal and State returns that must be filed for payroll taxes, including withholding, unemployment, local and school district taxes. All have different reporting requirements (paper, e-file, mag media, etc.) and due dates. If proper procedures are not followed, penalties and interest can be assessed.
3. State Unemployment Insurance Rates not Updated
Most States update employer SUI rates annually. It is important to update the payroll software with the new rates, so taxes are properly paid. Underpayment of taxes can result in penalties and interest. Once again, contact your CPA for this information.
Avoid the Obligations Altogether – Outsource it.
Most small employers recognize they are unable to stay abreast of all their payroll tax obligations. Many outsource payroll to a payroll vendor, such as ADP or Paychex. However, many more employers are now turning to Professional Employer Organizations (PEOs). A PEO “co-employs” the client’s worksite employees and assumes the payroll and tax obligations of the client. The payroll is reported under the PEO’s Federal Tax ID Number, which in turn provides a layer of compliance to the business. IRS audits, payments and inquiries are directed to the PEO, which has teams of payroll and tax specialists on staff.
While the concept may sound foreign at first, thousands of employers have found that a PEO is precisely the cure to the payroll tax headaches they have been looking for. Learn more about PEO Payroll Tax services here.
