Do you have one employee or more? If the answer is yes, then you have a responsibility to handle payroll taxes. Many of our business clients trust us to manage the tedious details of:
- withholding federal and state income taxes
- calculating FICA taxes from employee wages
- paying employer FICA taxes
- paying federal & state-mandated unemployment tax
If you plan to handle payroll taxes yourself, or trust tax software, here are 3 common pitfalls that could cost you hefty fines from the IRS.
Some employers have attempted to hide under the umbrella of an independent contractor agreement to justify using a 1099. Sure the immediate tax benefit is alluring; however, the penalty can be devastating. The IRS is meticulously auditing worker miss-classification, and you do not want to be red flagged for this offense. Penalties can include 100% of all FICA taxes, 20% of all ages paid, and criminal offenses costing up to $1000 per worker miss-classification and 1 year in prison.
No Payroll Records
As an employer, the IRS requires that you maintain payroll records for inspection. Some of the items that need to be available upon request are:
- Copies of W-2
- Employee general info
- Time sheets
- Rate of pay (typically included in offer letter of employment)
- Payment records (straight-time, overtime, vacation, & sick pay)
- W-4 and income withholding orders if applicable
Usually, these files should include at least the last four years of activity. Failure to keep accurate records could result in an audit fiasco.
Failure To Monitor Hired Payroll Company
Some businesses fall into the trap of thinking that once they entrust their payroll to a third party that they are not responsible for any of that companies errors. The sad reality is if that company does not execute their duties well, your business is still accountable to the IRS. One problem that has occurred is a failure for payroll companies to forward tax account funds to the federal government.
Pacific Tax & Financial Group take extra steps to maintain, verify, and communicate all payroll tax related issues to each of our clients. If you would like to see how we can be of assistance to your company, feel free to give us a call.