5 Things Businesses Must Know About Payroll Taxes
Filed under: Payroll
As a small business owner in Temecula, you fill many different roles in your business. From hiring and training employees to repairing the pesky printer; you do it all. If you’re also responsible for doing your own payroll taxes, there are five important things you need to know:
Staying compliant is important – and difficult. There are over 15,000 tax codes in the United States. On average, there is one change to the tax code each day. That translates into a lot of work for business owners to stay compliant. But without flawless compliance to payroll tax laws, you risk IRS audits and even fines.
In fact, 33 percent of small business owners get fined for doing payroll taxes incorrectly. Often this happens because they’re trying to do payroll on their own, without assistance from an expert in tax code. Mistakes can be costly: Last year alone, the IRS issued 7 million penalties to American businesses, raking in more than 4.5 billion dollars in penalties.
Incorrectly classifying employees is the biggest trigger of IRS audits. In particular, classifying employees as independent contractors will throw up a red flag. If you’re following IRS rules and the employee truly is an independent contractor, you don’t need to worry. However, the criteria regarding this classification are very particular, and you should probably seek the guidance of a professional in order to be sure your employee qualifies. Otherwise, you’re likely to attract the attention of the IRS, and this violation carries stiff penalties.
You can’t “borrow” from payroll taxes. One of the most common misconceptions which leads to penalties is that idea that business owners can “borrow” from payroll taxes in order to cover operating expenses. Federal, FICA, and state taxes belong to the government, and must be paid on time. If you need to “move some money around” in order to keep your cash flowing, leave payroll taxes out of the equation.
Bonus and overtime pay is not taxed at the regular rate. For example, bonuses are subject to a 25 percent federal income tax, and state taxes on bonuses vary. Overtime pay regulations vary from one state to the next, and you need to know whether the state bases overtime on daily or weekly hours. For example, in California overtime is based on an 8-hour work day. No matter how many hours an employee works during that week, overtime must be paid any time he works more than 8 hours in one day.
For more information, contact Mark Rowley of RandR Payroll. 951-296-0412 http://www.randrpayrollservices.com
