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As a business owner, managing payroll is tricky and time-consuming. From ensuring accurate calculations to staying compliant with tax laws, many potential pitfalls can arise when handling payroll in-house. Edgewater CPA Group helps businesses of all sizes handle their payroll. So, here are three of the most common payroll tax issues all business owners should know to avoid hefty tax penalties.
1. Misclassifying Employees
One of the most common payroll tax issues businesses face is misclassifying employees as independent contractors. This mistake can result in hefty fines and penalties from the IRS. To avoid this issue, it’s essential to understand the difference between an employee and an independent contractor. Employees typically work set hours, are supervised by the employer, and use company equipment. On the other hand, independent contractors have more control over their work schedule and use their own tools. If you’re unsure how to classify a worker, seeking guidance from a tax professional is best.
2. Failure to Withhold Payroll Taxes
Another common payroll tax issue is failing to withhold the correct amount of taxes from employee paychecks. This can lead to underpayment of taxes and potential penalties from the IRS. To avoid this issue, make sure you use the correct withholding tables provided by the IRS and double-check your calculations before processing payroll. Additionally, it’s important to stay up-to-date on changes in tax laws that may affect withholding rates.
3. Late or Inaccurate Filing of Payroll Taxes
Filing payroll taxes late or inaccurately can result in costly penalties for your business. It’s crucial to adhere to deadlines for filing quarterly and annual payroll tax returns and ensure that all information submitted is accurate. Consider setting up reminders or using payroll software that automates tax filings to help you stay organized and compliant with tax laws.
Make Your Payroll Our Responsibility
Navigating the complexities of payroll taxes can be challenging for business owners, especially as their companies grow. By understanding common payroll tax issues, Edgewater CPA Group can help you avoid IRS penalties and fines. We’ll even take care of your bookkeeping and tax resolutions, should you need them. Request your consultation with our Carmel, IN, team today at (317) 386-7021.