33.
Re: Event Apr. 2: Payroll Apr 2, 2009 3:01 PM
My general advice to employers trying to navigate the various laws and regulations regarding payroll for their employees is not to wait. Don't put off payroll decisions, thinking you'll deal with them later. This is going to take money from your pocket and put it in IRS coffers. Even if your payroll is in a bit of a messy state today, it is still better to handle this mess now, before it grows larger. Getting on the right track is part of what employers should do to ensure they'll have a healthy, thriving business in the future. Payroll providers exist to provide this service to employers, because unlike us, you're in the business of doing what you do. You're not in business to do payroll. Partnering with the right company to provide this assistance will be money well-spent.
I'll also answer the sample questions posted in the event description, as these are common ones:
1) What is the most common mistake made by small business employers?
The most common mistake is putting off doing the administrative things required to get off on the right foot. Employers are so anxious to get started, and to pay employees, that they neglect their employer responsibilities, feeling they can do them later. Common things left not done are:
- Registration for an employer identification number
- Employee tax withholdings from paychecks
- Registration with EFTPS to make federal tax payments. Many employers may not know that the IRS no longer sends out coupon books. They're making it tougher to make manual payments, as they want everyone to be electronic!
- Tax payments and filings on the proper schedule
- Generally, understanding the obligations and requirements of being an employer
2) If I haven't gotten off to a good start in payroll (not doing proper withholdings or tax filings) how can I best move forward?
There are a few general things to do to start with:
- Firstly, get your resources in order. Publication 15, also known as Circular E, is an annual must have for employers who are doing payroll themselves, and it is available on the IRS website. It's not a fun read, but it's a necessary one. Don't be intimidated by the size of this resource: most of the good stuff employers need to know is condensed to 20 pages or so; the rest of the pages are tax tables, which are good for reference but not necessary to read straight through. Also, call the state in which you are doing business to understand your state responsibilities as an employer. Most states also have a website of resources.
- Secondly, don't be afraid to get organized. You may discover that you've paid taxes late or not at all, but this shouldn't stop you from catching up and doing filings properly. The IRS will allow you to make a payment plan, if need be, to get caught up on the necessary taxes.
- If you haven't withheld properly from employees, then you can do a couple of things: you can either have a conversation with your employees and make a plan to get them caught up with subsequent paychecks, or you can do what is called a "gross-up" to add more gross pay to cover taxes based on the net amounts you've paid. In the latter situation, the employer ends up actually covering these taxes, but this gets you on track moving forward.
3) I've made a mistake on my employee payroll for a prior period or a prior year. How can I recover?
As soon as you've made a mistake, it is important to act. In many cases, you will not be charged penalties, even if you owe more tax, if you correct your payroll tax filings as soon as you discover the error. The IRS is making it easier to file amendments with its new 941-X amendment form. It is much more straightforward to use than previous years' forms. In general, thinking about the mistake made, do the following audit:
- Were taxes deducted from the employee deducted improperly? If so, you must refund or assess the taxes due to the employee immediately, before correcting with the IRS and/or the state agency.
- What calendar quarters were impacted by the mistake?
- Once you've identified the dates involved, what forms were filed for those periods? Be sure to think about both state and federal forms, as well as any annual forms you filed. This is the set of forms that needs to be corrected. The IRS has specific procedures, forms, and instructions on their website. For individual state corrections, call the state directly. Many states will just say "Produce a correct form and fax it to us" and in this way, you can easily recover from your mistake.
- Do you owe more taxes or happily, are you owed a refund? If you owe more taxes and cannot pay them right away, work out a payment plan with the agencies to pay the extra tax.
