Running a business is many people’s dream. After all, who doesn’t want to be their own boss, right? Unfortunately, although an enriching experience, any mistakes committed when running a business can lead to severe costs and other significant issues. Unsurprisingly enough, many of these costly issues result from payroll tax mistakes that many companies make, especially ones where business owners are dealing with finances by themselves.
Are you afraid of running into payroll tax mistakes like so many other businesses have? If so, the good news here is that many of these payroll tax issues can be avoided if you know how to. If you are interested in learning what you can do to avoid payroll tax errors, keep on reading:
1. Stay On Top of the Tax Rates
Tax rates are regularly changing, and what you were used to a few months ago may no longer be applicable at the given moment. For this reason, you will need to keep up with these tax rate changes to calculate the correct amount you need to pay. These changes can affect federal income tax, social security tax, local income tax, and more. Failure to account for these changes and apply them in your calculations means you end up paying the wrong amount, leading to interest and penalties that can prove incredibly costly.
2. Keep Up with Your Payrolls
What happens if you are late with your payroll? Your employees can get upset and lose their trust in you. To make things worse, this can also cause you to be non-compliant with state pay frequency requirements, leading to penalties. As such, set up a pay frequency and stick with it. This can either be weekly, bi-weekly, semimonthly, or monthly!
3. Classify Your Workers Properly
Worker classification is vital simply because they can end up in two categories: employees or independent contractors. They are entirely different in terms of taxes and benefits, and you’ll want to ensure you classify them correctly so that you cover the proper responsibilities to meet their expectations. For instance, if dealing with an employee, you will need to deduct the payroll taxes through their paycheck. With independent contractors, they’ll do this by themselves.
4. Carefully Calculate Overtime Wages
According to federal law, you need to pay around 1.5 times their regular pay when working overtime. Remember that this requirement may differ from one state to another, so understand your state’s overtime rules and regulations. Failure to stick to the right rates will only force you to pay your employees what they should have been paid for their OT and also cause you to pay for any penalties.
Apart from the tips we’ve shared already, there are many more you should keep in mind to stay away from payroll tax errors and mistakes. For example, always maintain proper payroll records at all times, filing the required reporting when needed, and more. Regardless, the tips above will help you avoid many of the mistakes other companies have committed that left their employees unhappy and their reputation tarnished. Avoid their situation and always be attentive when working with payroll! If you need to, reach out to an accountant to assist you with the task. Having an expert help you out is a sure-fire way to stay away from financial trouble and keep you on the road to success.
Axiom Tax Resolution Group are US tax professionals offering services to help businesses find permanent solutions to tax problems. Reach out to us today and enjoy our payroll tax relief solutions!