What Are Payroll Tax Mistakes and How to Prevent Doing Them? | Axiom Tax Resolution Group

Payroll management is a cost-saving option for small business owners. Although processing payroll might seem like a straightforward process, there are a lot of potential risks. Employee payroll procedures can be challenging and time-consuming. 

As business owners handle shifting payroll laws and tax regulations, staff turnover, and shifting consumer demands in addition to the many other duties of running a business, there is a risk of making payroll errors and having payroll discrepancies that can result in violations and fines that may be detrimental to a small business.

Read on to learn about common payroll mistakes, how to prevent them, and where to find tax relief services in Birmingham, AL.  

Common Payroll Mistakes 

Whether they are the owner or a dedicated employee, those who handle payroll on their own run some risks.

Pay your employees using tax resolution in Birmingham, AL. To save time and money, outsource your payroll processing and tax preparation.

Here are possible payroll and payroll tax mistakes that need to be avoided:

Filing After The Deadline

For payroll tax deposits, the IRS establishes a deadline. For late filing, there may be a 15% failure-to-deposit penalty. A late payroll tax return also carries a penalty. 

You may be subject to a 0.5 percent penalty based on your outstanding tax balance for each partial or full month that a return is not filed.

Inaccurate Employee Information

Using employee information that is out-of-date or incorrect can cause problems with the IRS when processing payroll. 

Aside from their full names, start and end dates of employment, tax identification numbers, dates of birth, current addresses, and payroll information like hourly rates, gross wages, and lengths of employment, double-check your data on your employees accurately.

Errors on Tax Forms

You could remit too much or too little in payroll taxes due to mistakes on tax forms. Errors could also be present in the W-2 and year-end tax return reconciliation.

Before filing your return, double-check your calculations, confirm totals, ensure that amounts are reported on the relevant lines, confirm that each line item corresponds to your financial records and payroll reports, and remember to sign your return.

Submitting Erroneous Amounts

The IRS may impose a fine if you submit payroll tax in error. However, when it comes to payroll, the agency can ignore first-time errors or inaccuracies from reasonable circumstances rather than willful neglect. 

The day your payroll taxes are due is when the penalties start accumulating, ranging from 2 to 10 percent of your whole payroll.

Personnel Misclassification

Some of your employees may be categorized as independent contractors. If employees are erroneously classified as independent contractors, payroll taxes won’t be paid. 

Recall that contractors must fill out and submit a Form 1099 if they receive $600 or more in compensation in a year, making them responsible for paying federal and state taxes. 

The employee must complete form W-4 for you to withhold the required taxes. Identifying whether a worker is an employee or an independent contractor is crucial to ensure compliance with wage and hour laws and payroll tax regulations.

Payroll Processing Errors or Non-Processing at All

This happens and has consequences. Employees will be unhappy if you unintentionally overpay or underpay them, which could affect your company’s financial performance. 

Because some jurisdictions have deadlines by which businesses must pay their final salary or face fines, employee departures might present risks.

Paying the Wrong Amount

Issues can arise if incorrect data is initially entered into the payroll database. Put security measures in place for your payroll system, and verify all employee data, tax withholding amounts, and payment details.

Ignoring Bank Holidays

Be aware of the days your bank is closed, and adjust the processing timetable for your payroll as necessary.

Incorrectly Depositing and Reporting Employment Taxes

You must submit payroll taxes to federal, state, and local tax authorities after collecting payroll taxes from your employees and paying your share. Your prior debt will determine how often the IRS will deposit money into your account.

Failing to Maintain Accurate Payroll Records 

Businesses must maintain specific employee records by state and federal laws and regulations. You must be aware of any recordkeeping laws in the jurisdiction(s) where your business is conducted since some local and state laws may differ from the federal laws in this area.


Payroll mistakes are not only costly for companies but can also be damaging to employee morale. By understanding common payroll mistakes and implementing the right practices, employers can ensure accurate and timely payroll processing. 

By keeping accurate records of employee hours, wages, deductions, and other information, employers can reduce the likelihood of errors or omissions. Additionally, employers should take the time to review their payroll systems and processes to ensure accuracy and compliance with applicable laws and regulations. By following these steps and seeking tax audits in Birmingham, AL, employers can minimize the risk of costly and damaging payroll mistakes.

The reputable tax professionals at Axiom Tax Resolution Group can help you address your tax problems with the IRS in a lasting manner. Contact us for tax resolution in Birmingham, AL!