Payroll taxes can not just cost a company a lot of money, but it can also be detrimental to its reputation. Every year several companies get penalized for making payroll tax payment mistakes, some intentional some unintentional. To avoid getting to that point where the IRS comes knocking at your company door for a payroll default, it is advisable to avoid the common mistakes that most companies. Come, let us take a look at some payroll mistakes employers make and ways to avoid them.
1 . Improper Worker Classification
Employers are supposed to classify their workers as employees or independent contractors, but many employers do not get this classification right the first time. As a result they get penalized by the IRS for doing the wrong classification. If you made the wrong classification too, you can reclassify them under the Voluntary Classification Settlement Program (VCSP).
2. Issuing Payment without Obtaining Form W-9
Companies are supposed to withhold taxes from a vendor’s payment, unless they obtain a W-9 Form that clarifies the vendor should be exempt from mandatory withholding. In case a company fails to do so, they can be subject to a 28 percent penalty. Note – The IRS may still pursue a case against a company and force a company to pay a failure-to-deposit penalty, if it believes that the company made the payment without being aware of the vendor’s status of exemption from backup withholding.
3. Excluding Taxable Fringe Benefits in Employees’ Income
Fringe benefits such as gift cards, awards or prizes are liable to federal income tax. Employers who fail to include the fair market value of these fringe benefits in their employees’ compensation are subject to penalty. The only exception are the items that are de minimis in nature. Gift cards or any other form of cash equivalents are never de minimis.
4. Excluding Reimbursements from Reportable Income
Companies can exclude the time, travel and commuting expenses from their employees’ taxable income if they are out on a short-time assignment. However, if the employee moves goes on a long term assignment (more than a year) or moves to a permanent work site, the travel and commuting benefits received by the employee may need to be reported in their income.
Need Help with an IRS Payroll Tax Problem?
If you are facing an payroll tax debt problem and need help to get out of it, call the Law Offices of Nick Nemeth at (972) 426-2553 or click here for a FREE TAX ANALYSIS and we will get back to you shortly. In your first initial free consultation, you will be advised as to what the best step moving forward will be.