How to Keep Up With State and Federal Requirements Like a Boss
Payroll administration comes with one very great challenge: Mistakes simply aren’t tolerated. Miscalculated paychecks yield unhappy employees, and miscalculated taxes and withholdings can yield hefty fines. Payroll taxes must be deducted, yet the amount per individual differs based on employee wages. Federal and state tax codes change frequently, and filing deadlines come with potent penalties. It’s enough to have you longing for managing an old fashioned lemonade stand! Here is how you Avoid Payroll Penalties.
Increasing payroll changes and challenges will only continue in the coming years under the Trump administration. Remaining in payroll compliance can really feel like walking a tightrope, but accountants, controllers, and payroll and tax professionals can keep their balance by reviewing and maintaining good compliance efforts.
Four Tips for Ensuring Payroll Compliance
- File on time. Penalties for information returns have been updated, and untimeliness can cost your company a lot of money. For example, by January 31, 2018, employers must:
- File W-2s for each employee to the Social Security Administration (SSA)
- Send 1099-MISC for each independent contractor to the Internal Revenue Service (IRS)
- Provide 1095 C forms to anyone who was a full-time employee for one or more months of the calendar year of an Applicable Large Employer (ALE)
Fines for noncompliance are based on how late you file and how many forms are late, but for late W-2s, they range from $50 to $260 per form, maxing out at a potential $3,218,500 per calendar year!
But there’s more to file then fiscal year-end forms. Quarterly wage and tax reports and payments must be filed with the IRS as well. Managing all these deadlines is a meticulous task that you can’t afford to slack on.
Tip: Keep a compliance checklist with all filing deadlines applicable to your organization.
- Be aware of federal and state regulations. Keeping up with changes to the federal tax code is challenging enough. But every state has different regulations for minimum wage, unemployment rates and benefits. Add to that the challenge of being an organization with out-of-state employees and you have a larger complexity on hand.
- Keep up with changing legislation. With Donald Trump at the helm, regulations are going through an overhaul. Staying aware of pending changes can help you stay on top of your compliance efforts. For example, some recent developments include:
- ACA Reporting Requirements. As reported on IRS.gov, “For the filing season, the IRS will not accept electronically filed tax returns where the taxpayer does not address the health coverage requirements of the Affordable Care Act.”
The agency says it will not accept electronic tax returns until taxpayers indicate whether they had coverage, had an exemption or will make a shared responsibility payment. Paper returns that fail to address the ACA’s health coverage requirements “may be suspended pending the receipt of additional information and any refunds may be delayed.”
- Family and Medical Leave Act (FMLA). According to the Department of Labor (DOL), “FMLA provides certain employees with up to 12 weeks of unpaid, job-protected leave per year. It also requires that their group health benefits be maintained during the leave.”
In addition to the FMLA, the DOL has published the Paid Leave Final Rule which requires some states to pay a certain percentage of an employee’s wages for a set amount of time. Every state has different levels of medical leave appropriations, and it’s important to be aware of the laws in your state to remain in compliance.
Bottom line: Make sure that you are aware of any current law changes affecting payroll.
- Properly classify employees. Employee classification is a slippery slope. To remain in compliance, make sure you properly classify your workers as 1099 (independent contractor) or W2 (hired employee).
Many employers enjoy the benefit of hiring an independent contractor because it eliminates the need to manage payroll taxes for that worker. But by the same token, they also desire to lay down specific guidelines for how the contractor proceeds with the job. It puts employers in a tricky spot.
The IRS outlines a clear distinction between employees and independent contractors, so make sure you know it. In order to maintain 1099 status, the corporation can only control the result of the work done, not how or where the employee accomplishes this work. There are steep fines associated with misclassifying employees.
Maintaining payroll compliance is absolutely necessary in order to remain profitable in your business. Be sure you’re ready for 2018 by checking over your processes and implementing these four tips today.
(This post first appeared in an AudioSolutionz blog)
By Amy P