The Task Of Calculating Payroll Tax

Calculation of payroll tax is always a daunting task. The calculation must be made based on the current tax structure announced by the government. As you may be aware, the structure is revised every year and therefore the computation of the tax must be made based on the existing structure. It is therefore needless to say, that the organization must be aware of the prevailing tax structures and other related laws. In order to compute the tax, the organization will have to get the necessary forms filled up by the employees.

The details of salary as declared in the form will have to be cross checked with the official records. After this, the organization will have to compute the tax payable by the employee. If there is any mistake in calculation, the employee may not get certain tax benefits and on the other hand, the organization may also be put to greater inconvenience. Remember, tax laws are very stringent and IRS may take strict action against the organization.

Role of Outsourcing Agencies

Considering the complexities involved in the computation of tax and other related issues, many organizations now prefer to outsource this task of deducting the tax from the employees’ payroll. There are several outsourcing agencies who undertake this tedious task of calculating the tax from the payrolls of the employees. You can browse for such agencies. These agencies in addition to computing the tax also help the employees in filling the appropriate forms. Wherever necessary, they also guide the employees on the relevant laws. Similar assistance is also provided to the organization.

They provide Comprehensive Tax Related Services

As already said, tax laws are very stringent. It needs an expert to understand and interpret them. Therefore, while selecting the outsourcing agency, the organization must ensure that the outsourcing agency has adequately qualified and experienced staff who can take up such tasks. Many times it may happen that in order to resolve some of the issues, discussions may have to be held with the IRS authorities. In such cases, the organization may not be able to effectively interact with the IRS authorities. But, the outsourcing agencies will undertake such tasks with ease. Once the agency is entrusted with the task of computing the tax, they resolve all the issues that crop up and wherever necessary, they will also hold necessary discussions with the IRS authorities. In short, these tax law firms represent the organization and all fronts and resolve the issues keeping in view the best interests of the organization.

Other Services Offered

Interestingly, many of these outsourcing agencies apart from computing tax from the payroll also offer other services. For example, there are several agencies who also offer HR services like pre-employment screening, workers comp insurance and various other such related services. These services are available for both domestic and international based organizations. The service charges for computation of tax are normally based on the total tax payable. In so far as other services like HR assistance, it varies from agency to agency. Before short listing, the organization must go through reviews of the particular outsourcing agency.

Stuck With Payroll and Tax Management – Choose the Right Service Wisely

The Juggling Act

Running a business is a tightrope walk. Paying salaries on time, meeting business expenses and generating profit among others is a herculean task. The law mandates that you pay your taxes on time and also manage your books properly. It’s like juggling balls while performing a tightrope walk. Because, there is a lot to manage. From payroll to taxation, bank reconciliation to deduction of taxes, the list is long. To make matters worse, every single mistake is penalized and many businesses end up paying heavy fines due to such mistakes.

The Saviors

Big businesses are able to manage this with the help of separate accounts departments but this is a costly affair. Small businesses running with small teams and tight expenses cannot do this with the same efficiency. For such businesses, there are two viable options to choose from. Either they can opt for a payroll management software or they can engage a third party payroll management company.

1. Payroll Management Software

The payroll management software is a good option for small firms. Businesses having small teams, stable business and transactions within the state can easily navigate with them. If you are ready to invest a specific amount of time with consistency to accounts management, they’ll work. These programs can present the data in an organized format and simplify your work. But, the chances of error are always there. The person responsible to input the data into the system is you or your representative. If you commit mistakes in keying the data, the software would get helpless and give erroneous results. This brings you back to square one.

Absence of revalidation system

The absence of someone to revalidate the entries is a problem every small business is battling with. If you try to engage someone then the cost of labor and time would make this feat overly expensive. If you don’t then there will always be a chance of mistake.

Problems with complex data

The other issue with such programs is that they have to be managed carefully. Too many variations in the structure of entries can create a lot of confusion. If you have engaged part-time workers along with your steady workforce or make payments to freelancers or other third parties, adjusting their payments can be a big nightmare. Calculating the various tax slabs when doing interstate business is also cumbersome in these programs.

Good for simple transactions

There is no doubt that if you are running a simple business without too many variables then these programs can prove to be a very cost-effective solution. But, running a diverse business dependent on them can be asking for too much.

2. Third Party Payroll Management Services

The more viable option for complex scenarios is to hire a third party payroll management service. These agencies with their certified staff can handle the job in an efficient manner. Along with payroll management, you can delegate a number of other important services too like tax management, accounting, balance sheet preparation, bank reconciliation, tax deduction and deposit.

Revalidation of data at various levels

Due to the presence of a structured team of professionals the data is checked at many levels and hence the chances of mistakes are negligible.

Cost Effective

These agencies are very cost effective in their service. The same job cannot be executed by an in-house team under the same expenses. In small businesses, the staff will be idle most of the time. In medium businesses, it will be overworked. When calculated on the basis of return on investment, these services are very cost effective.

The Human Touch

The other advantage is of human help. In case you get stuck somewhere about any technical clause or want expert advice these agencies can provide credible help.

No Binding Obligation

The biggest advantage is that these firms operate out of your office and hence no infrastructure expense or overhead expense is there on you. You only pay for the services required without any undue obligation.

So, if you are running a small business and finding it difficult to navigate the confusing path of taxation, payroll management and other technical accounting aspects then you can choose the right service for you. This will help you in focusing on your core strength of business development and no energy would be lost in managing numbers in the books.

IRS Payroll Tax Audits Create Havoc on an Employer

Payroll Tax Audits are conducted on businesses that have or had employees and either failed to file and pay the payroll taxes on Form 941 Employer’s Quarterly Federal Tax Returns, misclassified workers as independent contractors when in fact they are employees or there is a mismatch between the W-3 Transmittal of Wage and Tax Statement, W-2 Wage & Income Statement and the Form 941 Employer’s Quarterly Federal Tax Returns.

When a payroll tax audit is selected to be audited, the case is assigned to the Employment Tax Examination Program and then it is assigned to one of the employment tax auditors.

An employment tax auditor will seek bank statements, payroll bank statements, copies of Form 941 Employer’s Quarterly Federal Tax Returns for a specific period, DE-9 Quarterly Contribution Return and Report of Wages and any other form or document that they believe will assist them in determining if all the employee’s wages/salaries were accounted for on the tax returns filed.

For people who were incorrectly paid as independent contractors, laborers who in fact should have been reported as employees. Then, that is when the misclassification of employee audits steps into the investigation.

Internal Revenue Service and the State tax agencies have identifying factors for determining when a person should be an employee or independent contractor. File a Form SS-8 Determination of Workers Status for Purposes of Federal Employment Taxes and Income Tax withholdings if you as an employer are not sure as to how to treat a worker.

Common Law Rules

Facts that provide evidence of the degree of control and independence fall into three categories:

1. Behavioral: Does the company control or have the right to control what the worker does and how the worker does his or her job?

2. Financial: Are the business aspects of the worker’s job controlled by the payer? (these include things like how worker is paid, whether expenses are reimbursed, who provides tools/supplies, etc.)

3. Type of Relationship: Are there written contracts or employee type benefits (i.e. pension plan, insurance, vacation pay, etc.)? Will the relationship continue and is the work performed a key aspect of the business?

Mismatch between the Form 941 Employer’s Quarterly Federal Tax Returns, the W-2 Wage & Income Statement and W-3 Transmittal of Wage & Tax Statement can result in a computer audit.

Computer payroll audits are easily calculated from the tax return and statements filed by the employer. Letters, Notices, and results are issued to the employer. The audit result is usually recorded as due on the last quarter of the year in which the alleged mismatch was identified.

An employer is provided with a deadline to respond to the changes. Furthermore, you may have appeal rights. Always read all the notices, letters you receive. Many people do not open government issued letters and then they lament on the consequences for not complying with response time frames.

A payroll tax audit can lead to large tax bills that create financial havoc on employers. Large expenses that are paid to Accountants, Tax Debt Resolution Experts and Tax Attorneys to represent a company who has misclassified workers and now owe payroll taxes for the unreported wages/salaries paid to workers who should have been reported as employees in the first place.

A payroll tax debt can result in recording of tax liens, levies (garnishments) issued to accounts receivable, notes receivable, and bank accounts. Furthermore, if negotiations are not successful the tax agency will seize and sell your business to secure payment of the taxes overdue.

Do not attempt tax debt negotiations without seeking professional assistance. The IRS Collection Officers are required to follow certain regulations, tax processes and procedures prior to implementing their collection efforts. If you do not know what resolution option you can request and what the requirements are for resolution. Then, your company may be subject to financial havoc and potential closure.

Do not forget or shred notices and letters mailed to you by tax agencies or employees of these tax agencies. There are so many appeal rights, time frames that require a response by certain dates. If these time frames and dates are not complied with. Then, the IRS Auditor or Collector will have no option but to move forward with the next action that is required according to your case.

Liens filed against your company will affect your ability to borrow and will encumber any and all property that your company owns and possibly you as the owner, officer, member and or director of the entity that owes payroll taxes.

Yes, there is a potential individual liability for non payment of payroll taxes. Read Internal Revenue Code 6672. Basically, the IRS is required to calculate the amount of tax withholding, social security and Medicare taxes due. Then, letters are mailed or provided to the potential responsible people or entities who failed to report correctly and pay the taxes accordingly.

These letters provide for 60 day time frame to request an appeal prior to the tax agency being able to create a tax bill against the individuals or entities that failed to abide by the payroll tax rules and regulations.

Business owners, Directors, Officers and general public believe that because an entity is a Corporation, Partnership, Non-Profit or Limited Liability Company that this in itself protects them individually from being responsible for unpaid payroll taxes that the entity failed to forward to the government.

It is not wise to confront the IRS Auditor or Collector on your own. Even the best tax resolution experts encounter barriers to negotiate audits and debts. You just have to do your research and interview several tax professionals to verify which one will work in your best interest.