Payroll and Penalties
As tax season makes its annual debut, it’s important to review your payroll procedures in order to ensure the most accurate reporting possible, as late or inaccurate payroll submissions are often met with swift and devastating penalties from the IRS. You can avoid payroll tax penalties altogether by paying your dues on time and in full; however, should you make a mistake in the process, you should be aware of the consequences for late or inaccurate payroll.
Avoiding Payroll Penalties: The Basics
Simply put, you need to pay your payroll taxes as early as legally possible to ensure you never miss a deadline. Even paying your dues on the deadline is a practice with its own share of complications, since the payroll process is never going to be as clean as you would like it to be; therefore, ready your taxes and prepare to contend with unexpected fees. Giving yourself more time than you think you need at the beginning of the tax season will help you avoid scrambling to meet last-minute demands.
Between submitting withheld taxes, accurately reporting revenue, and maintaining your company’s records throughout the process, you’re guaranteed to have your hands full. Since your payroll is always shifting and evolving to meet the current economy’s demands, your number-one priority should be keeping yourself updated on a month-to-month basis.
Simply knowing the standard for last year’s payroll taxes won’t be enough to ensure accurate payroll reporting.
Giving Your Business a Firm Financial Foundation
You can consider contracting a payroll specialist to handle your company’s interactions with the IRS since doing so will defer the majority of your responsibility; similarly, hiring a third-party company to handle your payroll in its entirety will ensure that your liability is less contingent on your own unwavering focus. Be sure to vet your chosen third-party according to your tax criteria, however, and set strict guidelines for how they will handle your money once you hire them. Transparency should be a high priority when interacting with any contractor or vendor outside of your company.
Avoiding bad habits from your business’ inception is another good way to keep from finding yourself in trouble come tax season. Borrowing from or forgetting to pay withheld taxes are two of the worst things you can do as an employer, since the IRS views both instances as grave offenses. To lessen the possibility of doing either of these things, consider placing withheld money from your employees in a separate, dedicated account.
Payroll Penalties
Obviously, inaccurate or late tax deposits or filings can result in hefty penalties. The three main charges you may encounter are the following:
- Failure to file
- Failure to deposit
- Failure to pay
The easiest way to avoid these charges is to submit your payroll tax returns on time and pay any residual fees along the way.
The IRS’ protocol regarding late or inaccurate payroll is indiscriminate; for example, if the IRS determines that your part-time supervisor is responsible for an inaccurate assessment of your company’s earnings, they will quickly bypass you and target the employee in question. If your employees err and they get caught doing so, the IRS will penalize them directly. It is your duty to brief all employees and contractors on the importance of accurate payroll reporting, both for the longevity of your business and for the safety of your employees.
Additionally, if you own a small business, your risk is actually much greater: the IRS considers small businesses the worst offenders of payroll infraction, so you’ll likely experience much harsher scrutiny than your larger counterparts. For this reason, your payroll processing and reporting must be airtight; you won’t have room in your business for disorganized filing or poor record keeping. This is also something you should emphasize to your employees, since the smallest of inconsistencies in invoicing can lead to a full-blown audit.
If you do make a mistake with your payroll, know that the repercussions can be severe. The IRS’ collection tactics can include total seizure of your business and all its relevant assets—including outstanding debts from former customers or employees. To avoid losing your business, be sure to pay any payroll tax debts immediately and in full.
Criminal Consequences
In the event that the IRS rules your failure to pay taxes and their debts severe enough, you might lose more than your business: this process can eventually lead to a prison sentence and a hefty fine of $10,000. While rare, occurrences such as this aren’t unheard of, especially in situations where an employer purposefully uses employees’ funds and the payroll balance to influence his or her personal wealth.
Staying on top of your payroll obligations can be a challenge, so Abacus Payroll is here to ease the process! Give us a call today at (856) 667-6225 to learn more about how you can avoid payroll penalties.
