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By Dianne Rudolph

Topics: Payroll


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Payroll often seems like a relatively straightforward task. However, ask any experienced HR manager and they’ll reveal a different story. Taxes, benefits, and legislation from all levels of government come into play as you prepare payroll.

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Payroll tax problems are relatively common, but they can be avoided by keeping a careful eye on your payroll activities, compliance, and the changing environment. Here are a few critical payroll tax problems you should watch out for.

1. Calculation Errors

Perhaps the most common payroll tax problem is human error. These may be honest errors and they can be as simple as transposing the numbers in a tax rate when making withholding calculations. It may be difficult to catch them, but they can result in fines and penalties.

How can you avoid calculation errors? One easy way is to get a program with all the latest rates and information built right in. Automatic updates will ensure you’re always using the correct rates. An excellent team can also help you manage and automate withholding processes to avoid any problems.

2. IRS Form 1099

As the gig economy flourishes, many jobs have been outsourced to outside companies or subcontractors. If your business is taking advantage of the expertise of another company or professional, you need to ensure you’re issuing IRS Form 1099 to your contractors. For every form you fail to send to the IRS, you may be handed a fine of $250.

How can you ensure you don’t get caught flat-footed when you’re working with subcontractors? The easy answer is to make sure you’ve issued IRS Form 1099 to the subcontractors and outside vendors you’re working with. Keeping track of forms, of course, can be tricky.

A better payroll tracking system, which allows you to track forms from issuance to submission and every step in between, is the quickest and easiest way to avoid payroll problems related to this form.

3. Late IRS Form W-2s

Businesses are required to ensure all employees receive their W-2s. One catch is you must supply W-2s by January 31. If the employee has left the company, you must ensure your W-2s are in the mail and postmarked on or before January 31. A $50 penalty will be applied for each and every late W-2.

Your payroll tracking system will help you here too. Just like it can help you track the issuing of IRS Form 1099, you can also track W-2s to ensure they’ve all been issued on time for your employees. It’s easy to avoid this mistake, but the fines can add up quickly!

4. Late Deposits and Payments

The IRS is fairly unforgiving when it comes to late payments and deposits. If you make your payments monthly, ensure your deposits are made on the 15th day of the month. If they’re not, you’ll be charged two percent interest. If your payments are more than 16 days late, the penalty rises to ten percent.

The easiest way to avoid these costly penalties and fees? Make sure your deposits are made on time each and every month. Once again, better payroll administration and tracking through a service provider and better software solutions can help you automate this process. Late fees will be a thing of the past.

5. Excluding Travel Reimbursements

Do you offer your employees reimbursement for commuting or travel expenses? If so, be sure to include them as part of your employees’ income. Failure to do so could result in significant penalties from the IRS.

You likely track travel expenses and reimbursements anyway, so be sure your payroll solution allows you to easily add these amounts to employees’ total compensation for a more accurate picture of their income and the associated taxes.

Avoid these common payroll tax issues, and you’ll be in a much better position with regards to taxes.


Dianne Rudolph

Dianne is the Vice President of Sales and Marketing at Paymedia, LLC. She has a demonstrated history of working in the management consulting industry. Skilled in crisis management, business planning, customer acquisition, and coaching, she is a strong sales professional with 25 years of experience in the payroll industry. Through Paymedia, she offers clients results through iSolved, a platform that meets their needs today and that they won’t outgrow tomorrow. With five years' experience as an entrepreneur, Dianne has also taught herself how to launch and manage a successful business from the ground up. She lives has two grown children. As an empty nester, it gives Dianne time to pay it forward in her free time. Her mission is to help and give back. Her true inner peace is found at the beach and through yoga and massage.

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