Tuesday, August 9, 2011

Payroll Taxes

Please, please, please ALWAYS pay your payroll taxes. If you are having financial difficulties and having trouble doing so, PLEASE contact the state and federal tax authorities in advance and let them know. You will save yourself significant trouble. Here's a great excerpt from an Inc.com article by the founder of Sageworks: "I have known few businesspeople who have completely avoided this mistake (not paying payroll taxes on time), but it always creates unnecessary anxiety. When you pay employees, you collect a portion of their money on behalf of the government. Essentially, you are a collection agent. This is a tremendous liability and responsibility for employers that did not exist years ago when employees had to deduct their own taxes and pay them to the government. Alas, these days are over."

Brian Hamilton goes on to say, "Here is how this problem crops up. The employer cuts payroll checks but does not immediately set-aside the payroll liability in an operating account that is separate from the account they use to pay other operating expenses. The funds are mingled, and the person running the business has an inflated view of his or her cash balance. It is not that the employer is being dishonest or intentionally withholding the tax revenue; they lose track of the liability. Later, employers try to play catch-up, but because there is almost never as much cash available as you would like in a privately-held company, the taxes accrue and problems start severe penalties and interest. One solution is to keep two, separate accounts: one for regular operating expenses and the other for payroll taxes. Another solution is to simply use a payroll service that will give the liability its due attention."

Yet another solution is to use a PEO (personnel employment organization) to handle all your payroll issues in addition to all the HR issues. PEOs are also a means to provide more benefits at a reasonable cost. Why go through the stressful issue of underpaying payroll taxes? Hopefully hearing about others' issues and ways to avoid the problem will help you do just that.

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