SO YOU DON’T WANT TO PAY THOSE PAYROLL TAXES…part III

Steve Cook is the managing member of Cook, Gola and Company, PLLC, certified public accountants with offices in San Antonio and Austin. www.cookgola.com

As we have noted in our previous blogs, there is a real temptation to delay payroll tax payments. Frankly, this is not a good cash flow solution. The failure to file payroll tax returns and/or pay payroll taxes in a timely fashion will result in substantial penalties.

Please note that interest is charged on both unpaid taxes and assessed penalties.

Generally, interest is charged on any unpaid tax from the due date of the return until the date of payment. The interest rate on unpaid Federal tax is determined and posted every three months. It is the federal short–term interest rate plus 3 percent. Interest is compounded daily.

There are two components of payroll taxes. Component one is the deposit. Component two is the actual report. Each is subject to a failure to comply penalty.

Component one is the Deposit Penalty. It applies to amounts not properly or timely deposited, the penalty rates are as follows:

Days Late & Penalty
1-5 2%
6-15 5%
More than 16 10%
Upon IRS Notice 15% Begins 10 days after notice

Component two is the Late Filing Penalty. This applies if you owe tax and don't file on time. The late–filing penalty is usually 5% of the tax owed for each month, or part of a month, that your return is late up to five months (25%).

If your return is over 60 days late, the minimum penalty for late filing is the smaller of $100 or 100 percent of the tax owed.

You may be liable and not even know it. A responsible person can be an officer or employee of a corporation, a partner or employee of a partnership, an accountant, a volunteer director/trustee, or an employee of a sole proprietorship. A responsible person also may include one who signs checks for the business or otherwise has authority to cause the spending of business funds.

At any rate, your best cash flow management tool may not be passing on this week’s payroll tax deposit.

Key Questions to Ask Payroll Processing Companies

There comes a time in every business when you must decide how to conduct payroll. Many business owners begin by conducting their own payroll. With constant change in the laws and hefty penalties for disobeying the federal and state guidelines, most business owners decide to outsource the service to a payroll processing company. Before you decide, ask your prospective payroll provider this list of key questions to ensure they are the right fit for your company.

1. Who am I going to be working with to conduct my payroll? Outsourcing your payroll to a smaller CPA firm or payroll company usually gives you A LOT more personal time with your payroll representative. If you have a question, are you one phone call away from your person of contact or are you going to sit on hold for twenty minutes?

2. What steps does the company take to stay in compliance with the ever so often changing payroll laws? Ask what measures are taken to stay in compliance with the IRS, Social Security Administration and the Department of Labor. Find out when and how ALL federal, state, local, and unemployment taxes are paid accurately and on time.

3. How can I pay my employees? Do you offer direct deposit, check stuffing and mailing and can you possibly deliver the checks? What are the options for reporting the hours? Will it be as simple as emailing them over, a phone call or an online portal where the employees can log in their own hours?

4. What am I paying for? Ask what the services INCLUDE. Find out if new hires, quarterly, year end, and W2 report filing are an additional cost to the services provided. Most, if not all, payroll processing companies charge based on the number of employees. Make sure you find out how your rates will change when your company expands. Find out if they offer any employee benefit services associated with their services as well.

5. What is the company’s confidentiality policy? Make sure that your employees and your company are protected. Find out what the policy is and make sure you feel confident that your information will be protected.

If you’re looking to take some of the burden associated with payroll off your shoulders, outsourcing your payroll is an excellent option. To prevent future headaches, make sure you ask the prospective payroll company all the right questions to insure your company is going to get the best service possible.