Dealing with payroll tax forms can feel like a complex web of paperwork riddled with policy changes. Add to that the pressure to avoid errors and missed deadlines, and it’s no wonder so many organizations find themselves wrestling with how to save time and money on the payroll process.
Keep reading for five best practices for implementing a smart payroll tax system.
#1: Get Registered When Starting a Business
There are many actions one must take when launching a new business, so it’s easy for some steps to get lost in the shuffle.
Obtaining the proper registrations before making your first hire means you’re prepared to handle payroll taxes before that first payday arrives:
- Get an employer ID from the IRS
- Register as an employer in your state
- Complete state registration for income taxes, unemployment taxes and workers compensation requirements
#2: Know Which Payroll Forms Apply to You
The IRS has dozens of tax forms to keep up with, depending on a host of factors including your industry, the size of your business and whether you hire regular employees, independent contractors or a mix of both.
Here are just a few examples you may or may not have heard of:
- I-9: Employment verification
- W-2: Wage and tax statement
- W-4: Withholding allowance
- Form 940: Employer’s annual federal unemployment tax return
- Form 941: Employer’s quarterly federal tax return
- Form 943: Annual tax return for agricultural employees
- Form 944: Employer’s annual tax return
#3: Stay Abreast of Current Payroll Tax Rates
Tax rates do change over time. That means having the flexibility to update your payroll system as needed.
For example, here are a few of the current policies that may affect some of your workers:
- The Social Security wage base has increased from $128,400 to $132,900 for 2019. This means employees whose incomes fall within this range will see their FICA withholdings increase, resulting in less take-home pay.
- Under a provision of the Affordable Care Act, high wage earners are subject to an extra 0.9% Medicare tax once their income exceeds $200,000 for singles and $250,000 for couples filing jointly. That is on top of the 1.45% withheld from all employees’ paychecks. Workers whose income reaches these levels may be in for a bit of “sticker shock” if they haven’t been informed of the policy.
#4: Manage Quarterly Reporting
Most employers are required to file Form 941 with the IRS on a quarterly basis.
Form 941 is used to report a number of things, including:
- Amount withheld from employees for income taxes
- Amount withheld from employees for FICA (Social Security and Medicare)
- Amount employer owes for FICA
- Amount employer has already paid to the IRS
- Payment of balance owed if not fully paid
For employers with an annual employment tax liability of $1,000 or less, Form 944 is required and is filed annually.
#5: Encourage Employees to Update Their Tax Withholding Form
Form W-4 is used to specify the correct amount of taxes to withhold from each employee’s paycheck. Many people simply fill it out on the first day of work and never look at it again.
However, there are lots of reasons for individuals to consider completing a new W-4 on an annual basis. Changes to income or personal circumstances, as well as changes to tax laws, may require employees to update the amount withheld.
Are you looking for ways to make the payroll process run more smoothly? Moresource Inc. offers a seamless, paperless process for handling payroll tax deductions, reporting and more for businesses of all sizes and industries.
Contact us to learn how our team of payroll experts can help you!