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5 Mistakes People Make When Filing Old Tax Returns!








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5 Mistakes People Make When Filing Old Tax Returns!








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5 Payroll Essentials Every Employer Should Know

Once you’ve hired your first employee, then you must make sure they get paid right? Well, we’ve seen some of the mistakes that employers typically make when they first start running payroll. This post will talk about the most important elements of processing payroll so that you don’t wind up in trouble.

Understand the labor laws.

As an employer, you must adhere to the federal, state, and local labor and employment laws. The federal Fair Labor Standards Act (FLSA) establishes rules for the minimum wage, premium pay for overtime, and protections for children who work. All employers should be aware of FLSA requirements as well as state and local wage and hour laws. One thing to be aware of is that they sometimes appear to contradict one another. For example, the federal minimum wage is $7.25, it’s $8.25 in Illinois and starting July 1, 2019 it will be $13.00 in Chicago. As such, you must always follow the provisions that are most favorable to your employees (i.e., pay $13 per hour if you’re located in Chicago). Most states have informative websites to help you figure out which laws apply. It’s a good idea to start there and then talk with a professional to make sure you’re following the right set of laws.

Establish your pay schedule.

Once your pay rates are determined to be in accordance with the laws, you then have to figure out how often to pay your employees. The beginning and ending dates of this schedule is referred to as your pay period, which represents the period in which your staff logged work time or earned wages. Pay periods typically include weekly, biweekly, semi-monthly and monthly. The “payday” is the actual date on which employees are paid. It’s usually a fixed number of days after the end of the pay period.

Withholding payroll taxes.

When it comes to payroll taxes, there are two parties, who are required to pay taxes on wages. This would be the employee and employer. These taxes are usually owed to both the federal government and the state, and in some cases to cities and municipalities as well. This post discusses in detail what some of those taxes are and your responsibilities. However, an employer is generally responsible for collecting federal income tax, Social Security, and Medicare tax from employees’ paychecks based on what employees marked in their Form W-4. The employer must then also pay a matching amount of Social Security and Medicare tax as well as Federal Unemployment Tax (FUTA).

Remitting taxes collected and filing the appropriate tax returns.

As an employer, it is your responsibility to deposit federal income tax withheld for your employees pay as well as both the employer and employee portions of social security and Medicare taxes.  However when are you to make the deposits and how do you make them?  Also, what are the penalties for making deposits late?  This post will give you all the pertinent details.

Now for filings. Paying the taxes is one thing, but you must also file the corresponding returns. If you don’t, then the taxing authorities can’t properly match the deposits with other needed information. Federal Form 941 (quarterly federal tax return) must be filed each quarter, and Form 940 (FUTA tax return) must be filed yearly. You may also have to file similar forms for your state. Employers are also required to send Forms W-2 and W-3 to the Social Security Administration (SSA) each year. Most payroll services will handle these filings for you. If you do them yourself, read more about these forms here.

Keep good records.

As an employer, you must keep track of hours worked for hourly, nonexempt employees. Most workers are classified as either exempt or nonexempt depending on their salary and the type of work they do. You can read about these and other classifications in the FLSA and your state’s wage and hour laws. You can learn more about the timekeeping requirements by reviewing this fact sheet from the Department of Labor .

How To Get Caught Up On Payroll Taxes

Sometimes a business will fall behind on paying their payroll taxes to the IRS, the State Department of Revenue or both.  This can happen due to software issues (i.e. believing things are being filed when they are not) or some other reason.  However, a  more common reason is when business owners experience tight cash flow periods and decide to stop paying their payroll taxes.

If you are reading this post and find yourself in the position of owing back payroll taxes, we encourage you to heed this advice:

Read this post in it’s entirety, and IMMEDIATELY do something productive to deal with your matter. Don’t schedule time to work on it later; do it NOW.  Our point is that in order to successfully solve your problem, you MUST confront it.  So, make a phone call to the state, put funds aside for a payment toward your unpaid balance, complete one of the missing returns, and put it in an envelope to mail with a stamp on it, etc. Just DO something, right now.

Consequences when you don’t file or pay your payroll taxes
Here are some things you can expect to happen when you don’t file or pay:

  • Penalties –  If the payroll tax return is filed late, the IRS will fine you a percentage of the balance of the return once it is eventually filed.  Once the return(s) is filed, if you haven’t paid the associated taxes, the IRS will impose a penalty for not paying within the time frame listed on the notices they sent you.  This post on how to  deposit payroll taxes will outline how some of the penalties are calculated.
  • Interest –  The IRS will charge the business interest on all unpaid balances and unpaid penalties until they are paid in full.
  • Tax lien –  If you owe enough, the IRS will eventually file a tax lien to protect the US Government’s interest.  This basically means that the IRS gets first dibs on your assets if you try and sell the business or file bankruptcy.  This is done as a procedural matter, even if you get your act together and set up a payment plan.
  • Tax levy –  If the business is seriously behind and has been avoiding the IRS, they could a random day of the week, take a look at your bank account and seize what you owe them. This is one reason why avoiding the problem is NOT a good idea when it comes to payroll tax problems.
  • State issues –  In addition to what the IRS can do, your state can do that and more.  Because LLCs and corporations are regulated at the state level, the state has a few more weapons in its arsenal. They can dissolve your LLC or corporation, deny your operating licenses, and in extreme cases, show up at your place of business and physically shut it down.

How to fix the problem
Here are the steps that one will want to take to address the problem once and for all:

  • Don’t Ignore It –   The IRS taxes payroll tax issues VERY seriously.  Why?  Because the taxes that you are supposed to send to them are held in “trust” for your employees.  What we mean is that your employees “trusted” you do send them to the IRS.  So when you don’t, the IRS gets really mad and will come after you harder/faster than if it was just an income tax matter.  So if you want your life to stay headache free, deal with this issue now!
  • File any unfiled returns and make current deposits – File all unfiled returns with the IRS and your state tax authorities ASAP.  Also make sure that you are making your current deposits on time.  It goes a long way when you eventually talk to someone at the IRS and they can see that you are paid up on your current returns and are just dealing with older returns/balances.
  • Follow the IRS Deadlines – When the IRS gives you deadlines for completing returns, submitting documentation, making payments, and other matters, it is critical that you do not ignore these dates. Failing to comply with the deadlines could put your business in jeopardy of being shuttered and you being heavily fined.  To protect valuables like company equipment or accounts receivable, you should abide by the deadlines the IRS gives you.
  • Be prepared to complete IRS Form 433-B – IR