Payroll Briefs

How to Avoid Payroll Tax Penalties

July 31, 2023

When thinking about the tax obligations of your organization, the focus is normally on federal and state income taxes. But collecting, reporting and remitting payroll taxes in accordance with federal, state and local laws are equally important. The rules that come with payroll tax payments can be complex and the penalties for not meeting the requirements are severe. Employers bear the ultimate responsibility for the reporting and payment requirements, therefore understanding these obligations and penalties is crucial.  

Best Practices to Prevent Payroll Tax Penalties 

  • Avoid missing deadlines – If employers want to prevent payroll tax penalties for late filing, they must be careful not to miss any due dates. To that end, employers should coordinate with a reputable third-party payroll provider or utilize tax management tools, such as the IRS online tax calendar, to put taxes in order and stay compliant. If there is reasonable cause to justify the late payment or it’s the first offense, the IRS and state tax authorities may remove the deposit penalty.  
  • Keep accurate, complete and organized records – It is important to keep accurate, complete and organized payroll records for all employees, including Form W-2s, time sheets and pay records. The IRS requires employers to keep most employee and payroll records for at least four years. The Small Business Administration (SBA) recommends keeping payroll records for six years since some states have different requirements.  
    • In addition, employers need to ensure all employee data is accurate when filing taxes, as filing with incorrect employee information can result in penalties. The items to check are: 
      • Employee’s full name 
      • Start or termination of employment 
      • Date of birth 
      • Address 
      • Tax file numbers 
      • Payroll details  
  • Monitor IRS announcements and resources – The IRS is continually publishing news and tips on tax form deadlines, so it is important to stay alert, especially before the tax filing season. If you have employees that work in different states, you need to be aware of the tax laws within those states.  
  • Third-party tax administration – By working with a third-party payroll provider, like DM Payroll Solutions, you can limit your burden to just submitting your payroll. The back-office tasks of accurately calculating and depositing your payroll taxes, as well as remitting your tax filings on time, are done by the third party. Employers can take advantage of automated processing, avoiding miscalculations or late submissions.  

Failing to meet payroll tax obligations can happen to any business due to the variety of due dates and complexity of the process. It is important to have a payroll tax compliance system in place or to hire a reputable third party to manage your tax requirements.  

We’ve Got You Covered 

At DM Payroll Solutions, we offer comprehensive tax administration services as your payroll partner. We help take on accurately calculating and depositing your payroll taxes, as well as remitting your filing timely to stay compliant with federal and state regulations. Prevent payroll tax missteps with DM Payroll Solutions in your corner. Contact us to learn more about our payroll tax administration services.