Most Common Payroll Tax Mistakes That Small Businesses Should Avoid

Managing and organizing your payroll is a very time-consuming and challenging task. Employees are the primary source to grow the business, and you pay your employees for their work. Sometimes, you can make a mistake during filing business payroll taxes, which can result in heavy losses. So you should be aware of common payroll mistakes. 

1. Classification of Employees

Non-exempt employees are eligible for overtime payments, not an exempt employee. If you think it is not a problem, then let me clear this misconception. When you classify non-exempt employees as exempt employees, you won’t pay them for overtime. As a result, employee misses out on wages and government on taxes. So, misclassifying of employees can impact your business claimed deductions.

2. Payroll schedule - Pay Periods and Paydays

You must set a payroll schedule for your employees and strictly follow it as it can affect your business cash flow. Try to make it easier to calculate your gross payroll without any errors and also maintain the worker’s faith in your company. In the US, businesses commonly pay every week or twice a month.

3. Setting up your Payroll Incorrectly

Tax is an essential and confusing factor, when it comes to payroll because tax rates always change. Thus, it becomes more prone to mistake. If you are setting up a payroll incorrectly so you may not pay the accurate amount, resulting in penalties. You should stay up-to-date about the employment tax rates. However, if you don’t have time to gain knowledge about these updates, you can hire an expert tax preparer.

4. Bad bookkeeping

You can manage your payroll well only if your books are organized. Payroll is added in expenses and recording it accurately can help you keep track of the employees’ wages, overtime, etc. To prepare the tax return, you need accurate records as false tax filing is considered as tax theft and may lead to penalties by IRS.

5. Forgetting Payroll Taxes

Not paying your taxes or paying late is the typical reason for fine over 40% of small businesses. You should never miss your tax payments and deductions. You need to pay all the taxes on time otherwise you can face 2% to 15% IRS late payment penalty. So, carefulness and regulation are the great tools for business growth.

If you are managing payroll on your own, payroll software is the best option to manage it well. It will make calculations easier. Otherwise, you can get online payroll processing outsourcing services to save time and reduce stress.