Get expert advice on every topic you need as a small business owner, from the ideation stage to your eventual exit. Our articles, quick tips, infographics and how-to guides can offer entrepreneurs the most up-to-date information they need to flourish.

Subscribe to our blog

The most frequent tax and payroll mistakes made by companies, ranked 6-9

Posted by Shivali Anand

April 26, 2022    |     3-minute read (536 words)

According to the IRS, 40% of small- to medium-sized businesses grapple with penalties due to payroll errors. Yet many business owners complain that they already spend excessive amounts of time on payroll and tax compliance.

We'll conclude our list of the most frequent payroll errors, their implications and how to avoid them in this blog, which is part two of a series (here’s part one).

6. Incorrect or late payroll tax deposits

Every firm with workers is required to deposit withheld taxes and the employer's part of those taxes by electronic transfer on set dates. The IRS may punish a business owner for failing to deposit taxes accurately or on time.

The Internal Revenue Service calculates these penalties by increasing the amount of outstanding tax by a percentage rate based on the number of days the payment was late. It's 2% for charges that are 1-5 days late, 5% for fees that are 6-15 days late and 10% for payments that are 16 or more days late.

7. Ignoring or failing to follow wage garnishment orders

According to the ADP Research Institute, around 7% of American employees have their wages garnished every year. Outstanding state and federal taxes, school loans, alimony, child support and medical costs are just some of the debts that can lead to wage garnishment.

The employer is responsible for determining the garnishment amount, withholding it during the payroll process and sending payments to the right agency or creditor after obtaining a garnishment order, which is generally from a court or government agency. Until the employer receives a release, the garnishment will continue.

While court-ordered garnishments might sometimes be challenging to understand, they must never be ignored. If you have issues about how to comply, the best course of action is to consult a CPA who is acquainted with both federal and state regulations.

Creditors have the power to demand restitution from an employee's employer under state and federal wage garnishment statutes if the employee fails to complete their payments. In several areas, the employer can be held accountable for the whole amount owed by the debtor.

8. Failure to provide appropriate pay stubs

While there is no federal legislation mandating companies to provide pay stubs to employees, most states have their own pay stub laws requiring employers to submit regular pay and withholding statements.

These regulations include how pay stubs must be sent, whether on paper or electronically, what information must be included on the pay stub, whether employees can opt-in or out of the electronic transmission and penalties for employers that fail to comply.

Check the website of your state's department of labor to see if your company complies with applicable rules.

9. Noncompliance with labor and employment tax regulations

All employers are expected to follow employment tax rules, including withholdings on federal income taxes, Medicare and Social Security taxes and federal unemployment taxes. This necessitates maintaining current with regulations as they evolve.

Employers must also follow their state's labor regulations, including things like equal pay, paid family and sick leave and exempt salary levels and these laws are subject to change regularly. While complying with ever-changing laws and regulations might be daunting, the alternative could result in significant fines.

Learn how we can put more time back in your day.