The typical American business comes in all types and sizes. In fact, one might argue that there is no such thing as a “typical” American business. The business community in this country consist of multinational corporations having tens of thousands of employees, countless small sole proprietors with just a single employee and essentially everything else in between. One thing that almost all of them have in common is that they must deal with the responsibility of paying employees and complying with numerous payroll related tax and regulatory obligations. This can be an especially burdensome task for small business owners. Larger companies can afford to have full time staff dedicated to managing payroll issues as well as keeping up to date with the frequently changing payroll laws. This is seldom the case for owners of much smaller companies. So exactly how does a small business owner go about maintaining compliance with the ever-changing state and federal wage and payroll related regulations? The following paragraphs will serve to illustrate the importance of keeping up to date with these rules, as well as discuss the best methods for businesses to go about remaining compliant.
Without a doubt one of the reasons that so many business owners have such a hard time dealing with payroll tax matters is because in addition to numerous deadlines for filing, the rules of the game can change often. Just a few examples of the changes to federal payroll guidelines made in recent years include:
Electronic Filing Requirements- New regulations were recently released that require certain corporations to electronically file their payroll taxes. Beginning in 2007, the electronic filing requirement will be expanded once again.
New Form for Nearly 950,000 Small Businesses- Beginning in 2006, certain employment tax filers will file the new Form 944 (Employer's Annual Federal Tax Return) once a year rather than filing Form 941 (Employer's Quarterly Federal Tax Return) four times a year.
Refund of Tax Penalties-Here is one that many business owners should actually like! If your business was assessed a penalty by the IRS for filing a late or inaccurate tax form, and if this was your first infraction, you could have owed to a refund of that penalty if all of your forms and deposits are timely and accurate for the next full year.
Revised Employers Quarterly Federal Tax Return Document 941- The Internal Revenue Service unveiled a new version of the employment tax return Form 941. More than 23 million of these forms are filed annually by 6.6 million employers. The Form 941 is used to report wages, tips and other compensation paid, as well as Social Security, Medicare, and income taxes collected.
Standard Mileage Rates Increased-Many businesses pay a mileage allowance to their employees that reflect the allowable tax deductible mileage rate set forth by the IRS. The IRS has in the past adjusted the standard mileage rate during the year to reflect increases in the price of gasoline. For example, From Jan. 1 to Aug. 31 of 2005, the standard mileage rate for business use of a car, van, pick-up or panel truck was 40.5 cents a mile, compared to 37.5 cents a mile in 2004. Effective Sept. 1, the rate increased to 48.5 cents a mile.
How important is it for a business to stay up to date with payment regulations? First, remember that there are literally thousands of wages and salaries related regulations set forth by the Internal Revenue Service alone. Then bear in mind that each state also has its own set of regulations for business owners to follow. Now consider that according to statistics form the IRS, more than 13,000 small businesses were audited in the year 2004 (this figure does not include larger corporations with more than $ 10 million in assets) and that the IRS brought in more than $ 41 billion dollars in total enforcement revenue during that same year (this figure includes enforcement revenue from both payroll and non-related related sources).
One way to make sure that a business follows the rules is to enlist the help of a professional who has experience in dealing with payment matters. Most often, outside help will come in the form of either an accountant or a payroll service provider. Accountants will typically provide tax filing services and for a fee may advise clients on payment related matters, even if the accountant is not the person actually producing the paychecks. Some accountants will produce the paychecks for a client as well, though not all will do this. The other option is to utilize the services of a payroll provider. A payroll company will typically handle all aspects of payroll, from weekly paychecks to filing the correct tax documents on time, making tax deposits to the IRS and to the proper state regulatory body, providing year end W2 statements to all employees, as well as direct depositing employee checks electronically. The cost of these services varies, but a typical rate may be in the range of $ 40 to $ 50 for each pay period for a small business with approximately 10-20 employees. The cost of payroll services will typically go up by $ 1- $ 2 for each additional employee.
Of course, not all businesses choose to enlist outside assistance. With the help of software programs such as QuickBooks and a little time spent studying the relevant payroll regulations, many business owners choose to tackle payroll on their own. In fact, the IRS has a section on their website that outlines both the basics of the current federal payroll laws, as well as regular updates to payroll laws as they occur. You can learn more about federal payroll regulations by going to the employment taxes section of the IRS website at [http://www.irs.gov/businesses/small/content/0],,id=98942,00.html. State laws vary from one state to another, but most states do have similar information available on their websites as well.