4 Ways to Save on Payroll Taxes for Business Owners

The biggest hit that most employees take when looking at their paychecks are the taxes. Recently, there have been news articles of employers deducting the payroll taxes from employees checks but never paying the taxes to the government. While some of these stories state that the perpetrator lived lavishly off of the tax money, it provides an example for small businesses everywhere to ensure that they pay their correct payroll taxes to save themselves fines and possible jail time. Find a tax preparer that is qualified to understand and correctly file payroll taxes, such as Daniel Farmer at The Accounting & Tax Company.

Payroll Taxes: Who is Responsible?

In the United States, payroll taxes are calculated by the federal government and each jurisdiction within the United States, such as specific states or cities. Each has their own tax laws to add to the federal government’s. It is the responsibility of the employer to collect payroll taxes and complete the required reporting, both quarterly and annually, to the government.
 Withholding taxes for imposing income taxes is the responsibility of the employer. However, it is the responsibility of the employee to correctly fill out their IRS W-4 form to indicate the amount of taxes to withhold for their specific financial situation.
 In the United States, federal income tax withholding is a given in most situations, but some areas and states of the country do not require income taxes. Talk with your tax preparer to discuss what is required in your area. If you are in an area that does not require income taxes this could save you money over time.
 For Social Security, a tax of 12.4 percent and for Medicare, a tax of 2.9 percent, is typically enforced. It is the responsibility of the employer to ensure that the appropriate amount is set aside as well as taken out of the employee’s checks.
 Employers have the added tax of unemployment taxes. Unemployment taxes fall under the jurisdiction of both federal and state levels. Find a tax preparer to assist you in understanding how much you would need to pay in order to meet all of the criteria of filing the appropriate tax return.
 Employers who fail to correctly file and pay in a timely manner are subject to automatic penalties, which can be anywhere between 2 and 10 percent. This fact is specifically for federal taxes, however, most state and local entities have a similar penalty ranges. When tax time nears, an employer can also receive a penalty for failure to file W-2 forms, which is assessed for each employee.

Ways to Reduce Your Payroll Taxes

1. Reimbursing business expenses. If your business reimburses your employees for travel expenses, tools, or other expenses with a direct connection to completing their work, then you may be able to set up an accountable plan. Accountable plan expenses must be tracked and verifiable by the employer. In addition, if there was an error, then the employee needs to return excess funds. Should all of these criteria be met, then employee reimbursements are not taxable to the employees and are exempt from Social Security, Medicare, and unemployment taxes.
2. Increasing benefits. As an employer, you may think about beefing up you fringe benefits package to reduce your payroll taxes. Some benefits are exempt from Social Security, Medicare, and unemployment taxes. Benefits can have the effect of reducing employee turnover and create a higher employee satisfaction rate. These benefits include group-term life insurance, dependent care assistance, education assistance, employee discounts, and moving expenses. Talk with your tax preparer to determine if these benefits could also benefit you and your business.
3. Consider independent contractors. You may need to redefine what it means to be an employee of your business. If your company can make the official switch to making your employees independent contractors, then typically as a business owner, you do not need to withhold payroll taxes. For this official switch, it is in your best interest to get a lawyer and a tax expert involved in the process. Should the switch go smoothly then it could save your business money.
4. Consider retirement options. Finding the right retirement vehicle for your business and your employees are important, but it can also save both the business and the employees money in taxes because of the overall reduced income. While other investment vehicles will allow you to claim a deduction for the business.

Find a tax preparer to give you advice on the reducing your tax responsibility such as Daniel Farmer at The Accounting & Tax Company. That way, you can reduce your costs and fully explain any decisions to your employees.