PAYROLL TAX AND WAGE COMPLIANCE RULES

by Karla Hopkins, CPA

Outsourcing your payroll to a service company has the potential to cause compliance issues. Whether you pay your payroll taxes yourself or rely on a service company to remit them for you, you are ultimately and always responsible - even if the payroll company makes errors. 
 
Regularly assure yourself that all payroll taxes are being paid with the following steps:

1. Hire only bonded service companies

2. Do not allow the payroll service company to sign tax returns

3. Always confirm that the payroll company has deposited your payroll taxes by

    logging into the IRS website yourself

4. Do not allow tax correspondence to be sent to the payroll company have it

    sent to you

5. Request that the IRS provide you with a transcript of the company's tax accounts

    on a regular basis

Final Wages - When must you pay them to a terminated employee? 
While state laws vary, the best strategy is always to deliver the final paycheck at the time of termination. It is much easier to reconcile a manually prepared final check than to fight over the check in court. Disgruntled employees will often put in the time and effort to take you to court over noncompliance.

Basic rules for New England states are as follows:

                                                  If an employee quits                     If fired or laid off 
    Massachusetts                            Next Payday                                Immediately
    Maine                                         Next Payday                               Next Payday     
    New Hampshire                         Next Payday                               Next Payday or

                                                                                                           within 72 hours
    Rhode Island                              Next Payday                               Next Payday

When does the workday begin and end?
Technology now allows employees to do work at remote locations in small increments, but is this compensable time? Is every response from your smart phone to an employer, customer or vendor time that should be paid? Regulations allow employers to disregard insubstantial or insignificant periods of time beyond the employees' regular work day if it is not practical for this time to be recorded for payroll purposes.

When you log in to your workday via your computer, what about the time it takes for your computer to wake up in the morning, is this compensable time? The FLSA says “yes”.

 

Filing an Amended Tax Return by Carolyn Flaherty

So you got a jump on things, filed your return early… and then received an unexpected Form 1099 that should be reported. Maybe your investment advisor found a mistake and mailed you a corrected Form 1099 after you filed your return? You filed as married filing jointly and realized later that this year married filing separately generates a lower tax liability. Perhaps you found a mistake when you did the spring cleaning of your finances? Regardless of how the error occurred you need to know how and when to file an amended tax return.

First, you do not typically need to file an amended return for math errors. The IRS automatically corrects the errors and changes your refund or liability for you. Neither do you need to file an amended return if you neglected to attach required forms. The IRS will contact you to request forms if they need them. However, you should consider an amendment if filing status, income, deductions or credits require adjustment.

Amendments generally must be filed by the later of three years from the date you originally filed the tax return or two years from the date the tax was paid. You must prepare a Form 1040X to amend your return. As you compile your amended return, consider the following:

1.       You cannot correct a prior year error on your current year return. You must go back and properly report the item in question in the year that generated the error.

2.       If corrections are necessary for more than one year, you should prepare a Form 1040X for each year and mail them to the IRS separately.

3.       Include support for your changes with Form 1040X. For example the corrected or additional 1099, W2 or other forms should be attached and mailed with the amendment.

4.       Form 1040X cannot be filed electronically.

5.       If you are filing an amended return to claim an additional refund: file after receiving your initial refund. You may utilize the original refund: the IRS will remit the differential after the amendment is processed.

6.       If you are filing an amended return that results in additional tax liability: remit payment with the filing so that penalties and interest can be minimized.

7.       Amended returns will take up to twelve weeks to process.

Mistakes can occur whether you prepare your own return or consult with a CPA to do so. Our blog posted February 19, 2011 “Should I prepare my own tax return,” (direct link: http://www.prrllc.blogspot.com/2011/02/should-i-prepare-my-own-tax-return-by.html), may help you decide how to proceed. As stated in that blog, regardless of whether or not you are confident in your ability to prepare your own returns; we strongly recommend that about every three years you go for a financial “checkup.” If a professional finds missing deductions or mistakes during their review; you will have the ability to amend during the three year period.

In addition, sometimes an IRS Notice will be the catalyst for an amended return. The most important thing to remember upon receiving a notice form the IRS is not to panic. Review our blog published January 19, 2012 “What to do if you receive an IRS Notice,” (direct link: http://www.prrllc.blogspot.com/2012/01/accounting-news-has-been-reporting.html), and consult your tax advisor so they may review your return and properly advise you.