Like many businesses, you may be feeling the financial crunch and are tempted to use money you deduct for payroll taxes from employee wages. Failing to remit payroll taxes and retirement plan contributions in a timely manner is not only a violation of certain payroll tax laws, it can also subject your company to heavy penalties.
When employers deduct income and Social Security taxes from employees’ wages, the money is not theirs to use. You must remit the deducted amounts, along with your portion of payroll taxes, by the next Federal Tax Deposit deadline. There are deposit penalties for making late deposits and for not depositing the proper amount.
There are also penalties for failing to file returns and pay taxes when due, for filing false returns and for submitting bad checks. The rate of these penalties will increase with every passing day, until deposits are made. Interest is also charged on the total unpaid tax and the penalty. These penalties and interest can add up quickly and lead to even bigger financial troubles for your clients.
If you maintain a retirement plan and allow your employees to make elective deferrals, you cannot use any money you deduct for contributions to pay other expenses. This applies even if the expenses are business related. Instead, under the Employee Retirement Income Security Act of 1974 (ERISA), deposit the deducted amounts as soon as those amounts can be segregated from their own general assets. This should be done no later than the 15th business day of the month, immediately after the month in which they withheld the contributions.
Plans with fewer than 100 participants are treated as meeting this deposit rule. Such contributions have to be transferred to the plan within seven business days from the date those amounts would otherwise have been payable to the employee in cash.
Instead of using money that is not yours, explore other payroll options or business options. For example, reduce your overhead or borrow money to meet your business expenses. In the long run, these other options will be less costly for you.
If you are looking for resources to help you with payroll tax laws or a professional employee organization (PEO) fill out the form below and a rep from Next Generation Payroll will contact you. Next Generation Payroll is top payroll company located at 11816 Inwood Rd #3013 Dallas, Texas 75244. They offer several different services that go far beyond payroll. They can provide you with insight on different employer health insurance options as your personal insurance broker, digital marketing specialist, and human resource management consultant.
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