Compliance should be a concern for every business. While each company may face a unique regulatory challenge, all must consider taxes. Taxes deducted from payrolls are strictly enforced by the IRS and make up almost 72% of the agency’s collected revenue.
To protect an organization’s tax liability, HR must understand and effectively manage:
- numerous tax forms
- any state(s) of operation
- adding new employees (and their accounts) into payroll
- local tax requirements
- employee address changes
- updates to existing tax laws
- and more
What does this mean for HR professionals? Stress, especially without effective payroll tax management tools. Any one misstep risks consequences like an unexpected audit or costly penalties.
Luckily, tax compliance doesn’t have to be taxing. Knowledge and the right technology help employers readily comply and provide HR professionals with insight and peace of mind. We’re here to help!
First, we’ll identify what payroll taxes are and the common laws surrounding them. Then, we’ll examine the common payroll tax challenges and how great HR tech helps overcome them.
1. What are payroll taxes?
Payroll taxes are percentages of an employee’s wages paid to fund federal, state and local government programs. For an employee, taxes are calculated based on their:
- wages
- salaries
- tips
- taxable fringe benefits
It’s worth noting payroll taxes fund specific programs, like Social Security and Medicare. Income taxes are also deducted from payroll and used by the federal, state or local governments as general funds.
By extension, employers must withhold the appropriate taxes from each employee’s pay and submit them to the multiple agencies, including the IRS, states and even local agencies. Without a reliable payroll provider, businesses have to make payments and upload their information to all relevant agency revenue department websites or physically mail paper checks and forms.
If this administrative burden weren’t enough, employers without effective payroll tech must manually enter data for every new hire on their appropriate agency website.
2. Who pays payroll taxes?
Everyone! Both employees and their employers are responsible for paying payroll taxes.
While these taxes are derived from what an employee earns, it falls on a business to accurately deduct and submit them. New hires generally complete a federal Form W-4 to help determine their ultimate tax liability, but this doesn’t account for every payroll tax they may be subject to. Other state agencies may require a similar form.
3. What are the different types of payroll taxes?
Payroll taxes come in many different forms. Complying with all of them is critical to a business’s success. Consider a few of these common federal payroll taxes.
Federal Insurance Contributions Act (FICA)
FICA is payroll tax that helps fund Social Security and Medicare programs. This tax benefits retirees, veterans, children and persons with disabilities. FICA is assessed at both the employee and employer level based upon certain wage thresholds.
Federal Unemployment Tax Act (FUTA)
FUTA affects any business that pays its employees $1,500 or more annually. As its name implies, the law helps support unemployed individuals. Employers are responsible for calculating and remitting this tax.
State Unemployment Tax Act (SUTA)
Like FUTA, SUTA — also known as “state unemployment insurance” — is a payroll tax collected to support a state’s unemployment fund. Employers are responsible for obtaining the appropriate SUTA rate from the state unemployment agencies to calculate and remit this tax.
State and local payroll taxes
In addition to adhering to the common federal laws, it’s essential for HR professionals to stay aware of requirements unique to their cities and states. A single state may have a law that dictates:
- payroll taxes
- payroll schedules
- reporting requirements
- filing deadlines
To put it bluntly, tax requirements are always changing. It’s important for companies to be agile and aware of the latest payroll tax updates and rules.
4. Why is payroll tax management important?
The consequences of failing to accurately and punctually pay payroll taxes quickly add up. On top of steep penalties for late filing, the IRS may charge penalties for late payment of:
- 2% for payment that’s one to five days late
- 5% for payment that’s six to 15 days late
- 10% for payment that’s over 16 days late
- 15% for an extended delay
For employers, tax debt may also produce liens that can’t be discharged through bankruptcy. Extreme cases of noncompliance even risk civil and criminal sanctions against officers or owners of the business. For employees, failing to submit payroll taxes may disqualify them for benefits related to:
- Social Security
- Medicare
- unemployment
5. What is payroll tax management software?
Payroll tax management software helps HR reduce the strain of payroll tax responsibilities by automating many of the process’s most tedious aspects.
While companies remain liable for their payroll taxes, effective payroll tax management software helps alleviate a significant administrative burden. With this relief and peace of mind, HR has an opportunity to focus on empowering employees, strategizing and maximizing a company’s ROI.
6. What are the benefits of payroll tax management software?
Payroll tax management brings its own share of obstacles. Here are a few ways effective payroll tax management software addresses each of them:
Deadlines
With every tax comes a deadline for payment. Strict timing requirements quickly can become overwhelming. In fact, a OnePoll survey reveals 4 in 5 HR professionals are stressed about payroll errors, with missing a tax deadline among their top concerns.
The right payroll tax management software provides frequent reminders and even submits tax payments on an employer’s behalf, leaving HR with one less time-consuming task.
Accuracy
Some taxes are already puzzling; their associated tables add another layer of complexity. Manually calculating taxes takes a significant amount of time and leaves a huge margin for error.
A strong HR tech provider weaves these intricate algorithms into the logic of its software, providing HR professionals with a seamless, automated and expedited process.
Plus, a self-service payroll experience allows employees to verify their taxes before payroll runs, providing added assurance without slowing down operations.
Forms
Aside from deadlines, what are inseparable from taxes? Forms! To ensure compliance, employees and contractors need to provide their tax information through:
- W-4s
- W-2s
- 1099s
- and other relevant tax documents
Payroll tax management software backed by self-service tech automates this process and even pre-populates certain fields, making the process easier for employees and employers alike!
Evolving laws
Guidance that’s hard to understand doesn’t excuse businesses from failing to comply. Payroll tax management software helps employers:
- report taxes to federal, state and local agencies
- stay on top of employee address changes
- organize important tax data in one location
- identify when new tax ID numbers are needed
- avoid mistakes that lead to fines, penalties and other severe consequences
- provide employees with convenient access to their tax documents
7. How do employers find the right payroll tax management software?
Business leaders need to carefully evaluate their exact tax needs before investing in any new tech. Keep the following questions in mind as you vet a potential provider:
- Are our employees mobile or do they work across multiple states?
- Do our employees easily understand how their taxes impact their pay?
- Is this provider reliable and recommended by other businesses in our industry?
- What are some of the weaknesses with our current tax strategy?
- Does the provider offer frequent, responsive support?
- Can this provider file required reports for us?
- Does the provider offer a digital-only option for tax documents like Form W-2s?
8. How does Paycom support payroll tax management?
Paycom’s payroll tax management software helps alleviate stress by automatically calculating taxes based on an employees’ wages. By simply submitting your payroll, this powerful tool:
- debits your federal, state and local payroll taxes
- deposits taxes to the necessary accounts by their due dates
- remits your filings
Paycom’s dedicated specialists will assist with proper system setup to ensure successful taxation.
Paycom also empowers employees to enter and manage their own tax withholding information, all in a single app with one login and password. Its employee-driven payroll experience, Beti®, guides employees to find — and resolve — missing tax deductions and other errors before payroll submission.
Explore Paycom’s easy-to-use app and its intuitive tax management tool to learn how it helps you comply with confidence.
DISCLAIMER: The information provided herein does not constitute the provision of legal advice, tax advice, accounting services or professional consulting of any kind. The information provided herein should not be used as a substitute for consultation with professional legal, tax, accounting or other professional advisers. Before making any decision or taking any action, you should consult a professional adviser who has been provided with all pertinent facts relevant to your particular situation and for your particular state(s) of operation.