Payroll taxes: What you need to know for filing compliance

Smart Business spoke to Mark Strippy, Executive Director, Payroll Services at Heartland Payment Systems®, about how businesses can maintain compliance when filing payroll.

Last spring, the U.S. Court of Appeals for the 8th Circuit ruled that two owners of a trucking company and its subsidiary were personally liable for more than $2 million in payroll taxes that were not paid to the government, allegedly due to the misconduct of their businesses’ bookkeeper. The bookkeeper embezzled $10,000 from the companies, and had not paid payroll taxes for 13 consecutive quarters for one company and 17 quarters for the other.

The owners sold the assets of the trucking company several months later, and paid approximately $5 million to its employees and creditors. They did not, however, remit the outstanding payroll taxes to the government — and the IRS assessed more than $2.3 million in penalties against them.

This example underscores the significant consequences business owners may face when their businesses fail to pay the payroll taxes they withhold from their employees’ paychecks over to the government. As we approach filing deadlines for 2011, it is imperative you to file your payroll taxes on time, correctly and with the right agency in order to ensure you don’t get penalized or put your company’s existence in jeopardy.

To help ensure processing and filing compliance, there are many payroll tax solutions available that calculate your payroll-related taxes, manage monthly or quarterly employment tax reports and handle year-end paperwork. In addition, such professional services can answer essential questions and offer education about federal, state and local tax compliance. Having the appropriate system in place can make all the difference in growing your company, maintaining compliance and being more responsive to the needs of your employees.

Year-end reminders

To help you better navigate year-end payroll processing and prepare to process payroll in the next calendar year, follow these helpful guidelines:

  • Verify employee demographic data. You can be penalized for inaccurate or missing W-2s that your organization produces or fails to file.
  • Check employee wage and benefits data. Make sure you have correctly withheld taxes for the value of any taxable fringe benefits.
  • Ensure employee contributions, such as those made to 401(k) plans, have not exceeded IRS limits.
  • Check that all state, federal and local taxes were withheld correctly.
  • Run month-end for December 2011. Payroll taxes for December 2011 are due on Jan. 17, 2012
  • Run quarter-end reports for the 4th quarter. Be sure to file form 941 by Jan. 31, 2012.

Tax changes

Below is a list of key tax changes that went into effect in 2011 that may impact your business:

  • Value of health care benefits must be included. A new requirement states that businesses need to include the value of the health care benefits they provide to employees on W-2s. Although this was originally required beginning with W-2s for 2011, a one-year delay was announced in October. Employers may voluntarily report the value of health care benefits they provide on 2011 W-2s, but this will not be mandatory until the 2012 filing. The amount reported is not considered taxable income.
  • Penalty for nonqualified distributions doubles. Another health care requirement stipulates that the penalty for nonqualified distributions from health savings accounts will be doubled to 20 percent.
  • Penalty for improper filing increases. W-2 and 1099 penalties for failure to file correct and timely returns have increased. Penalties range from $30 – $250 per incorrect return. Employers need to file on time and file correctly to avoid issues.

While there’s no way around your obligations related to payroll taxes, by partnering with a reputable provider you can run your year-end payroll processing efficiently — avoiding costly mistakes.

Mark Strippy is Executive Director, Payroll Services at Heartland Payment Systems, Inc. (NYSE: HPY), the fifth largest payments processor in the United States. A Fortune 1000 company, Heartland delivers credit/debit/prepaid card processing, gift marketing and loyalty programs, Web-based payroll, check management and related business solutions to more than 250,000 business locations nationwide. For more information, visit