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It’s Tax O’Clock! The Importance Of Timely Tax Payments

It’s Tax O’Clock! The Importance Of Timely Tax Payments

by | Aug 15, 2024 | Payroll

Do you dread making quarterly tax payments and filing your reports when tax o’clock strikes? Although having employees is necessary, quarterly reports can be tedious. Making timely payroll tax payments and report filing will keep you compliant with the IRS and allow you to avoid penalties. This is a habit worth building for your peace of mind.

Who pays quarterly tax payments?

Employers pay quarterly taxes on their employees’ payroll.

Quarterly payroll taxes include:

  • State Income Tax (if applicable)
  • Workers’ Compensation Tax
  • Federal Unemployment Tax
  • State Unemployment Tax

Self-employed business owners are required to pay quarterly estimated tax payments. 

Self-employment covers:

  • An independent contractor
  • A sole proprietor
  • A member of a partnership 
  • A person who runs a business as your own (even if only part-time)

Self-employed individuals must pay these two taxes:

  • Self-employment tax (Social Security and Medicare)
  • Income tax on the profits of your business and any other income.

Quarterly payments are not the same as W-2 and 1099 filings. W-2 and 1099 forms report wages and other income paid to employees and contractors, while quarterly tax payments are the tax payments you make to the IRS and state tax authorities.

Why do I need to make quarterly tax payments?

Timely quarterly payments allow you to be:

  1. Compliant with the IRS: Ensuring you pay your payroll and federal estimated taxes every quarter keeps you in good standing with the IRS and avoids legal complications.
  2. Prevent Penalties and Interest: Late payments can result in significant fines that quickly add up and strain your business’s finances.
  3. Improve Cash Flow Management: Regularly paying taxes ensures you have enough money for your tax obligations, improving your cash flow management.
  4. Maintain Financial Stability: Timely tax payments are about compliance and contributing to your business’s financial stability. 

Filing Deadlines: 

  • Payroll Taxes: Payroll tax payments and reports are due by the end of the month following the end of each quarter (April 30th, July 31st, October 31st, and January 31st). The Federal Unemployment Tax should be paid online at EFTPS. On this site, you pay your Federal Withholding Taxes, Social Security Taxes, and Medicare Taxes after each payroll is run. If your Federal Unemployment Tax is less than $500 a year, it will only be due annually. You will need to file your quarterly 941 along with a Schedule B if you pay semi-weekly, and this will cover your Federal Withholding Tax, Social Security Tax, and Medicare Tax. Because you have been paying these taxes with each payroll, this report will tie the wages to the taxes paid for the quarter. 
  • Federal Estimated Taxes: Estimated taxes are due by the 15th of April, June, September, and January of the following year.

What are the penalties if a filing is late?

Penalties for late payment or underpayment:

  • Payroll Taxes: Penalties vary but can be as high as 15% of the unpaid tax plus interest. 
  • Federal Estimated Taxes: Penalties vary for underpayment of estimated tax. The penalty starts at 0.5% of the unpaid tax amount per month, with a maximum penalty of up to 25%. 

Benefits of Timely Payments:

  1. Prevent Legal Issues: Meeting your tax obligations on time helps avoid legal issues with the IRS.
  2. Eliminate Chaos: Regular tax payments prevent the chaos and stress of last-minute filings.
  3. Reliable Budgeting: Tracking your tax deadlines and amounts helps you budget better and manage your finances throughout the year.
  4. Reputation Management: Maintaining good standing with the IRS enhances your business’s credibility with clients, customers, and employees.

How can you stay compliant?

Practical tips for consistent Quarterly Tax payments and reports:

  1. Automate Reminders: Use a calendar or automated reminders to ensure you never miss a deadline.
  2. Tax Savings Account: Save a portion of your monthly income in a dedicated account to cover your tax payments.
  3. Professional Guidance: Consult a tax professional for expert guidance to ensure you maximize deductions and credits. They can also help you determine what should be paid in your quarterly estimated taxes. 
  4. Educate Yourself: Keep up-to-date with tax regulations and changes to avoid surprises and ensure compliance, giving you peace of mind.

Consistency in filing quarterly payroll and federal estimated taxes allows you to stay legally compliant and maintain your business’s financial health. With some organization and planning, you will quickly finish this task and get back to growing your business. 

Does Tax O’Clock steal your peace of mind? I can help you get your books in order. Schedule a call to learn more.

W-2s and 1099s: How To Avoid Penalties And Stay Compliant

W-2s and 1099s: How To Avoid Penalties And Stay Compliant

by | Jul 12, 2024 | Payroll

Whether you hire employees or freelancers for your business, you must file W-2s and 1099s regularly. It may not be an exciting topic, but it is crucial to your bottom line. Missing deadlines or filing incorrect forms can lead to hefty penalties.

Doing payroll is the adult equivalent of a high school math class – you know it’s important but tedious.  You start enthusiastically, thinking it’s a quick job, but distractions arise and fires need to be put out. only to be distracted by putting out fires in your business. In the end, organizing the supply closet sounds like an exciting adventure compared to deciphering payroll forms!

The clients I work with file W-2s, 1099-NECs, or 1099-MISCs. Each form has a different purpose and covers various types of payments.

W-2 (Wage and Tax Statement)

This form reports wages paid to employees and the taxes withheld from those wages during the calendar year. 

Must be issued for all employees who have been paid a salary, wage, or other form of compensation.

Used to report:

  • Gross wages, salaries, and tips.
  • Federal income tax withheld.
  • Social Security tax withheld.
  • Medicare tax withheld.
  • State and local income tax withheld.
  • Employee contributions to retirement plans.

This form must be provided to the employee by January 31st.

It must be filed with the Social Security Administration by January 31st, either electronically or on paper.

1099-NEC (Nonemployee Compensation)

The IRS re-implemented this form in 2020, which hadn’t been used since the 1980s. I discussed this form in more depth in a previous blog post.

This form reports payments made to non-employees, such as independent contractors, freelancers, and self-employed individuals, for services performed.

Must be filed for a nonemployee who received payments of $600 or more in a calendar year.

They are used for payments for services performed and commissions, fees, prizes, awards, or other compensation for services.

Must be filed with the IRS and provided to the recipient by January 31st.

1099-MISC (Miscellaneous Income)

On this form, you report income other than wages, salaries, and tips that you report on your W-2 form.

Must be filed to report payments of $600 or more in a calendar year for most types of payments. However, different thresholds apply for certain payments. (Example: Report royalties of $10 or more.)

Common uses:

  • Rent payments
  • Royalties
  • Prizes and awards that are not for services performed
  • Payments to Attorneys
  • Other income payments
  • Medical and healthcare payments
  • Crop insurance proceeds
  • Payments for fishing boat proceeds
  • Section 409A deferrals

This form must be provided to the recipient by January 31st. If filed electronically, the filing deadline to the IRS is March 31st, and the filing deadline for paper filing is February 28th.

Penalties: Yikes!

Missing deadlines for W-2s and 1099s can be costly. The penalties range from $50 to $270 per form, depending on how late you file.

In order to avoid penalties, start with accuracy. Double-check critical details like Social Security numbers, addresses, and income amounts. Cross-reference your payroll records with the forms before filing to ensure everything matches up.

Online Filing: Get Tech-Savvy

If you’re filing more than ten forms, it’s time to embrace technology. Register with the IRS’s Information Returns Intake System (IRIS) for streamlined electronic filing. Remember, you can’t just print forms from the IRS website as they require special ink and paper.

Common Mistakes to Avoid

  • Incorrect Information: Ensure all data, especially Social Security numbers and income amounts, are correct.
  • Missing Deadlines: Mark your calendar and set reminders to meet all filing deadlines.
  • Inadequate Records: Keep thorough payroll records to back up the information on your forms.
  • Failure to Register for E-Filing: Register with the IRS for electronic filing if required.

Helpful Resources

  • IRS Website: For the latest updates and detailed filing instructions, visit irs.gov.
  • Social Security Administration: For W-2 filing guidelines, check out the SSA’s employer page.

Knowing the deadlines, understanding penalties, and embracing electronic filing rules can make handling W-2s and 1099s easier. Stay organized, focused, and proactive to keep your business tax-compliant and stress-free. 

Let’s be honest – you didn’t start your business to get buried in bookkeeping and payroll paperwork, right? Let’s chat if managing your bookkeeping feels like trying to herd cats! Schedule a consultation call with me, and we’ll explore how to work together.

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