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The IRS has several rules and regulations when it comes to governing payroll. Your mission, whether you are a business owner or payroll manager, is to avoid running into problems with the IRS. Avoiding an audit is a goal for anyone, and can be done partially by not making mistakes with payroll.
Payroll seems so simple. Yet, one mistake can bring problems both from the government and your employees. According to the IRS’s “Employment Tax Research Project” payroll mistakes tend to fall into four categories. Whether because of wrong time clock data or deliberate fraud, payroll mistakes tend to occur in:
· Fringe benefits
· Worker misclassification
· Payroll taxes
· Executive compensation
Broken further down, common payroll mistakes made by businesses tend to boil down to:
1. Classification of Employees as Independent Contractors
2. Failure to Subject Vendor Payments to Backup Withholding
3. Failure to Issue Form 1099s
4. Not Including the Fair Market Value of Gift Cards, Prizes and Awards in Employees' Income
5. Failing to Timely Deposit Withheld Taxes
6. Failure to Timely Deposit Withholding Taxes on Vested Restricted Stock and Exercise of Stock Options
7. Incorrectly Excluding Expense Reimbursements from Reportable Wages
8. Failure to Include Nonqualified Deferred Compensation in Executives' Incomes
9. Not Including the Appropriate Value of Taxable Fringe Benefits in Employees' Income
10. Excluding Travel and Commuting Expense Reimbursements from Employees' Income.
Avoiding these mistakes can be as easy as investing in a new time clock or even hiring outside payroll management. Either way, it is always in your best interest (and your employees’ interest) to have an efficient, effective payroll system in place.