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outsourced payroll is the key
Beat The Tax Penalties: Why Outsourced Payroll is the Key
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By: Arlette Measures
A Quick Guide to Outsourcing Payroll & Omitting Tax Penalties

In a recent study by ADP Research Institute, 30% of companies surveyed have had to deal with unexpected expenses in the form of penalties, fines, and even lawsuits this
past year--all because of unintentional non-compliance with government payroll tax and workforce regulations.

This is despite the fact that 83% of the business owners surveyed had been confident about their compliance with payroll tax laws and regulations. And 80% expressed
similar confidence regarding workforce regulations involving workers’ compensation, 401(k) management and the like. The study also revealed that close to a third of the
firms that had been hit with fines and penalties received more than just one; an average of six, in fact, was reported, with a total average cost of more than $90,000.

Notably, businesses in the study that processed payroll in-house received almost twice as many fines as those using an outsourced payroll service.
New legislation, such as the Affordable Care Act (ACA), has complicated matters even further; while 70% of business owners felt confident that they were in compliance with the ACA, fewer than half believed their organization fully understood the new regulations.

Regulatory compliance challenges have greatly increased for businesses of all sizes. The above findings apply to mid-sized firms, but smaller businesses are by no means
exempt from the threat of unexpected fines and penalties. The IRS reports that 40 percent of small businesses pay an average penalty of $845 a year in tax related

Here are the top six penalties to look out for if you own or manage a small business:

1. Failure to file or filing late–If you owe taxes but fail to file by the due date, you could be penalized at a rate of 5% per month, up to a maximum of 25%. Be sure to file your taxes, even if you cannot pay at the time, because the penalty for not filing is steep.

2. Failure to pay or paying late –The penalty for failure to pay your taxes is .5% per month on the outstanding tax balance. This penalty can be reduced to .25% a month if you accept an instalment agreement to pay back the taxes you owe. However, it can increase to 1% per month if the IRS has issued a notice of intent to levy. This penalty has a maximum of 25%.

3. Estimated tax underpayment –The IRS will assess a penalty if you do not pay at least 90% of your estimated taxes for the current year. This amount should be paid in equal instalments; you may be hit with a penalty for paying less in earlier months and more later in the year. The best way to avoid these fines is to be sure to pay at least 100% of the amount of your prior year's tax bill in equal quarterly instalments. Make that 110% if your business earns over $150,000.

4. Inaccuracy–Tax return errors due to negligence, or significantly understating the amount of taxes you owe, can result in a 20% penalty. For example, if you are audited by the IRS and are unable to provide satisfactory proof for the deductions you have entered, you will face this penalty.

5. Tax fraud– This one is huge; if the IRS finds that you have filed your taxes with the intent to commit fraud, intentionally under-reporting your income, you will be
charged a 75% tax fraud penalty on the amount that you under-paid. File your taxes accurately and with scrupulous honesty, and you won’t have to worry about this penalty.

6. Trust Fund Recovery Penalty (TFRP) – If you have employees, you are required to withhold and pay trust fund taxes. These are simply your payroll taxes, which you essentially hold in trust for your employees until tax time. This includes income tax, federal unemployment tax, Social Security and Medicare. You should be sending these to the IRS each month. The penalty for not doing so is equal to the unpaid balance of the trust fund tax. However, if your total payroll taxes amount to less than $2500 a month, you can file the withholdings quarterly.

7. Failure to e-file– If your total amount of payroll taxes exceeds $200,000 in a year you are required to file using the Electronic Federal Tax Payment System (EFTPS). Failure to do so will result in a 10% penalty.

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