Employment Tax Strategy
For a business of any size, one of the most significant costs is taxes. At KJK, our tax attorneys help clients effectively and efficiently manage their taxes.
With sophisticated and comprehensive counseling in federal, state and local taxation, plus employee benefit matters and more, we offer skilled tax guidance for employers and help them institute sound employment tax strategies. Working with our clients, we help their business prioritize compliance and understand risks when creating an employment tax strategy.
Navigating Tax Complexities:
Common Mistakes Regarding Employee Benefits
Employee benefits are a smart way to help attract and keep talented employees and help your business save on taxes. Like salaries, wages and commissions, the cost of employee benefits is tax deductible.
However, it’s not uncommon for employers to make tax mistakes with employee benefits, which can come with a cost. Whether it results in extra benefits, complaints, fines or lawsuits, it’s important to know what mistakes to avoid so your business doesn’t learn the hard way.
Confusing the two can cause costly mistakes. That’s why employers need to understand the reporting requirements based on who receives the benefit. The employer must include taxable fringe benefits they pay for in their employees’ W-2 statement. However, if you have independent contractors, you must report their taxable fringe benefits on their Form 1099 in the miscellaneous section.
Understanding your tax obligations and which laws and regulations you must follow can be confusing. Working with KJK’s attorneys can help you navigate these complexities, and if you run into issues with the IRS, we regularly resolve issues through the IRS Appeals and litigate on behalf of taxpayers when necessary.
Employee Benefit Mistakes to Avoid:
Independent Contractor Misclassification
One of the most common mistakes is misclassifying an individual as an independent contractor. When an employer inadvertently classifies an individual as an independent contractor, they may owe thousands in premiums for workers’ compensation insurance and premiums for unemployment insurance. Even worse, the employer could be held responsible for medical costs for someone not covered under workers’ compensation and may owe taxes and social security taxes.
To avoid this mistake, KJK attorneys can help make sure you review your independent contractor relationships for consistency with state and federal standards. Things to look for include if they have a Federal Employer Identification Number and are incorporated.
Fringe Benefits Mix-ups
Another common error involves failing to distinguish between taxable and nontaxable fringe benefits. Examples of taxable fringe benefits include things like vacation, bonuses and athletic club memberships. Those excluded from gross income include employee discounts, group term life insurance and use of company vehicles.
Protect Your business
Employment and Payroll Taxes: Pitfalls to Avoid
Almost every business owner experiences employment and payroll tax issues at some point. While the IRS takes all federal tax issues seriously, payroll tax problems can be even more challenging.
Some common difficulties employers face with employment and payroll taxes include failing to withhold and pay federal taxes, making payroll tax deposits and payments late, and failing to issue IRS form 1099. We can help you understand the proper worker classifications, payroll reporting requirements and what you must provide to the IRS to ensure you comply with all state and federal laws and regulations.
Not Withholding Federal Income Tax
All employers must withhold federal income tax, Social Security and Medicare taxes from employee salaries and wages. If they don’t, the IRS requires the business owner to pay taxes on the income paid to employees plus significant fines. In some cases, you could even be held criminally liable.
Late Payroll Tax Deposits and Payments
If an employer makes payroll tax deposits and payments late, the IRS can charge them fines and penalties. You can avoid this by ensuring you make your tax deposits on the 15th day of each month when taxes are withheld from employee paychecks.
Omitting IRS Form 1099
Employers who hire subcontractors or outside companies to complete work for their business commonly forget to issue IRS Form 1099 to these individuals and provide copies to the IRS. Failure to do so means a $75 penalty for each unissued form, and the employer could be on the hook for up to 31% of the amount paid in federal taxes.
Common Executive Compensation Problems
When an employer provides executive compensation, such as bonuses and stock options, how the compensation is taxed, when and whether it can be deferred all play a role in designing executive compensation packages.
Due to Wall Street reforms, heightened scrutiny among investors and guidance issued by the IRS, executive compensation has changed dramatically in recent years. With this change come complex tax implications for forms of executive pay, making it easy for companies to make mistakes that affect their finances and public images.
Executive compensation is a complicated area of law because it covers a range of tax issues that affect non-qualified deferred compensation, restricted stock, stock options, phantom stock and other equity, shareholder and governance issues.
When an employer pays an employee under a phantom stock plan, the employer is allowed a compensation deduction. Because the payment is considered compensation, the employer should withhold income tax and employment taxes. However, sometimes companies accidentally fail to withhold them, resulting in tax complications.
We’re Here to Help:
Ease Your Tax Burden with KJK
Give our experienced tax practice group a call to work with a tax attorney for employers who can help reduce your tax burden, ensure you comply with local, state and federal tax laws, and help you implement a smart tax strategy for your business.