IRS 1099 Compliance Enforcement Heats Up

In 2010, the IRS took an aggressive step to ratchet up its ability to enforce business compliance with annual 1099 income reporting regulations. Today I will discuss form 1099-Misc and these enforcement changes. I will also share the potential consequences for not filing these annual reports and how to stay out of the IRS’s enforcement cross-hairs.

1099 Self-Incriminate-Reporting

In 2011, two seemingly-innocent questions were added to all business tax returns. These questions are:

1. Did your business make any payments that would require filing form(s) 1099, and
2. If yes, did your business file or will it file form(s) 1099?

The taxpayer is then required to check the box “yes” or “no,” a response made under penalty of perjury when the taxpayer signs the return.

Why is this Significant?

The 1099 Form series is a major part of the IRS’s Information Reporting Program (including forms W2 for wages and K-1, reporting partner and S Corp shareholder income and deductions) which tracks payments made by businesses to other taxpayers. The Information Reporting Program enforces the common taxation rule: The expense of one taxpayer is generally income to another.

The primary role of Form 1099 is to “inform” the IRS of income taxpayers receive. The IRS enters 1099 data into computers that match it against income reported on taxpayers’ returns. Any income shortfall reported by the taxpayer will automatically generate a letter and/or a bill for tax due, plus penalties and interest.

The system is so effective that, if everyone followed the information reporting rules (and deductions did not exist such as with a flat tax), the IRS could simply send taxpayers a bill for their income tax each year. This, in fact, is the procedure for taxpayers who fail to file their income tax returns.

Small Business and Form 1099 Compliance

​Although there are many 1099 forms, the most common one completed by small businesses is Form 1099-Misc, which reports self-employment income paid to unincorporated vendors, contractors, and casual labor totaling $600 or more in any given year. The addition of these questions is an attempt to close the portion of the $450 billion tax gap (the difference between taxes paid each year and taxes actually owed to the US Treasury) attributable to small businesses’ persistent non-compliance.

Back-up Withholdings and Form 1099

In order to issue forms 1099, businesses must obtain the Taxpayer Identification Number (TIN) from their service providers. Generally, this is done by providing Form W-9, Request for Taxpayer Identification, to the individual and/or business to which payments will be made. If the service provider fails to provide the requested TIN, the payer may be required to remove “backup withholdings” (currently 28%) from any payments due the provider, and remit these amounts to the IRS.

The Penalty-Trap

The basic penalty for not filing forms 1099 is generally $50 per un-filed return. This penalty, however, increases to the greater of $100 per return or 10% of the total amount that should have been reported if the IRS believes the failure was due to intentionally disregarding 1099 reporting rules. And herein lays the penalty-trap: If a business affirmatively states that they were required to file forms 1099 but fails to do so, they have intentionally disregarded the 1099 reporting rules. If, on the other hand, the business states that they were not required to file Form 1099 and it is later shown that they were, the business has intentionally disregarded the 1099 reporting rules and lied on its tax return.

An additional fear which looms among many professionals is that these developments may set the stage for what to-date has been a relatively rare penalty: Failure to collect and remit the 28% backup withholdings mentioned above. This penalty carries the same weight as the payroll taxes and is equal to the 28% tax that should have been withheld.

The Take Away

​If you have not already done so, make this a priority to avoid the penalties listed above by following the Form 1099 reporting rules. The form deadlines are January and February each year.Please remember: This or any article does not constitute or replace the advice of a qualified professional. If you have any questions regarding your taxes or would like assistance in preparing your tax returns, please feel talk to your accounting professional.

HOW TO REPORT WAGES FOR A DECEASED EMPLOYEE

If an employee dies during the year, you must report the accrued wages, vacation pay, and other compensation paid after the date of death.

Also report wages that were available to the employee while he or she was alive, regardless of whether they actually were in the possession of the employee, as well as any other regular wage payment, even if you may have to reissue the payment in the name of the estate or beneficiary.

If you made the payment after the employee’s death but in the same year the employee died, you must withhold social security and Medicare taxes on the payment and report the payment on the employee’s Form W-2 only as social security and Medicare wages to ensure proper social security and Medicare credit is received.

On the employee’s Form W-2, show the payment as social security wages (box 3) and Medicare wages and tips (box 5) and the social security and Medicare taxes withheld in boxes 4 and 6. Do not show the payment in box 1.

If you made the payment after the year of death, do not report it on Form W-2, and do not withhold social security and Medicare taxes.

Whether the payment is made in the year of death or after the year of death, you also must report it in box 3 of Form 1099-MISC, Miscellaneous Income, for the payment to the estate or beneficiary. Use the name and taxpayer identification number (TIN) of the payment recipient on Form 1099-MISC. However, if the payment is a re-issuance of wages that were constructively received by the deceased individual while he or she was still alive, do not report it on Form 1099-MISC.

Let’s look at an example

Before Employee A’s death on June 15, 2015, A was employed by Employer X and received $10,000 in wages on which federal income tax of $1,500 was withheld. When A died, X owed A $2,000 in wages and $1,000 in accrued vacation pay. The total of $3,000 (less the social security and Medicare taxes withheld) was paid to A’s estate on July 5, 2015. Because X made the payment during the year of death, X must withhold social security and Medicare taxes on the $3,000 payment and must complete Form W-2 as follows.

• Box a – Employee A’s SSN
• Box e – Employee A’s name
• Box f – Employee A’s address
• Box 1 – 10000.00 (does not include the $3,000 accrued wages and vacation pay)
• Box 2 – 1500.00
• Box 3 – 13000.00 (includes the $3,000 accrued wages and vacation pay)
• Box 4 – 806.00 (6.2% of the amount in box 3)
• Box 5 – 13000.00 (includes the $3,000 accrued wages and vacation pay)
• Box 6 – 188.50 (1.45% of the amount in box 5)

Employer X also must complete Form 1099-MISC as follows

• Boxes for recipients name, address, and TIN – the estate’s name, address and TIN
• Box 3: $3,000.00 (Even though the amounts were withheld for Social Security and Medicare taxes, the gross amount is reported here).

If Employer X made the payment after the year of death, the $3,000 would not be subject to social security and Medicare taxes and would not be shown on Form W-2. However, the employer would still file Form 1099-MISC.

Nonprofit payroll requirements: Best Practices

Easily the biggest challenge of running a nonprofit is trying to do more with less, to make limited resources stretch further. Following all the nonprofit payroll requirements, laws and regulations is challenging. This is no different for companies with dedicated payroll and HR staff.

Most nonprofits have to make due with a person who’s wearing several other hats in the organization at the same time. Many know 501(c)(3) nonprofit organizations are not taxed on profits. Not as many know that NPOs do pay other taxes.

Lets not forget, however, that having to go through all that hassle is a good thing.

Moving from exclusively volunteer staff to having at least one paid position means your NPO is growing. And you’re accomplishing more of your mission.

Though far from being an exhaustive tutorial, here are some key best-practices to follow when adding paid staff to your NPO:

Salary & Wages Versus Bonuses & Commissions

This is one of those spots where for-profit companies differ from nonprofit payroll requirements. The IRS keeps a close eye on nonprofits for the potential of fraud. To that, wages that are not seen as ‘reasonable’ draw IRS attention.

This is particularly problematic considering that there isn’t a perfect method for determining what’s ‘reasonable’. At best, a company can look at market rates for a employees in similar positions and pick a number that’s conservative.

Bonuses & Commissions aren’t generally well received by the IRS. Reason: typically they’re associated with maximizing sales and profits.

The intended goal of a nonprofit is to direct its revenues towards a cause rather than improving the bottom line.

And it’s implied that bonuses and commissions are counter to this goal. Unless of course they’re seen as “reasonable,” which like above is essentially an educated guess at best.

It’s good corporate governance practice that the board of directors be aware of and approve of the Executive Directors total compensation package. The ED in particular draws attention (in many NPOs this is the only paid position). Just remember, when conducting the ‘reasonable’ test, include everything. This means memberships, vehicle allowance, contributions to retirement plans, etc.

Tread Carefully With Payroll Classifications

Can you save money by paying your staffers as contractors instead of employees? Contractors are workers who are not on your payroll, and instead are paid a flat fee for for their services. You must issue a Form 1099 at the end of the year recording total earnings to all contractors.

Tricky question: considering that paying a contractor means not having to cover payroll taxes, technically the answer is ‘Yes.’ The problem is that nonprofits don’t have as much say here as they tend to think.

The final determination of whether or not a staffer is a contractor or not is decided by the IRS. If the nonprofit thinks it doesn’t have to cover payroll taxes, it won’t. This can be an expensive mistake down the road – one that could sink the ship.

The IRS will hold the nonprofit responsible for the employer portion, the employee portion, and likely penalties and interest.

Check out this extensive research on Employee vs Independent Contractor.

Withholding Payroll Taxes

As far as the IRS is concerned, paid employees must be accounted for just like they would in for-profit corporations. Nonprofit payroll requirements dictate the withholding of Federal and State Taxes, Social Security, and Medicare from employee checks.

Generally speaking employee benefits mirror those of private industry: health and dental insurance, retirement plan contributions, sick/vacation days, etc etc.

In fact, this is considered and industry standard to attract qualified talent to work in the nonprofit sector. All of the same laws governing meal breaks, paid rest breaks, recording of hours worked, payment (or lack there off) for training, travel time, and reporting time pay must be observed.

Also, W-2’s must be issued. Being compliant is very important. It’s easy for managers of let compliance issues drift to the wayside. But remember, you’re dealing with confidential information here, and there are real consequences to making mistakes.

Volunteer Compensation

Occasionally, non-profit organizations will reward their volunteers with a present or a gift card. But there are rules about what counts as a taxable wage. Cash and gift cards definitely yes, other items like a Halloween pumpkin or a thanksgiving turkey definitely no (but that can potentially change, say if the value of the item is in excess of $100).

Consider Partnering With A Payroll Company

The instinct in a 501(c)(3) is to save as much money as possible and attempt to handle all HR and payroll functions in-house. The problem is that the IRS isn’t forgiving of missed remittances due to inexperience. Moreover, there are issues that may burn your organization that can be avoided when dealing with an established service with non profit clients.

In a perfect world you’d have a payroll specialist volunteer their services to your NPO. In a not-as-perfect world you’d have somebody on staff with enough payroll experience that they can spearhead the movement and delegate less specialized tasks to volunteers.

This doesn’t mean partnering with a payroll company is a bad thing. It’s worth starting the discussion and working with some numbers. The benefit of working with a skilled payroll company could far, far exceed the costs. Plus, a payroll company can scale with your organization and allow your team to focus their efforts on serving your stakeholders.

Conclusion

When boiled down, there are basically three critical things a payroll person or service must do.

• First, employees must get paid on time. There is nothing that will shake employee confidence more than being paid late.
• The second is that the IRS needs to get paid by their deadlines.
• The third is that all the appropriate records must be kept and all the appropriate paperwork must be submitted.

That’s about it.

The hassle of moving from zero to one paid employee is more than moving from one to ten. Once your nonprofit payroll requirements are handled, you can get back to focusing on your NPO’s cause.

How to Terminate an Employee Properly

Have you ever wondered what the best practices to terminate an employee properly are? Well, having to terminate an employee is the lowest of the low psychologically; but doing it properly is a challenge in itself.

Some managers would choose to go through an audit, or digitizing dusty paper records instead of having to let someone go. The entire process can be emotionally draining for both sides of the equation.

But dollars are on the line. Therefore your have to make the hard decisions that are in the best interest of the company atmosphere, the bottom line, and the stakeholders.

The termination quite literally has an effect on the rest of that employee’s life in a financial and career sense. This will be the final impression your company will leave with the employee.

Terminations don’t take place in a bubble either. And the aftermath can have an effect on the organization as a whole in ways a manager with less experience may not fully appreciate. Additionally, if you do not terminate an employee properly lawsuits can happen. It’s important to prepare ahead of time to make the transition as smooth as possible.

Pre-Termination: Being Proactive Over Reactive

The days or weeks leading to a foreseen termination are very important. You should be vigilant of your interaction with the employee and do your legal homework. Therefore. document issues and review the legal aspect to make sure you terminate the employee properly.

“Documentation, Documentation, Documentation.”

Sometimes you have to terminate an employee over an immediate and egregious offense, but it’s not unusual that the termination could be seen from a long way off. Typically the writing was on the wall for weeks, or even months, beforehand.

If the termination is a result of performance issues, document the steps you have taken to mitigate those performance issues. On the other hand, if the termination is a result of behavior (insubordination, breaking company rules, breaking the law, etc), document warnings and reprimands.

Your company will never regret having a strong paper trail. And decisions to terminate must be made on provable facts, not opinions or hearsay. Some organizations learn the hard way that improper record-keeping can cost them in the long run. Don’t make this mistake.

Laws, Contract & Agreements

There are of course laws across the board on how to terminate an employee properly – obviously you cannot fire someone on the grounds of age, gender, race, orientation etc. However, there are laws that exist in specific jurisdictions, and laws specific to the size of your organization. Consult legal counsel.

A vengeful ex-employee can learn very quickly everything they need to know to sue a company by using Google alone. Subsequently, making sure you’re up to snuff is money and time well spent.

Then there is the matter of employment contracts – some situations warrant a severance package (which can be affected if you don’t have a paper trail). Similarly, union employees have collective agreements that can come into play and there may be specific procedures that you need to follow.

It’s critical to review all of these contingencies pre-termination. Be prepared for the situation at hand.

Termination: Game Day

To terminate an employee properly, you need to follow the following steps on the day you pull the trigger:

Termination Environment

Plan the environment to minimize employee embarrassment and to preserve dignity. Terminate the employee in person and never over a digital medium. Pick a neutral, private location to deliver the news, with an HR representative  or other manager present. They will come in handy if you have to diffuse an emotional situation.

Create space for emotions to deflate. This is much more important than time of day or the day of the week. Some employees might become angry, some might cry, others might be in shock. Regardless, it’s important to give them an opportunity to save their face in front of their former coworkers.

Take Control and Execute Firmly

Be firm, direct, specific, respectful and brief. Employees need to know exactly what is happening and why. Do not be ambiguous. Do not apologize. Script the speech, deliver the speech, and document the speech.

It is important that you choose words that cannot be twisted after the fact in a way that feeds into a potential wrongful termination lawsuit. In fact, it may be a good idea to have a checklist to make sure all important items are covered in the conversation, and that things are kept on track. Be sure to keep the emotional mood neutral and professional.

Recover all company property

Ask the employee to turn over any company identification, keys, electronic devices, company credit cards and anything else. It’s best to remove any temptation of any retaliatory behavior that may arise. If the employee has a company vehicle, arrange an alternate means for them to return home.

Information Security

Involve I.T. and remove access to any sensitive information. Databases, paper files, network access, email accounts, bank accounts, etc. Not only do you want to avoid any potential for retaliatory behavior, you want to avoid giving the employee an opportunity to remove any potentially incriminating information.

Final Words and Clean up

Have HR accompany the employee while they clear their personal effects, say any goodbyes, and escort them off company property. This doesn’t need to be rushed, but should not be drawn out either. Ending employment is a part of professional life, staff will respect this.

Post Termination: Aftermath

To justify your claim of having to terminate an employee properly, follow through with these more important steps.  These will leave a good impression with the former employee and also help his or her dignity.

HR Involvement

Have HR provide any support in areas related to termination of benefits, paying out of vacation time, and applying to employment assistance programs. Final pay typically must be issued immediately – but remember that certain release / buyout documents must be signed before any severance payments are made.

Be Compliant

You documented everything, right? Minds and hearts change. The employee may leave angry but cool down over the weekend. On the other hand, the employee might stew for a few days and concoct a narrative that they can take to a lawyer. Spend the time and effort to make sure you were compliant and you have protected your business.

Do not Burn Bridges

Do make yourself available afterwards if issues arise. This likely won’t be a fun transition for anyone, but it doesn’t have to be a bad one. Remember business is all about relationships, and it’s entirely possible your career will intersect with this individual again.

Conclusion

Terminations are uncomfortable, but keep in mind that the short-term emotions do not override the core responsibility of management to act in the overall best interests of the organization. Use these points as a reference, and role playing can be an excellent way to raise confidence in one’s ability to terminate an employee smoothly. With preparation the impact on the workplace environment and the ex-employee can be minimized.

Employee Vs Independent Contractor

The difference between an employee vs independent contractor can be confusing. It is important for business owners to know if their workers are employees or independent contractors (also referred to as 1099 contractors or self-employed).

For employees, businesses have to withhold income taxes, Social Security, and Medicare from employee’s checks. They also need to pay unemployment tax on employee’s wages. These taxes do not have to be paid if the worker is an independent contractor.

Is my worker an Employee or Independent Contractor?

An independent contractor is a business owner who provides his services to others. You are considered self-employed if you:

1. Own a business or trade as the sole proprietor
2. Trade with a partner or own a business
3. Engage in a business by and for yourself

If a business owner hires you to provide a service, or perform a duty, then you are not an independent contractor, you are an employee, and he is your employer.

If you are a business owner remember it is up to you to determine whether those you hire are your employees or independent contractors. You first need to understand your business relationship before you can determine how to pay for services.

What is the Difference Between an Employee and an Independent Contractor?

Independent Contractors

Accountants, auctioneers, contractors, subcontractors, dentists, doctors, and dentists, and many others are often considered independent contractors because they are part of a profession that offers their services to the public.

However, whether they are labeled as independent contractors or employees depends upon a few things: one is considered an independent contractor if the person paying for the service only has control of the end result, and not how the job is done. This person is responsible for paying a Self-Employment Tax.

If one is told what to do, and how to do it, then this person is not an independent contractor. Even if the employer gives the employee freedom to do things his own way, the employer still has a legal right to tell his employee what and how to do things if he so chooses.

Employee

Common-law rules states that if you can tell somewhat you hire what to do, and how to do it, then they are your employee and you are their employer. You can give your employee freedom of action, but you still have complete legal control of what services they perform for you.

Comparison Between Employees and Independent Contractors

The best way to determine whether someone is an independent contractor or an employee is to consider what degree of control those hiring them have.

Common-Law Rules

Providing evidence of degree of control falls into three distinct categories:

1. Behavioral: Does your company have complete control over what your worker does and how your worker does his job?
2. Financial: Do you control when your worker is paid? Do you supply all the tools and supplies? Do you decide whether or not to reimburse expenses?
3. Relationship: Do written contracts exist that outline such things as insurance coverage, vacation pay, pension plans, etc.? Is this work vital to your business, and is this relationship going to continue?

Determination

Each of these factors is important when a business needs to determine whether a worker is an independent contractor or an employee. Some of these factors may point to a worker being an independent contractor, while others may indicate he is an employee.

Nothing is set in stone about whether one is an independent contractor or employee, and there is not a single factor that determines which category a worker falls in. Factors that may be relevant in one instance may not be relevant in others.

The key to unlocking this mystery is to take into account the relationship, determine the degree of right to control and direct, and document these to make a final determination.

Form SS-8

If, after reading the above, one is still unsure whether their worker is an independent contractor or an employee, they can file Form SS-8 with the IRS. The worker or the business can file this form. The IRS reviews all circumstances and facts related to the case and makes the official determination on the worker’s status.

This process can take up to 6 months just to get a final determination. All businesses that hire this same type of people to work for them should think about filing Form SS-8.

Tax Obligations

After a final determination of worker’s status is decided (either by the business owner or IRS), it is time to file the right forms and pay any and all taxes due.

Independent Contractor Forms

Form W-9: If you are paying an independent contractor then they should complete Form W-9, also titled Request for Taxpayer Identification Number and Certification. This form is used to learn the right name and TIN (Taxpayer Identification Number) of your worker. TINs can be a SSN (Social Security Number) or an EIN (Employer Identification Number). This form should be kept on file for at least four years, just in case it is needed for future reference by the IRS or the worker.

Form 1099-Misc: Form 1099-Misc is used to report all payments made in the trading of services for cash. If you pay someone $600. or more in a year, you must complete a Form 1099-Misc and provide it to the independent contractor by January 31st of the next year. You also need to send a copy of the worker’s form to the IRS. You have until March 31st if your business files 1099s electronically; otherwise, you have send the form to the IRS by February 28th.

Employee Forms

Form I-9: Also known as The Employment Verification Form I-9, this form pertains to U.S. Citizenship and Immigration Services. Employer’s use this form to verify the identity of their employees and to make sure they are eligible to work in the United States.

Form W-4: Your employee fills out Form W-4 so that the correct amount of federal income tax is taken from their check.

Form W-2: At the end of every fiscal year workers must file a Wage and Tax Statement, otherwise known as Form W-2. All wages, tips and compensation received must be entered on the form. Businesses can use Form W-3 (Transmittal of Wage and Tax Statement) to send Copy A of Form W-2 to the IRS.

Misclassifying Employees

If you say your employee is an independent contractor, and have no reasonable basis for this classification, you might be held liable for paying that worker’s employment taxes.

If you can show you have reasons to treat an employee as an independent contractor, then you might not have to pay their taxes. You will need to file all federal information returns that show you are consistent in the way you have treated this employee. You must prove that no former (or current) worker who performed the same services was listed as an employee any time after 1977.

Best method to pay employees

Have you ever wondered which is the best method to pay employees? Well, it’s a typical Thursday afternoon at the office.

You’ve reached the last leg of the day, and the weekend is just around the corner. One. More. Day.

Glancing through the window of your corner office, you can’t help but notice that there’s a youthful skip in your employees’ steps.

Taking one look at the calendar hanging above your desk, you discover why.

Today is everyone’s favorite day: Payday.

If you weren’t so exhausted from processing the payroll, you might be jumping for joy as well. You need to explore some options.

It’s time to review and implement the best method to pay employees.

Payroll processing that fits your needs

Finding the best payroll solution for your company can be a confusing task.

There are an infinite number of options to choose from and issues to address:

Should you pay your employees through direct deposit? Pay cards? What if there’s a mistake made on someone’s paycheck? What if someone doesn’t even get a paycheck?

Before you panic and start making decisions willy-nilly, you should know that there are a variety of true and tested method to pay your employees.

In fact, there’s probably more than one method to you employees that can fit your needs.

What’s more, while some methods of paying employees might work well for some companies, it is important to note that those methods might not fit your particular business.

Your budget, the size of your company, and the number of employees that work for you are some of the determining factors in finding the best method to pay employees for your business.

Knowing the difference between payment options can help you uncover the best method to pay employees

Finding the right payment procedure for your employees starts with understanding how each payroll processing method works.

Refer to this basic breakdown when trying to find the best payroll processing practice for your business.

Best method to pay employees: Pay cards

In recent years, Pay Cards (also referred to as Payroll Cards) have gained popularity with many employers due to its ease and cost effectiveness. Every pay period employee wages are simply loaded on the card, making them easily accessible. You can set up these cards with a payroll card provider, such as Visa. check with your payroll provider if this option is available.

Best method to pay employees: Direct deposit

In recent years, Pay Cards (also referred to as Payroll Cards) have gained popularity with many employers due to its ease and cost effectiveness. Every pay period employee wages are simply loaded on the card, making them easily accessible. You can set up these cards with a payroll card provider, such as Visa. check with your payroll provider if this option is available.

Best method to pay employees: Manual checks

The more traditional route is the to pay employees using a paper check that they then deposit to the bank. However, you can also use manual checks to make corrections in the event of mistakes made in the payroll process.

For instance, AccuPay systems provides comprehensive  low cost full service payroll to small businesses, giving business owners more wiggle room to select which payroll options work best for them.

However, each system comes with it’s own set of benefits and pitfalls.

Pros and cons of the methods to pay employees

The good news is that there are many pros to each system.

Pay Cards are generally less expensive than issuing checks, making them a cost effective alternative for those who cant, or won’t, use direct deposit.

But keep in mind that payroll cards come with drawbacks as well. One of the most problematic features of the cards is that they are often loaded with fees.

And those fees add up.

Unless you totally despise your employees, (don’t get any ideas) you don’t want a payroll system that might actually cost them a good chunk of their paycheck.

That’s why it’s important to find cards that have low fees, and to give your employees a heads up about any potential charges.

Another thing to remember is that you want to go with a solution that provides the most convenience for both your employees and yourself at a fair price.

Many companies find use deposit as their method of paying employees because it is convenient and totally safe to use.

It saves employees a trip to the bank on a weekly, or bi-weekly, basis and it also bypasses the problem of lost or stolen checks. Additionally, direct deposit saves employers money that would otherwise be spent on printing checks.

Costs and other considerations

The more traditional method to pay employees using paper checks that they then deposit to the bank. However, you can also use manual checks to make corrections in the event of mistakes made in the payroll process. Your selected method to pay your employees is also dependent on the kind of payroll system you use.

Conducting your payroll in-house might mean that your choices are slightly more limited compared to outsourcing.

More importantly, find a solution that works well for your employees. Just because something is cheaper or more convenient for you doesn’t mean it’s a two-way street.

Keep in mind that not all employees will be particularly thrilled if you decide to make pay cards a mandatory option. You should also be aware that changing state laws might make it impossible to enforce such a practice.

Remember, the best method to pay your employees is dependent on your circumstances, which includes the circumstances of your employees.

Conclusion

When trying to find the method to pay your employees that work best for your business, remember that you have options.

If processing your payroll in-house isn’t doing the trick, consider outsourcing.

Companies like AccuPay Systems give you the flexibility to find methods that work best for you.

Maybe the majority of your employees don’t have a bank account and so pay cards work great.

Perhaps the best method to pay your employees is through direct deposit.

You might even find that the best option is to roll these payroll processing methods into one solution.

From our experience, we have found that offering direct deposit as the primary method to pay employees and then allowing employees to opt into a payroll card program works the best.

So go forth and find the best payroll practices that will keep the thrill of payday alive.

How often should I pay my employees?

How often should I pay my employees? What kind of schedule is easy and convenient for my employees and myself the employer?

There’s a big secret you might be missing out on. 

Ready to hear it? 

You’re probably over paying when it comes to payroll processing costs.

How? 

You may just be paying your employees too often. 

That’s not to say that you’re employees don’t deserve to be paid often. Of course they do. However, it’s important to make sure you’re not over spending. 

Your pay frequency can play a big role in how much you spend on payroll processing. 

If you use a payroll service there’s a cost for each check. Even if you do your payroll in-house, there’s the cost of employee labor, paper, and ink to consider. 

“So how often should I pay my employees?” you’re asking. 

The answer, quite simply, is that there’s no one size fits all solution. 

Only you can determine the best method for your business. The only way you can make the decision is by understanding how pay frequencies work. 

What does “pay frequency” mean? 

Finding the best pay frequency system requires fully understanding the term “pay frequency.” 

In essence, pay frequency refers to the amount of time between pay days. 

Put another way, pay frequency is the gap of time that elapses between one pay period and the next. 

There are a lot of factors that determine the kind of pay schedule your business adapts. One of the biggest components can be the processing costs per check.

Whether you process your payroll in house or outsource it, there are always costs.. 

Another thing to remember is the kinds of employees you have..

If you business employs individuals who make lower wages, or are in-between  jobs, you might want to consider a more frequent payment schedule. 

The next important consideration is how your employees are paid. 

Employees that make an hourly wage usually have different pay cycles than salary employees..

Finally, you should always be attentive to state laws and adhere to them strictly.

State pay day requirements

 Stumped on finding an answer to the question, how often should I pay my employees? The best place to start is by examining the laws of your state.

 Laws can vary significantly across the country. However, there are a few basic, unchanging principles you can count on. 

Firstly, state laws only regulate how long a pay frequency can extend. In other words, they determine a limit the time between pay periods.

By law, you cannot pay employees less frequently than the guidelines of your state. On the other hand, there are no restrictions when it comes to paying your employees more often. 

For example, the state of Kentucky requires employers to pay employees twice a month.

However, anyone doing business in Kentucky can choose to pay employees on a bi-weekly or weekly basis. They just can’t pay less frequently.

Some states also map out specific guidelines. These include details about when compensation should occur, overtime, and even how often certain occupations should be paid. 

That’s why its really important to become familiar with the laws of your state. Keep an eye on those regulations when deciding which of the five payment cycles to choose. 

The five pay frequency options

Still wondering, “how often should I pay my employees”? There are six main payment schedules to choose from. 

What works well for your particular business may vary. Usually, the leading factor in this decision will be the number of employees your business has and whether mostly are salaried or hourly. 

Weekly

Generally, hourly, and especially low wage employees like weekly checks. Although the amount is smaller, the pay frequency is higher. However, the cost of payroll processing can really add up.

If you have fewer employees, the price of processing may not be that significant. Statistics show that 32 % of small businesses with 1-9 employees use a weekly pay schedule.

15%Popularity at AccuPay

Bi-Weekly

Bi-weekly is popular among businesses that employ more than 100 employees. In a study conducted by the U.S. Bureau of Labor Statistics, nearly 58% of small business, with an employee headcount ranging between 100-249, said they use a bi-weekly pay schedule.

Don’t confuse this option with semi-monthly. This pay frequency consists of printing checks every two weeks at consistent intervals (like every other Friday).

50%Popularity at AccuPay

Semi-monthly

Semi-monthly is the process of paying twice a month on specified dates (such as the 15th and 30th of every month). Almost 21 % of smaller companies (those with 1-9 employees) reported using this method.

This pay frequency isn’t quite as popular because selected dates can fall on weekends.

25%Popularity at AccuPay

Monthly

This is the least appealing pay frequency to employees. Depending on occupation and how much they make, a monthly pay frequency might make balancing living expenses difficult.

Monthly payroll is the least used option among both larger and smaller businesses, ranking in at about 1% and 15% respectively.

4%Popularity at AccuPay

Quarterly

In quarterly schedule, employees are paid every quarter (once every 3 months). As a typical pay schedule, the option is probably as rare as a daily pay cycle.

However, bonuses are often paid according to a quarterly pay schedule. For partnerships, or small businesses owned by a single manager, this option may also work.

0.5%Popularity at AccuPay

Annual

Annual payroll is rare in a general sense but very popular with solo business owners. Some business owners choose to pay themselves only once a year, hence the annual payroll.

This kind of schedule requires that you file zero returns on a quarterly basis, for the months without payroll.

Not many payroll bureaus offer annual payroll schedule, and if they do they charge a monthly minimum fee whether you process payroll or not.

AccuPay does not charge a minimum monthly fee. Instead, we charge $25.00 per quarter for filing quarterly returns.

1.5%Popularity at AccuPay

Weekly

52 Pay runs per Year

40 Hours per Weekly pay run for Salaried Employees

$17.50 / Pay Run + $1.75 per check

15% Popularity

Bi-Weekly

26 Pay runs per Year

80 Hours per Weekly pay run for Salaried Employees

$35.00 / Pay Run + $1.75 per check

50% Popularity

Semi-Monthly

24 Pay runs per Year

86.67 Hours per Weekly pay run for Salaried Employees

$35.00 / Pay Run + $1.75 per check

25% Popularity

Monthly

12 Pay runs per Year

173.33 Hours per Weekly pay run for Salaried Employees

$55.00 / Pay Run + $1.75 per check

4% Popularity

Annual

& Quarterly

1 or 4 Pay run per Year

Depends because this is a special pay schedule

$55.00 / Pay Run + $1.75 per check

2% Popularity

Conclusion

At the end of the day, selecting the best payment frequency is going to be all about the circumstances of your business. 

If you can’t determine the best way to answer, how often should I pay my employees, the start can be simple. Begin by analyzing the size of your business, the number of employees, and how much they make.

Keep in mind that you want to strike a careful balance. Aim for a balance between what’s cost effective and what satisfies your employees needs.

Tipping too far on one side of the scale can  bleed your business dry. Leaning too far to the other side can send employees running for the hills.

Before you make a firm decision, do the math. 

Examine the results you get. If the price seems reasonable and it won’t put strain on your employees, go for it. 

Once you figure out the right schedule for you business, you’re likely to some save money. You can set aside the saved funds towards projects designed to advance your company goals, or even give your employees a raise. 

How much does payroll cost?

During initial conversations with prospective clients this question comes up more often than not: “So, how much does payroll cost?”

Many payroll bureaus do not have a straight answer, but it should be very easy to answer unless there is something your rep is hiding.

And let’s not forget that payroll is an essential element to your business, even if it’s a back-office function. 

It’s how you pay your employees–your biggest assets. 

However, sometimes processing the payroll can feel like setting sail into uncharted, and rocky, territory.

Payroll is one of those things that sparks a lot of questions, and, unless you are an expert, sometimes finding the right answers can be frustrating.  

 It’s easy to get caught up in the world of form 941, worker’s comp, and pay periods. 

While these functions are important, you may be overlooking an even more important question.

Are you overpaying for payroll?

At first, it might not seem like you have much of choice. You need a user-friendly system that gets the job done fast.

You also need a service provided by a reputable company. “That already narrows down my options significantly,” you’re saying. 

Well, not exactly.

It might seem strange to think of your payroll system as a service you can shop around for, but the truth is you can. And there are plenty of options that range in price, quality, and size. 

But deciding between these options can be difficult without understanding one thing: cost

“So how much does payroll cost?” You’re wondering.  

I’m glad you asked. You can use the following guideline as a reference sheet to finding a better, cheaper option. 

Basic payroll vs. full service payroll

The first factor that comes into play when assessing the cost of payroll is choosing between two types: basic and full service. 

In the simplest terms, basic payroll is essentially software. You pay for this software and then use it to process payroll.

The thing about this software is, however, that YOU  do most of the work. You do all the filing, you set up direct deposit, and you have to figure out taxes. 

Unless you’re a payroll pro, that’s a lot of extra work. 

Basic also allows you to create and print checks. And if you’re really lucky you much just have access to support. 

In contrast, full service gives you more options. It includes tax filing, W-2 filing, checks or direct deposit, and tax liability payments. 

Great systems also provide you with an employer/employee portal, where employees can access their payments and info.

From these portals you can also manage worker’s comp, paid time off, attendance, and benefits.

And the best part? You don’t have to worry about any of it!

The cost of your payroll system

Trying to figuring out how much does payroll cost? There are a range of variables to keep in mind. 

Here’s a brief break down:

Basic Payroll

Full Service 

• Per check cost: $1.50-$6.00
• Large bureaus base fee: $150 
• Price per W-2 at large firm: $6 
• Smaller payroll firm base charge: $50
• Price per W-2: $3

• Per check cost: $0.80-$2.00
• Per run Fee: $40 and up. Depends on frequency
• Direct deposit and Tax Filing: $4-9 
• Add ons: Fees for adding or dropping employees.
• Processor wages: IF you pay an employee to process the payroll this is also added to the cost. 
• Price of paper and Ink for checks

The nice thing about about full service payroll is that your dollar goes farther, especially if you select a smaller payroll firm. 

What’s more, with full service you don’t have to worry about creating checks. Firms will either send them to you electronically or deliver them. 

You also don’t have to worry about setting up direct deposit, and all the necessary tax forms all filed for you. 

Most services will also provide you free any-time support.

However, if you’re skeptical that ANY payroll bureau would have your back, you’re probably right. Not all payroll firms have the same priorities. 

Large payroll bureaus vs. small payroll firms

While full service can be the better option if you’re not an expert in payroll, you can still end up over spending even with a full service plan.

How? By selecting a big payroll business as your provider. 

I know, I know. But before you start rolling your eyes, let me explain. 

Big payroll firms depend on their well-known brand of payroll to pull you in. 

They might even initially offer you an incredible deal. 

Then, months into your service, they hike up their rates. If you’re a business owner with ten employees, you can suddenly find yourself paying over $2,000 for payroll. 

Additionally, while you might have access to over the phone support, you’ll have to remain on hold until a representative is available to speak to you. 

And then, when you finally get a hold of a representative, their service is impersonal at best. 

With bigger firms you usual end up paying more for the same exact service that a small payroll company can provide (if not better). 

Smaller bureaus provide easy access to a live person at almost any time and also supply customized payroll features. This allows you to have payroll that is tailored to your specific business, something bigger companies can’t provide. 

However, the best thing about smaller payroll firms is that they’re far less expensive than the payroll giants.

Not only do these bureaus give you free features like employee benefits, worker’s comp, and HR managment (things you would have to pay for with bigger firms), but also they tend to be on the cheaper end of the spectrum. 

The fact that you won’t have to worry about a shocking price increases is like icing on the cake. 

Why AccuPay?

 Now that you know how much does payroll cost, you can begin shopping around for a better deal.

Don’t be afraid to hold out for a fairly priced option. However, one caveat to keep in mind is that you also want a reputable and dependable company. 

If you’re looking for an affordable and quality option to get your payroll done (and get it done right), that’s where AccuPay can step in. 

AccuPay is a small payroll bureau designed for small businesses. 

The fact of the matter is, it doesn’t make sense to pay $6 per employee on top of extra charges, and with AccuPay you never will.

So how much would processing payroll with AccuPay cost? AccuPay is fairly priced, and we intend to keep it that way.

[CP_CALCULATED_FIELDS id=”1″]

With our service you’ll pay a small base depending on your frequency plus $1.75 per employee. Year end W-2s cost a base of $50 plus $2.00s per form–far less than what big firms will charge. 

What is included in this? Read more on the pricing page.

 And you’re not compromising anything. You get integrated HR, access to additional management services, an employee self-service portal, and much more. 

If you’re looking for great one-on-one customer service, reliability, and an excellent payroll system, you can’t go wrong with AccuPay. 

Conclusion

When it comes down to it, you shouldn’t have to overpay for payroll. 

Nor should you feel stuck paying for a big name company’s payroll just because there are no other options. 

There are plenty. Understanding how much does payroll cost can help you select the right one. Don’t settle for less than a great payroll company with a good rate. 

No matter the payroll system you end up chasing, get a contract that says that any price increases will be agree upon by both parties.

Or, at the very least, the contract should give a provision that the company will give you notice of a price increase 60 days before its effective date, giving you time to get out if need be. 

You always have room to negotiate the terms that work best for you. 

So don’t tolerate price creeps! Go out there and find an affordable payroll system that works for you. 

How to read your W-2 Form

This is a guide on how to read your W-2 form. Preparing W-2 forms for filing with the Social Security Administration can be tricky. This article will help:

1. Employer seeking to fill out the forms correctly.
2. Employees trying to understand the numbers reported on their W-2. It will also help employees understand how to fill their income tax forms (1040 tax returns).

What do the codes in Box 12 on my W-2 mean?

This is a comprehensive guide to all the codes in Box 12 of Form W-2. Check it out.

In this guide on how to read your W-2 form, what information goes to which box?

To follow this guide carefully, please download a copy of Form W-2 and either print it or have it where you can easily refer to it. Then follow along:

Box 1 – Wages – also referred to as income. It also includes reported tips, bonuses and other taxable compensation. Taxable fringe benefits are also included here, but pre-tax benefits such as 401(k) and health insurance plans are excluded. The amount in this box goes to line 1 of Form 1040 tax return.

Box 2 – Federal Income Tax withheld from your paychecks throughout the year. This amount is reported on line 17 of form 1040 tax return from 2019 and later.

Box 3 – Total wages subject to Social Security Tax. Exclude all reported tips since they go to box 7.

Box 4 – Amount of Social Security taxes withheld from your paychecks.

Box 5 – Amount of wages subject to Medicare tax. There is no maximum wage base subject to Medicare. 

Box 6 – Amount of Medicare taxes withheld from your paychecks. This amount includes the 1.45% Medicare Tax withheld on all Medicare wages and tips shown in box 5, as well as the 0.9% additional Medicare tax on any of those Medicare wages and tips above $200,000. You may be required to report this amount on Form 8959, Additional Medicare Tax. See the Form 1040 instructions to determine if you are required to complete Form 8959.

Box 7 – Amount of tip income you’ve reported to your employer. It will be empty if you didn’t report any tips. Box 7 and Box 3 should add up to the amount that appears in Box 1 if you don’t have any pre-tax benefits, or it might be equal to the amount in Box 5 if you do receive pre-tax benefits. The total of Boxes 7 and Box 3 should not exceed the Social Security wage base. The amount from Box 7 is already included in Box 1.

Box 8 – Amount of tip allocated to you by your your employer. This amount is not included in the wages that are reported in Boxes 1, 3, 5, or 7.

You must file Form 4137, Social Security and Medicare Tax on Unreported Tip Income, with your income tax return to report at least the allocated tip amount unless you can prove that you received a smaller amount. If you have records that show the actual amount of tips you received, report that amount even if it is more or less than the allocated tips.

On Form 4137 you will calculate the social security and Medicare tax owed on the allocated tips shown on your Form(s) W-2 that you must report as income and on other tips you did not report to your employer. By filing Form 4137, your social security tips will be credited to your social security record (used to figure your benefits).

Box 9 – Was used to report the amount of advance earned income credit to low income earners. This was phased out in 2011, and therefore should be left blank.

Box 10 – This amount includes the total dependent care benefits that your employer paid to you or incurred on your behalf (including amounts from a section 125 (cafeteria) plan). Any amount over $5,000 is also included in box 1. Complete Form 2441, Child and Dependent Care Expenses, to compute any taxable and nontaxable amounts.

Box 11 – This amount is either:

a. A distribution made to you from a non-qualified deferred compensation or nongovernmental section 457(b) plan. Is is also included in Box 1. 

b. A prior year deferral under a non-qualified or section 457(b) plan that became taxable for Social Security and Medicare taxes this year because there is no longer a substantial risk of forfeiture of your right to the deferred amount. It is also included in box 3 and/or 5.

This box should not be used if you had a deferral and a distribution in the same calendar year. If you made a deferral and received a distribution in the same calendar year, and you are or will be age 62 by the end of the calendar year, your employer should file Form SSA-131, Employer Report of Special Wage Payments, with the Social Security Administration and give you a copy.

Box 12 – Is for the different types of deferred compensation and other types of compensation. See section below for all the possible codes for box 12.

Box 13 – Has 3 check boxes as follows:

a. Statutory Employee – If this box checked, you should report your wages on Schedule C of your tax return (Form 1040). Statutory employees are not subject to income tax, but are subject to Social Security and Medicare taxes. Boxes 3 to 6 should not be left blank. 

b. Retirement Plan – If checked, you participated in your employer’s retirement plan during the year. 

c. Third-Party sick pay – This box is checked if you received sick pay from a third party instead of receiving it from your employer. Sick pay is subject to Social Security tax and Medicare even though it is not reported in Box 1.

Box 14 – Is used to report additional tax information such as state and local taxes ( eg SDI Tax), after-tax contributions to a retirement plan, employer-paid tuition assistance, union dues, fair-market value of employer provided housing etc. The names of these items should be descriptive enough. 

Box 15 – Is used for your employer’s state withholding tax identification number.

Box 16 – Is used for your wages, earned in the particular state, that are subject to state withholding tax.

Box 17 – Is used to report the amount of state income taxes withheld from your paychecks.

Box 18 – Is used for your wages, earned in the particular state, that are subject to local or other state income taxes.

Box 19 – Is used to report the amount of local or other state income taxes withheld from your paychecks.

Box 20 – Is used to identify the type of local tax in Box 19. 

The Major Challenges Facing Cannabis Payroll Tax Reporting

And What Business Owners Can Do About It

This guide gives an overview of the problems affecting cannabis payroll tax reporting. At a federal level, marijuana is illegal. However, several states classify the drug as legal. Undeniably, the varying legal standpoints create complications for cannabis payroll tax compliance. From banking to payroll, this guide will cover all the issues surrounding cannabis payroll tax reporting. Additionally, business owners can find instructions on filing their cannabis payroll taxes. 

How federal law impacts the marijuana trade

Cannabis is a multi-million, and in some cases billion, dollar industry in states where it is legal. As more states legalize the drug, the industry will continue to grow. 

Conversely, under federal law, cannabis is illegal.

Although states where the drug is illegal must strictly abide by federal law, the regulation also impacts legalizing states. In fact, the law has a profound impact on marijuana businesses in those states. 

How?

Without federal backing many marijuana businesses (from cultivation centers to dispensaries) struggle to open checking accounts. Consequently, normal business functions like book-keeping and payroll become hairy. 

Why cannabis businesses struggle to get banked

Of course, there is no law that explicitly bans banks from doing business with cannabis retailers. Still, under federal law, banks must closely monitor marijuana companies for signs of illegal activity. 

Banks must file reports — known as Suspicious Activity Reports (SARs). Presently, SARs protect financial institutions from prosecution if an enterprise is determined to be involved in illegal activity. (For example, selling the drug on the black market.)

Nonetheless, there are major downsides to SARs as well.

Hefty fines can be levied against institutions that fail to accurately report “suspicious” transactions. Similar fines are assessed for misidentifying others.

For most banks, the costs linked to SARs outweigh the financial benefits of banking cannabis companies. Accordingly, institutions backed by the Federal Deposit Insurance Corporation rarely bank marijuana related-businesses.  

Bank approval is marginal in marijuana commerce

About one in 30 banks or credit unions will service a cannabis business nationwide

Overall, for the lucky few that land a checking account, that’s actually good news.

But even so, there are pitfalls. First, banking institutions charge sizable account and transaction fees to offset risk. Markedly, such fees are three to four times those charged to other non-cannabis customers. 

Second, even locating a willing bank is an uphill battle.

Furthermore, financial institutions rarely advertise their willingness to bank cannabis. In fact, most do just the opposite and ask their cannabis clientele to sign non-disclosure agreements. 

Thirdly, these organizations are extremely selective about which marijuana businesses they take on. For this reason, many small-scale enterprises find it challenging to get banked. In general, banks opt for large scale operations with the resources to carefully manage the company’s paperwork.

Still, it’s undeniable that when it comes down to costs and benefits, companies that get banked are better off.

Why? Not having a bank account can be a payroll nightmare. 

The payroll dilemma 

In general, some services require a bank account to be rendered. 

Consequently, companies that struggle to get banked are often gypped out of other services. But not for the reasons you would think.

In fact, providers typically prefer to offer their full portfolio of services to their clients. Nevertheless, in some cases, the lack of a bank account means they cannot. 

Take payroll, for instance. Most payroll providers offer functions like direct deposit and payroll processing. But without banking, service providers cannot complete either task.

Thus, the employer can only rely on their payroll system to calculate wages and taxes. However, once the amounts are determined, the employer must remit the payments in cash.

Undoubtedly, this method is far from fool-proof and leaves a potential margin for error. Further, cash payments make cannabis payroll tax compliance more difficult.

Cannabis payroll tax reporting

The lack of banking services is the main impeding factor for proper cannabis payroll tax reporting and greater cannabis payroll tax compliance.

In fact, when problems crop up with payroll processing, challenges for cannabis payroll tax reporting soon follow.

Payroll taxes are paid on employee wages. Also, payroll taxes are assessed to the employer. Additionally, state and local governments may impose additional payroll taxes.

Recommended Reading

Looking for a full break down on employee vs employer payroll taxes? Then check out our guide on How to Read your Pay Stub. It offers a comprehensive overview of the various taxes typically withheld from wages.

So how has banking — or the lack of banking for cannabis businesses— created the cannabis payroll tax reporting dilemma? By and large, the problem hinges on three factors:

• Cannabis payroll tax compliance
• Employee Misclassification
• Payroll processing for cannabis industries

Cannabis payroll tax compliance

Cannabis payroll tax compliance is somewhat of a perplexity. In particular, the lack of “compliance” is usually the direct result of not having a bank account.

Since they lack checking accounts, marijuana companies must pay taxes in cash. Luckily, by law, the IRS accepts all forms of payment including cash. 

So far so good, right? But things can get dicey from here.  

Basically, cash payments — especially those in the range of thousands, or hundreds of thousands, of dollars— require in-person drop offs.  

Moreover, the IRS must have other resources on hand. They include: staff to count payments and secure locations to accept and store money.

Here’s where the problem lies, however:

10 states fully legalized marijuana nationwide. Furthermore, in each of those states, thousands of companies legally deal with cannabis in some form.  

As a result, the IRS would be responsible for accepting millions of dollars in tax payments in cash. Whereas the IRS can process thousands of payments online, it cannot do the same in person. 

In other words, the revenue service is struggling to keep up. The taxing authority simply does not have enough resources to process so many cash payments. Even worse, the roadblock is one that not even the IRS has been able to tackle. 

$1,000 per day limit

In light of the problems facing payroll tax reporting in the marijuana trade, the IRS tried simplifying the process. Presently, the department accepts cash payments through select retailers. However, there is a monetary limit. In short, retailers can only accept payments of up to $1,000 per day. 

But for companies that owe thousands in taxes the solution is not viable and would take years to successfully pay off. 

Meanwhile, companies that likely would pay their taxes if practical means were available end up appearing delinquent.

Employee misclassification

Another key point that goes along with cannabis payroll tax compliance is misclassification. 

Sometimes, to alleviate the burden of payroll taxes, companies misidentify employees. Basically put, they classify workers legally defined as employees as independent contractors instead.  

(Not sure what defines someone as an employee? Check out the distinction here.)

Because workers identified as independent contractors must deduct their own taxes, some companies make this move. But this is a big mistake. In general, employee misclassification results in massive fines. Likewise, unpaid payroll taxes can be assessed to the employer by the IRS as a penalty.  

Payroll processing for cannabis industries

Cash payments also create another complication for those in the marijuana industry.

For accurate cannabis payroll tax reporting, businesses must keep thorough records.

But, record keeping without a bank account is no easy feat. Manual record entry, even with some the latest apps and software, is time consuming and subject to marginal errors. 

Similarly, processing services are limited for clients that do not have bank accounts. As we’ve noted before, payroll processing is practically impossible without a bank account.

So the onus is on businesses to set aside the right figures for employee wages and payroll taxes. Consequently, this leaves a lot of room for error.

What you can do to improve cannabis payroll tax reporting

Of course, not all the factors that surround cannabis payroll tax reporting are within your control.

Be that as it may, you can still improve the overall accuracy of your tax reporting and payroll processes. In general, you can accomplish this through three methods. 

They are: 

• Hiring a payroll provider
• Keeping thorough payroll records
• Staying up-to-date on state and federal progress on cannabis banking

Hire a payroll provider

Although payroll providers are limited on what services they can offer unbanked clients, there are still advantages to the services.

At the very least, a payroll provider will ensure that your company’s payroll amounts are accurate. More importantly, it will take the stress out of trying to calculate how much you should deduct and pay in payroll taxes.

Likewise, the calculations you receive from a provider will likely be error-free. As a result, your business is more likely to maintain its cannabis payroll tax compliance.

Keep thorough records

Of course, even with a bank account, you should keep thorough records. As a rule, tracking the money your business spends is paramount — especially when it comes to payroll taxes.

However, if you are unbanked it’s even more imperative that you keep detailed records.

In particular, these records serve two purposes. Firstly, they help you keep track of the payments and deductions you’ve made to minimize the potential for future errors. Secondly, they act as helpful resources when it comes time for payroll tax reporting. 

Stay up-to-date on cannabis laws

But perhaps one of the best ways to navigate cannabis payroll tax reporting is through information. 

While some states are working out the kinks when it comes to banking and taxes, like California, others have found manageable work-arounds. 

For example, in Colorado, marijuana businesses can make cash payments through in-person appointments at the local IRS office.

In some states, the IRS even provides secure counting rooms for cash payments during tax season.

Know what resources are available in your state. Most importantly, take advantage of them.

Similarly, stay relevant about the federal law. After all, changes at the federal level will shift the entire playing field. 

Particularly, one law that can impact cannabis payroll tax reporting is the Safe Banking Act. The law, if passed, would grant banks greater freedom to take on marijuana-related businesses. The law could make cannabis payroll tax compliance far easier for businesses.

In late May, the bill gained significant traction among members of Congress and representatives in the Senate

How to file and report payroll taxes for cannabis businesses

Still, the issues of taxes extends beyond cannabis payroll tax reporting and cannabis payroll tax compliance. Equally important for cannabis business owners is the filing process for payroll taxes.

Luckily, this guide is also designed to walk you through the steps of how to file and report payroll taxes for cannabis businesses — specifically those located in California.

So if you’re ready to file your taxes, or just want to be prepared for next year, keep reading.

1. 1Apply for EIN/ EDD: In general, you’ll start off by registering as an employer. First thing to remember is that you should register through the IRS. Concurrently, you should also register with any corresponding state entities. For instance, in California you must apply through the Employment Development Department.
2. 2Report all employees: Make sure you regularly report wages earned by employees. Typically, you do so by filing Form 941. Likewise, the state where you operate may also have additional requirements you must meet. For example, California requires employers to report employee info and wages to the EDD on a quarterly basis. You can find a full breakdown of the filings here.
3. 3Make the necessary arrangements for payments: If your business already has a checking account, congrats! You can make e-payments! On the other hand, what happens if you don’t? Then it’s imperative that you make arrangements to pay your taxes. In general, that will require and in-person meeting with your local tax authority. The EDD recommends contacting your local office.

Conclusion

To sum up, the lack of proper banking is probably one of the biggest factors impeding proper cannabis payroll tax reporting.

Due to its complexity, this isn’t a problem that can be resolved overnight. Nonetheless, business owners can still take actions to minimize the overall effect.

Remember, poor cannabis payroll tax compliance can hinder the success of your company. So take steps to protect yourself. 

In particular, stay informed on upcoming legislation. Being in-the-know can help you make the right decisions when filing payroll taxes.

Remain up-to-date on legislation that might remove the barriers to banking cannabis enterprises. By contrast, also be aware of any pending laws that could add more roadblocks. Moreover, be willing to be vocal on those issues as a business owner. In time, that can have a significant impact on the success of laws like the Safe Banking Act .