Payroll tax returns are complex, so the information you submit must be accurate. Make sure to submit the forms before the appropriate tax dates and deadlines to avoid late fees. Meanwhile, the accrual method posts payroll liabilities what is payroll expense and expenses in the same period. The restaurant example shows a $3,000 wage expense and a $3,000 wage liability balance from March 31. When the business owner pays cash on April 5, the liability balance will decrease.
Here are five things you can do to help your business manage payroll compliance. Julia Kagan is a financial/consumer journalist and former senior editor, personal finance, of Investopedia. Use our product selector to find the best accounting software for you.
Voluntary payroll deductions
You may find that hiring an accountant or bookkeeper to record these transactions can help you spend more time working on your business. For instance, if your state requires workers’ compensation insurance, disability insurance, sick pay, health insurance, or paid time off, you must include those costs in payroll expenses. Once again, the voluntary payroll deductions you’re responsible for are entirely dependent on the benefits you offer and the elections your employees make. As an employer, you’re responsible for deducting federal income taxes from each of your employees’ paychecks every pay period.
Besides payroll taxes and FICA, payroll accounting doesn’t track business taxes such as sales, excise, or company income taxes. Business also accrue payroll expenses in the form of employee benefits. When calculating your payroll expense, don’t include amounts that you take out of employee paychecks, even if you remit these amounts to third parties such as health insurance providers. These amounts have already been included in your employees’ gross wages. Only include the amounts that your business pays to supplement these withholdings. Payroll processing is significant for the tax implications it has — for both you and your employees.