When it comes to payroll taxes, the margin for getting it wrong is, well, none. And yet some risky practices persist, perhaps in the mistaken belief that high-profile cases of disaster are the result of practices so egregious that anyone with a little common sense can easily stay out of trouble.
But when you are handling hundreds or thousands of transactions a month, mistakes can happen. You don't have to be the victim of fraud to find yourself in trouble. Banks can get a check number or an amount wrong. Sometimes a check is cashed for the wrong amount. And even little errors have the potential to cause big problems if you don't have the processes in place to catch them right away.
Maintaining a Worry-Free Tax Impound Account Starts with These Practices
Our experts have deep expertise in the ways that payroll tax management can go wrong, as well as knowing the best practices for making sure things stay on track. Everything starts by being diligent in the practices by which you keep your tax impound accounts accurate, up-to-date and audit ready.
Soraya Badua-Zamudio, manager of client fund management at Payroll Tax Management, shares her recommendations below:
- Don’t Co-Mingle Funds: Tax impound funds contain the government’s money and should be held separately from any other funds. If there is ever a question of whether these funds have been used for any other purpose than payroll taxes, the account is put on hold and will likely be reviewed.
- Make Accurate and Timely Payments: There are many factors that dictate payment frequency. Know the dates and pay on time. Doing so will not only decrease “red flags” but will also save you the headache of lost time and money.
- Have a Back-Up Plan: Avoid any temptation to borrow from tax impound accounts to cover other expenses by having “back-up funds” – like a Line of Credit (LOC) or an emergency account – available to cover operating costs in the event of a rough patch or a shortfall.
- Communicate Requirements & Risks: The government defines a “responsible person” as anyone who has the duty to account for, collect, and pay over the payroll taxes held within the impound accounts. Make sure these people know what this designation means and have a thorough understanding of the requirements, including all associated risks and responsibilities.
- Keep Accurate and Easily Accessible Records: If issues arise, there are specific documents the government will likely request to make a determination, such as articles of incorporation, operating agreements, minute books, payroll records, cancelled checks/ bank records, and tax returns.
- Reconcile your Tax Impound Account Daily: Mistakes can be much harder to find and correct if weeks go by before you catch them. Daily reconciliation can also help reduce the risks of fraud by providing up-to-date visibility of any questionable transactions.
Take the Hassle Out of Payroll Tax Management with Third-Party Expertise
At Payroll Tax Management, we take the hassle out of payroll tax management, providing payroll tax expertise and compliance with over 11,000 tax agencies across the country. Our clients rely on us for reliable and secure SOC 1-audited payroll tax processing and solutions to their most complicated payroll tax challenges. We offer the peace of mind that comes from unmatched customer service, competitive pricing, a multi-million dollar crime bond and scalable technology. Our tax systems offer clients ease of use and logical solutions to the sometimes thorny issues surrounding payroll tax processing. Our clients also have access to a broad array of other services through our sister companies: Cachet Financial Services and Time Rack.