From our non-fat, half-sweet, triple-something Starbuck orders to our habit of sending work emails from the carpool line, we like things complicated in the modern world, no matter what we tell our yoga instructors.
But not all complicated things are as satisfying as a meticulously hand-lettered envelope or a pattern of tiny stitches.
Multistate payroll tax compliance is one of those things, which, while ridiculously complicated, maybe lacks a few of the more attractive qualities that give complicated things like needlepoint and three-layer coffee drinks their appeal.
However, the right partner can give you a huge advantage when it comes to the complexity of compliance. Here’s an example.
Provider Looks to PTM for Streamlined Multistate Compliance
Morgan Hooks, the payroll tax manager for Atlanta-based FINSYNC, understands the difficulties well. “A lot of clients don’t understand the differences (across) agencies,” she said. “The majority assume if it’s one way in one state, it’s the same everywhere else.”
FINSYNC provides cash flow management, accounting & payroll software as well as services to help small and midsized companies succeed. They began their partnership with Payroll Tax Management in 2018 to simplify its multiagency filing process. FINSYNC also provides support to its clients with multistate obligations – or aspirations.
“Before PTM everything was incredibly manual,” Hooks said. “I had to go to multiple tax agency websites, do filings and make tax payments that way.”
Now Hooks simply logs into the PTM platform, submits client data and PTM generates the files for making all of the tax payments. “PTM was a seamless fit for what we needed,” Hooks said. Today, PTM’s help means the quarter-end process that once took three to four weeks to complete is completed in four to five days, she said.
PTM also keeps Hooks updated on any agency update so she can provide the best advice to her clients, who get the support they need to move forward with growing their business, and increasingly, with recruiting across state lines. In a tight job market, being able to hire remote employees in multiple states can be a competitive edge for businesses that can confidently navigate the payroll tax issues.
“The amount of time and the amount of money and the margin of error of doing it on your own is so high, that going with PTM, to me – it was such an easy decision.”
Complications of Compliance: Don’t Do It Alone
It’s somehow fitting that “compliance” shares its first six letters with “complicated.” Compliance is complicated for many reasons, one of which is that each of the estimated 11,000-plus state and local taxing agencies across the country can establish its own distinct processes, requirements and deadlines. Which they can change the minute you have learned them.
But if you’ve got clients whose businesses cross state lines or whose employees live or work across state lines, you might find yourself in a state resembling Dante’s fifth circle of hell. Why the wrath? You now have multistate compliance processes, requirements and deadlines to learn.
Or unlearn, as the case may be. Remember, all of these things can change almost as soon as you’ve memorized them. And like our British friends say, it’s not always something you can just bang back into the freezer.
Complicated Fun Fact #1: The most difficult dessert in the world is Baked Alaska. It’s made with two pints of strawberry ice cream, six egg whites, sugar, lemon juice, and a frozen pound cake, set on fire.
Among the variables from jurisdiction to jurisdiction are:
- Withholding types
- Filing methods
- Payment schedules
Some taxing authorities will require you to file electronically; others provide coupon books. Payments may be quarterly or monthly, or on a schedule that depends on a payment threshold – there’s a few states with three different payment schedules. Finally, a growing number of states are moving toward the adoption of paid family leave provisions that will create a new withholding tax to be calculated.
It’s a process that you’ll have to reconcile each quarter and again at year end. Payroll Tax Management’s Tax Compliance Manager Kelly Gonzalez says the mistakes that can land you in compliance trouble include overlooking an agency where your client has a tax liability. Here is list of some of the most common issues -- many of which can result in penalties and interest:
- Submitting filings at the wrong frequency
- Submitting a payment by check after a jurisdiction has switched to electronic
- Using the wrong rate for calculating state unemployment insurance withholding
- Misreading or overlooking an agency notice
- Overlooking an agency where there is a tax liability
- Not being familiar with new filing requirements
- Filing late
- Submitting inadequate payment
- Making mistakes on state W2 filings or year-end reconciliation
Staying out of trouble means making sure you don’t overlook any agencies that come into play when a client’s business or workforce moves across state lines and that you establish diligent processes for tracking and keeping up with the agency requirements.
Complicated Fun Fact #2: The Game of Go is described as possibly the most complicated board game on the planet, with “more possible Go games – 10 followed by more than 300 zeroes – than there are subatomic particles in the known universe,” according to the American Go Association.
Plus, there’s a sign of hope on the horizon. Legislators are taking notice of how complex the compliance landscape can be.
The Light at the End of the Tunnel: New Proposal to Create 30-Day Tax-Free Window for Out-of-State on Temporary Assignment
There are some efforts to simplify parts of the multistate compliance process, which a comparison reported in Human Resources Director magazine online said was most difficult in California, New York, New Jersey, Hawaii, Maryland, and Virginia. The analysis was based on factors that include income tax, required forms, disability insurance, workers’ comp and any additionally required administrative processes.
Those processes will soon have a new layer in many places with the growing number of states adopting paid family leave provisions funded by payroll withholding. While the trend may be a promising step for workers still struggling to balance jobs and family, for payroll professionals, it’s another layer of patchwork to navigate for their clients whose business takes them across multiple state lines.
Eight states and the District of Columbia have enacted paid family leave provisions, according to a National Partnership for Women & Families report.
Others are in the process of enacting or setting up their own versions, according to Gonzalez.
Among the efforts to help ease multistate compliance burdens is the Mobile Workforce State Income Simplification Act of 2019 being pushed by a coalition that includes The American Payroll Association.
The proposed legislation would establish a 30-day window before an employee working outside of his or her state of residence would be subjected to state income taxes from the other state.
The proposal is designed to shrink the burden imposed on employers as the result of short-term out-of-state assignments.
That Sounds Complex: The all-time most difficult karaoke song to sing, according to Lucky Voice is “I Believe in a Thing Called Love” by The Darkness, perhaps only followed by REM’s “It’s the End of the World”.
Knowledge is the Key to Compliance
Knowing what you need to know – and staying current – is the first step to compliance. Here are three options you could consider for managing the job of staying on top of multistate tax requirements:
- Take time on a regular basis to review the website of each taxing agency for updates
- Limit your company’s growth to clients without any multistate tax obligations
- Build up your tax department to keep pace with the multistate business or recruiting aspirations of your clients, keeping in mind the additional staff you will have to bring on for quarter-end and year-end reconciliation
It can be pretty expensive to start throwing staff at payroll tax compliance – there are soft costs that can start to creep up on you as well – and the downside of limiting your growth to avoid multistate entanglements is obvious.
It’s why so many payroll providers seek outside payroll tax expertise instead, particularly when their multistate payroll tax obligations are ramping up.
Tax Solutions for Growing Businesses
At Payroll Tax Management, we have an array of flexible solutions for helping payroll bureaus and businesses manage all of their multistate payroll tax complications, from full-service payroll tax software and service to options that allow you to host the software on your own servers. We can also help reduce quarter and year-end reconciliations from weeks to days.
Plus, our sister company Time Rack offers efficient time and attendance tracking along with Time Rack HR, a robust HR module, giving you even more control over your business – and the time to focus on what you do best.”
Deep industry expertise across a variety of services and solutions allow us to provide more than just software and service; we have the tools to help you grow your business and teach you how to provide better service to your clients.