Switching payroll companies is a big task. But like having good hiking companions on a long trail, it’s essential for the safety and success of your business need to have the right payroll partner on your journey. Even if the payroll company you are transitioning to is making the process simple, you still need to be aware of common IRS problems that block the trail ahead. Let’s discuss a few common mistakes that accidentally occur in the process.
Double Reporting of Wages
One responsibility of a payroll company is to file Quarterly Federal Tax Returns (Forms 941) or W-2s. Sometimes, during the transition, the new company may file these forms with the IRS without realizing they were already filed. When the IRS receives these filings twice, it can cause confusion. The IRS can consider your business underpaid or overreported, triggering audits and penalty fees. Before your new payroll company files anything with the IRS, ensure they have accurate documentation as to what has been filed with the IRS and when.
Missing or Late Tax Payments
Even the most efficient transition to a new payroll system can have hiccups. It’s possible that during set up, payroll taxes (such as income tax withholding, social security, and Medicare) missed depositing deadlines. If a payment is missed or delayed, the IRS may impose late fees and charge interest on the payments.
Failure to File Final Returns with the Old Provider
As an employer, your finger isn’t on the pulse of the scope of your payroll company’s responsibilities. During the switch, it’s essential to know that your previous payroll company must file final returns and that all taxes are settled before the switch. If your last tax company doesn’t have this sorted before the transition, it could lead to unfiled returns.
Lost Tax Payment Records
Your previous company must provide the new payroll company with all of your business’s previous payroll tax records. The new company needs this information to accurately understand your business’s previous filings and tax obligations. Without this information, your new company could make filings that are inconsistent with previous IRS filings, causing the IRS to audit the business.
How to Avoid IRS Problems
Avoiding these problems during your transition doesn’t have to be difficult. Having open communication with both companies is a good start. You can also check to confirm tax filings using the IRS Electronic Federal Tax Payment System to ensure you haven’t missed filings or double files. Lastly, it’s never a bad idea to consult the tax professionals at Highland Tax Group. Whether you’re working to prevent IRS problems through your payroll transition or one has already popped up, our team is here to help.