The tax law has created a number of breaks for 2010 that may entitle you to tax savings. Finding out what the changes are and how they affect you is one thing. For some of the changes, you’ll have to update your payroll practices or make sure your payroll professional is handling things properly for you.
For example, if you hire an unemployed worker who begins work after February 3, 2010, and before January 1, 2011, you may qualify for a payroll tax holiday. This means you won’t owe any Social Security taxes on the worker’s wages for the rest of this year (although you’ll still owe the Medicare portion of FICA). You’ll have to get the new employee to sign a new Form W-11 attesting to the fact that he or she hasn’t worked more than 40 hours during the 60 days prior to starting work with you.
If you have workers at minimum wage on your payroll, be sure to note any increases in your state’s rate. For example, Illinois’ rate rises to $8.25 per hour on July 1, 2010.
Working with an outside payroll company
The fact that there are changes to payroll tax rules for 2010 is nothing new; changes of various types go into effect every year. To keep pace with required changes to withholding and other payroll-related matters, it may make sense to work with an outside payroll company. There are large payroll companies, such as ADP and Paychex. There are also mom-and-pop payroll companies, accountants, and bookkeepers that provide payroll services. Your bank may even offer payroll assistance. For example, Bank of America’s Easy Online Payroll is a service that helps you make accurate computations for withholding.
Caution: You remain responsible for timely payroll tax deposits and employer tax returns, even if you use a payroll service. For example, in one recent case an eye care company that used a CPA to handle payroll found out that the CPA had failed to make timely deposits when the IRS was set to levy on the company (probably on the company’s bank account). The Tax Court held the company liable for late payroll tax deposit penalties so the IRS could proceed with its levy.