What’s the worst thing about taxes? Paying them. But besides that, it’s trying to understand all the little details and worrying about missing something big that’s going to cost you down the road. It’s completely normal to feel this way, so we want to put your mind at ease. Let’s get started by talking about payroll tax remittance.
Read on for three common mistakes that can happen when you’re remitting taxes and the consequences that occur when making them. Plus, see the best way you can avoid these issues altogether.
#1: Missing payments
Payroll remittance is actually a combination of several source deductions: Canadian Pension Plan (CPP) contributions, employment insurance (EI) premiums, plus income tax (both federal and provincial). If you don’t submit the proper amounts for any of these it can result in a penalty of 10% of the specific amount that’s missing.
If you end up missing a remittance amount more than once in a calendar year, the penalty goes up to 20%. With stakes this high, it’s definitely not the time you want to suffer from a rounding error or forgetting to carry the one.
The tax laws are different in the United States compared to Canada. You’ll need to pay attention to both the report filing deadlines as well as payment deadlines. The IRS website has a good breakdown of the important due dates that you should be aware of.
And what are the penalties for missing either deadline? For not filing a report, it’s 5% per month of unpaid tax up to a maximum of 25%. And if you miss the payment deadline, you'll have the Trust Fund Recovery Penalty imposed on you by the IRS. This is 100% of the unpaid tax amount and also includes interest accrued over time—definitely not something you want to experience first-hand!
#2: Late payments
Depending on how much your average monthly remittance is, you’ll end up in one of four different schedules: quarterly, monthly, bi-monthly, or up to four times a month. Be sure to double check which remitter type your business qualifies for as well as when to remit.
The penalties for late remittances are:
- 3% if the amount is one to three days late
- 5% if it's four or five days late
- 7% if it's six or seven days late
- 10% if it's eight or more days late (or if no amount is remitted at all)
Similar to missing remittances, there is a 20% penalty for a second infraction within one calendar year. For instances when the due date is on a Saturday, Sunday or public holiday, your remittance is considered on time if it’s received on the very next business day.
Depending on your state and how much your average tax payment is, you could be in one of several different tax payment schedules: next day, three-day, five-day, monthly, quarterly, or annually. Make sure you’re familiar with the appropriate deadlines for both reporting and depositing the amounts that you owe.
The following figures are just at the federal level – additional state and local penalties may apply. The penalties for late deposits are:
- 2% if the amount is one to five days late
- 5% if it’s six to 15 days late
- 10% if it’s 16 or more days late
If the IRS has specifically sent you a notice to collect a late deposit, you'll be charged 15% if you’re more than 10 days late to make that payment.
#3: Manual mistakes and bookkeeping errors
This one applies to both Canadians and Americans because it’s so important. Mitigating risk and reducing unforced errors are part of what separates a truly great entrepreneur from his or her peers. No matter what system you’re using to currently calculate payroll, the following issues can cause you problems if you’re not careful:
- transferring written information to a digital format
- keeping tax information in more than place and not updating them all consistently
- relying too heavily on an outside specialist if you’re worried about high turnover
- not maintaining accurate bookkeeping records
With all that being said, mistakes can be a great learning opportunity. By figuring out where and why things are going wrong, you can take the proper steps to correct them.
So what should I do?
If you’re frequently missing or late on your remittances, you could benefit from automatic remittance so you don’t need to worry at all.
And if your problems are mainly the result of manual errors, the solution of integrated bookkeeping will keep all your information consolidated in one place.
Running a small business can definitely be challenging. But paying your employees doesn’t have to be.
Looking to try out a payroll solution that’s both automatic and integrated with the rest of your Wave account? Get started now with Payroll by Wave. The first 2 months are free.