I want to talk about Payroll Tax from the 10,000-foot view. Here are the three things that payroll tax audits really looking for. The very first thing that a payroll tax auditor is doing is they’re seeking to verify the acknowledged payroll of the business. Any payroll tax returns that are filed on the state level.
The very first thing that the auditor is doing is to verify the accuracy of those payroll tax returns meaning that all employees are reported and that all wages are reported accurately from a payroll tax perspective. The second thing that they are looking for is they’re making sure that the taxable wages that are listed on those payroll tax returns are correct. They’re verifying that each level of employee compensation is as it is stated on the return. Generally, what the system for audits is, is they’ll open up about four quarters to use as a sample paret. In some cases, if you’re a skilled representative you can get this down to only about a quarter to potentially two-quarters of liability. Number one, they’re verifying the knowledge payroll that you had on the return is correct.
Number two they’re verifying the amount of taxable wages that were reported. Number three they are verifying the amount of personal income tax that was withheld on those returns. As an employer, as a business, when you pay your employees you have a employer portion of the payroll taxes and you have the employee payroll portion of the payroll taxes that you are required to withhold.
What they’re doing is they’re matching your payroll tax returns it gets returns with the taxpayer filed potentially they’ll look at the W-2s that you issued and as well as state your payroll tax summaries and just make sure that the verification matches. If you’ve got independent contractors or things like that, that doesn’t really play into this analysis directly.
Although having independent contractors does affect your total state and payroll and is an important issue in a lot of payroll tax odds and the reason that most businesses are selected for payroll tax audit in the first place.
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