It can be incredibly easy to fall into the many pitfalls of payroll tax. Not only do they add up really fast, honest mistakes are common and lead to big penalties and interest. Things can quickly get out of hand and lead to civil and/or criminal lawsuits.

The Statistics

There are more than 15,000 tax laws in the U.S., averaging one change a day from 2001 to 2012.

A full one third of small businesses get fined for payroll mistakes, according to the Yahoo! Small Business Advisor.

Payroll taxes are even more problematic, with 40% of small businesses getting fined an average of $845 each year in penalties. This is a huge unnecessary cost, especially for those just starting out.

What’s more, according to the National Small Business Association (NSBA), business owners spend an average total of three weeks each year just sorting out payroll taxes. That’s three weeks of your time times your average ideal rate per hour/day, which equals a whole lot more $ down the drain.

Federal Withholding Forms

IRS forms start with the W-4, which also has a Spanish version and a version for Non-resident Aliens, depending on your employees.

There is also Form 673 for Claiming Exemption From Withholding on Foreign Earned Income based on Section 911 of the tax law.

Then, there’s Form 8233 for Exemption From Withholding on Compensation for Independent (and Certain Dependent) Personal Services of a Nonresident Alien Individual.

State Withholding Forms and Rates

Michigan tax forms can be even more specific. In fact, Michigan is the only state that has different W-4 for many individual cities.

Michigan has the state W4 and Certificate of Nonresidency, the MI-W4 and MI-NR respectively.

Cities that have their own W4 forms are, in alphabetical order:

• Albion (AL-W4)
• Battle Creek (BS W-4)
• Big Rapids (BRW-4)
• Detroit (DW-4)
• Flint (FW-4)
• Grand Rapids (GRW-4)
• Grayling (GR W-4)
• Hamtramck (HW-4)
• Highland Park (HPW-4)
• Hudson (HU W-4)
• Ionia (IW-4)
• Jackson (JW-4)
• Lansing (LW-4)
• Lapeer (LW-4)
• Muskegon (MW-4)
• Muskegon Heights (MHW-4)
• Pontiac (PW-4)
• Port Huron (PH-W4)
• Portland (PW-4)
• Saginaw (SW-4)
• Springfield (SF W-4)
• Walker (WW-4)

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Withholding rates and exemption values also vary widely depending on the city:

1. 00% residents; 0.50 non-residents; $600 exemption
   1. Albion
   2. Flint
   3. Hamtramck
   4. Jackson
   5. Lansing
   6. Lapeer
   7. Muskegon
   8. Muskegon Heights
   9. Pontiac
   10. Port Huron
   11. Walker
2. Cities with same rate as (1) but with different exemption values:
   1. Battle Creek ($750)
   2. Grayling ($3,000)
   3. Hudson ($1,000)
   4. Ionia ($700)
   5. Portland ($1,000)
   6. Springfield ($1,500)
3. Cities with same exemption value as (1) but different rates:
   1. Big Rapids (1.50% / 0.75%)
   2. Detroit (2.40% / 1.20%
   3. Grand Rapids (1.30% / 0.65%)
   4. Highland Park (2.00% / 1.00%)

Other State Payroll Requirements

Aside from Federal/State withholding taxes, there are other contributions and laws that apply in Michigan:

1. State Unemployment Insurance (SUI): 0.06% to 10.3% depending on situation
2. Minimum Wage: $8.15 effective September 1, 2014
3. New Hire Reporting: Within 20 days (Form 3281 or MI W-4)
4. Withholding Child Support
5. Reciprocal States: Illinois, Indiana, Kentucky, Minnesota, Ohio, Wisconsin

Bottom line

As you can see, payroll and especially payroll taxes are something almost all small businesses will want to leave to the experts. Unfortunately, entrepreneurs by nature tend to try to do everything themselves. Do not make this costly mistake.

We at Hazzouri Accounting offer you over 16 years of expertise to ease this burden from your shoulders. We believe that our relationship with the local communities of Canton, MI and the surrounding areas take top priority, and easing their burdens in making a living is our calling. Contact us today at 734-844-1614 or fill out our contact form for more information on our complete, flat-rate payroll services.

You can also come find us on the web:  Facebook fan page / Twitter Feed / Google+ Account

Successful entrepreneurs often have more willpower, independence, and individualism than others. But while these are seen as important success factors, those who are just starting out can end up having a “superman complex,” and trying to do everything themselves.

Business owners already have so many roles to play in the first place. Many start out thinking that they’ll just be selling a product, how hard could that be? Then they quickly realize that they need to pay the lawyer, the accountant, the marketing director, the human resources director, and many other different roles at different times. Established companies often have entire departments to handle each of these, but small business owners are often faced with the difficult choice between spending what little capital they have on outsourcing or saving that money and doing it themselves.

Spoiler alert: payroll is almost always one of the things you will want to outsource.

While other tasks are easy enough to learn and manage on top of actually running your business, payroll can be quite complex and tedious. It is also one aspect of your business that can have severe ramifications if mistakes are made. First of all, employees will leave or underperform if they are not paid enough or on time. Violations of minimum wage and other laws regulating pay will have severe legal consequences. The taxes, especially, can drown you in confusion and IRS penalties. Numerous forms for the different taxes, such as Form 940, Form 941, Form 1099 (and its many variants), the W-2 Form, and the W-4 Form are just some of the IRS forms you will usually have to deal with.

Aside from the specific tax types and rates that may apply (a topic that can be worth a whole other blog post), there are things to remember that may be unique to Michigan (information is from the official state website).

– All employers who are required to withhold federal income tax are also required to register for and withhold state income taxes.

– Those with companies located in a different state, but with employees working in Michigan, are also required to register for and withhold taxes in Michigan. They would have to create a “nexus” or a physical presence of the company in the state.

– For companies out of state with no nexus in-state, but have employees who are residents of Michigan, things get more complicated. Those located in Wisconsin, Indiana, Kentucky, Illinois, Ohio and Minnesota may voluntarily register for and withhold taxes in Michigan; otherwise, the employees are required to make estimated income tax payments directly to Michigan. Companies in all other states are only required to withhold that state’s withholding tax.
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– Non-profit organizations are all also required to withhold state income tax in Michigan.

– Businesses are required to send a copy of their Form 1099 to the Michigan Department of Treasury if state taxes were withheld. This is submitted along with any 1099-MISC forms at the same time as Form 165 (Annual Return for Sales, Use and Withholding Taxes).

– Specific cities also impose their own income tax, with their own corresponding city tax forms. These cities are Albion, Battle Creek, Big Rapids, Detroit, Flint, Grand Rapids, Grayling, Hamtramck, Highland Park, Hudson, Ionia, Jackson, Lansing, Lapeer, Muskegon, Muskegon Heights, Pontiac, Port Huron, Portland, Saginaw, Springfield and Walker.

This is just a general overview of payroll taxes. The situation can change depending on location, type of business, and even from one employee to the next. Sure, if you have a strong background in accounting and have studied the IRS Employer’s Tax Guide (it’s 67 pages long), you may be able to save some money and handle payroll yourself.

Because of all the complexity and risks involved with payroll and taxes, payroll service providers are growing in number and sophistication. There are companies that focus solely on handling others’ payrolls, going as far as “hiring” their clients’ employees themselves. Such services can be complicated, however, and quite expensive. Unless you’re running a large operation, hiring an experienced accounting firm that offers full payroll services can be much more cost effective.

Khaled Hazzouri is a Michigan CPA with over 16 years of expertise in helping local companies with all their accounting needs. Hazzouri Accounting offers complete payroll services for all your business payroll requirements. Contact us today at 734-844-1614 for more information.

You can also visit us on our social media accounts:  Facebook fan page / Twitter Feed / Google+ Account

“Whether you have one employee or 50, setting up a payroll system not only streamlines your ability to stay on top of your legal and regulatory responsibilities as an employer, but it can also save you time and help protect you from incurring costly Internal Revenue Service (IRS) penalties.”

This is how the U.S. Small Business Administration (SBA) summarizes payroll. This is the government agency whose slogan is to “aid, counsel, assist and protect, insofar as is possible, the interests of small business concerns.” So when they warn against legal responsibilities and IRS penalties, we’d better listen.

Employer Identification Number

First of all, you should get an Employer Identification Number (EIN) from the IRS. This can be done online. You can also take advantage of the Michigan Business One Stop online service to register online for Michigan taxes, Unemployment Insurance, and other permits that may apply to your specific type of business.

Classifying Employees

In hiring workers, a common problem of human resources departments and business owners is whether to classify them as employees or independent contractors. You are required to withhold taxes from your employees’ paychecks (more on this later). With contractors, however, you simply pay them the amount agreed and they are responsible for paying their own taxes. Improperly classifying an employee as a contractor and failing to withhold and pay their taxes will make you, the employer, liable for back taxes and penalties.

However, the distinction is often vague. Even the IRS admits that “there is no ‘magic’ or set number of factors that ‘makes’ the worker an employee or an independent contractor, and no one factor stands alone in making this determination.” Generally, the employer must take a look at the business relationship with each worker and determine the degree of control of the employer on the worker’s job, and conversely, the degree of independence the worker has in carrying out the job. Things to consider are how much control you have on how the worker does his or her job, whether you provide a regular salary and tools/supplies etc., and the type and length of contract, benefits provided, and the importance of the work as an aspect of the business.

Payment Schedule
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Another decision to be made beforehand is how often your employees will be paid. State laws vary, but in Michigan, this can be once a month, twice a month, every two weeks, every week, or more frequently. There are also time limits as to how long after the work is done you are required to pay the salary. Aside from the pay period, have clear systems set in place for tracking hours or days worked, paid time off, overtime pay, and deductions for health plan premiums, retirement funds, and taxes.

Find Out All Taxes That Need To Be Filed

The taxes, in particular, need precise accounting and attention to detail. As the employer, you are responsible for filing and submitting both employees’ income tax and payroll taxes. These usually include Social Security, Medicare, federal income tax, state taxes and insurance payments. You will also have to submit your own Social Security contribution and federal unemployment tax for each employee.

For bona fide employees, they must fill out the Federal Income Tax Withholding Form (W-4) and submit this to you upon employment. You will use these forms to determine, withhold, and pay the corresponding federal income tax for each employee. Employers are also required to keep complete records of each employee for at least three years after the employee leaves. These records should contain the name, address, birth date, job title, basic rate, hours worked (unless employed in executive, administrative or professional capacity), total wages paid each period, and itemized deduction and fringe benefits.

Get Help If Needed

Setting up and running a payroll system properly is one of the most important financial aspects of your business. The system should ensure that employees are paid fair wages for their work, which is mandated by law and keeps your workforce happy and productive. As you can see, however, setting up payroll can be quite complex and tedious, and any small mistake could result in hefty fines and penalties. There are many tools available, such as paycheck calculators and programs, that you can use to make things easier. However, if you’re like most business owners, you already have too much on your plate. Getting an experienced CPA to handle everything is your best option. Khaled Hazzouri has over 15 years’ experience helping businesses in Michigan with all their accounting and payroll needs. Contact us today at 734-844-1614 or fill out our contact form to set up an appointment.

We can also be reached through our social media accounts:  Facebook fan page / Twitter Feed / Google+ Account

Payroll is a crucial aspect of running any business, no matter if you have one employee or 100. Proper handling of payroll ensures that you get and keep quality personnel. It can also save you from unnecessary, hefty expenses and fines. After all, it costs much more to hire new employees than to keep existing ones – even with bonuses, raises, and other perks. There are also stiff penalties for improper collection, handling, and filing of payroll taxes. The IRS is continually exerting every effort to collect their due, with particular focus on collecting the proper employment taxes. The Employment Tax Research Project (ETRP) launched in 2010 is reviewing a sample of 6,000 businesses, with identified areas that will be subject to focused audits.

Set Up Your Payroll System Properly

To avoid headaches later on, it is crucial to plan and execute a solid payroll system at the get go. Decide on a pay schedule, keeping in mind that different states can have different requirements on this. In Michigan, employees must be paid at least once a month. This can be done more frequently, such as twice a month or every week. If your employees will be paid twice a month, wages for the first half of the month must be paid by the first day of the following month. Wages for the second half of the month must be paid by the 15^th of the following month. For more frequent pay schedules, wages must be paid within two weeks after the end of the work period.

The amount paid to each employee should, of course, be up to fair labor standards. You can use a paycheck calculator to determine the gross, net, and all deductions. The type of payment should also be considered. In Michigan, this should be either in cash, check (without fees or deductions upon cashing), direct deposit to employees’ account (with written consent from employee), debit card, payrolls card, or paycard.

Separation pay must be paid according to the same schedule mentioned above regardless of the manner of separation, except for workers engaged in hand harvesting whom must be paid within one working day.

Do the Paperwork

There is also, of course, the paperwork. You need to get an Employer Identification Number (EIN) even before hiring any employees. Once you do, have them fill up and submit to you their Federal Income Tax Withholding Form (W-4). In Michigan, W-4 forms need to be reported within 20 days of hiring, rehiring, or return to work to the New Hire Operations Center in Lansing, MI. W-2 forms and previously filed tax forms need to be kept in order. Michigan business owners are also required to furnish each employee with a pay stub listing the hours worked (unless executive, administrative or professional), gross wages, pay period, and itemized deductions. These records need to be kept for at least three years after the employee leaves your business.

 
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The difference between employees and contractors may seem trivial, but this affects your taxes a lot. This difference can therefore lead to even more stiff fines and legal liabilities.

Mind the Taxes

You are legally responsible for determining, withholding, reporting, and paying for the withholding tax of all your employees. This applies even if you hire someone else to handle payroll, so be careful whom you choose. Late payments or incorrect amounts will lead to interest and penalties. To illustrate this point, about 40% of small businesses pay an average of $845 a year in penalties. Official expenses, allowances, use of company assets and others may also be subject to tax. There are certain IRS forms that need to be filled up, submitted and filed on a regular basis.

The Federal Insurance Contributions Act (FICA) also requires you to withhold a certain rate from your employees’ pay for Social Security and Medicare. State Unemployment Insurance (SUI) also needs to be reported by the 25^th day of the month following the end of each quarter. For Michigan, the wage base is $9500, with rates ranging from 0.06% to 10.3%. There are payroll tax calculators that you can use to compute how much to withhold for each required deduction.

 How Hazzouri Accounting and Tax Services Can Help

As you can see, handling your business’s payroll properly is very important. Yet, it is not surprising that many aspiring entrepreneurs simply don’t realize what this entails. It often seems like yet another role a small business owner needs to fill, among many others. We at Hazzouri Accounting offer you our professional help. We believe that our relationship with the local communities of Canton, MI and the surrounding areas take top priority, and easing their burdens in making a living is our calling. Contact us today at 734-844-1614  for any questions or fill out our contact form and one of our friendly staff will call you.

We are also available through our social media accounts:  Facebook fan page / Twitter Feed / Google+ Account

The yearly filing of federal income tax is already one of the most bothersome aspects of life in today’s world. The government is already taking a chunk of your hard earned money, but on top of that, they seem intent on making the process so complex and confusing. As if that wasn’t enough, making a mistake could lead to stiff fines and even imprisonment. But fear not. If you missed the April 15 deadline (June 16 if you happen to be out of the country), you are definitely not alone. The IRS estimated that as many as 12 million individuals are late this year.

If you are one of the 12 million, the question now is what can you do to minimize penalties and get your taxes in as soon as possible. Well, it depends on your individual situation.

If You Are Owed a Refund

Let’s start with the good news. If you are due a refund this year, you will not be charged a penalty for filing late. However, you should be absolutely certain your computations are correct. If you find out too late that you actually need to pay taxes, you could end up paying a lot more than you otherwise would have.

In any case, there should be no reason not to claim your refund in the first place. In fact, there’s one very good reason not to let it stay with the government – if unclaimed after 3 years, they keep it.

If You Filed for an Extension

Perhaps you realized you would not make the deadline and filed for an extension. You will know that filing for an extension still has to be done by the April 15 deadline. Getting an extension gives you until October 15 to file your return. However, you still have to pay the taxes you owe by the April 15 deadline, or the closest possible estimation you can make. The extension is only to avoid late filing penalties. If you got an extension but failed to pay by April 15, you will still be subject to late payment penalties. Overall, the late payment penalty is a mere one-tenth of the late filing penalty. So if for any reason you are unable to pay on time, getting an extension can still help you avoid paying more than you need to.

If You Couldn’t Pay on Time or in Full

 
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Even if you could not pay the full amount you owe by the April deadline, you should still have filed your return (or filed an extension) AND paid as much as you could at the time. Also, if you don’t have the exact figures yet, try to estimate as best you can or use a tax calculator and make sure not to leave anything out. That way, your interest is computed only on the remaining unpaid amount. Overpaying is not a problem as this can be adjusted when you finally file your return.

You may also be allowed to pay in instalments, depending on how much you owe in taxes. If you owe less than $50,000 and can prove you can pay within a reasonable amount of time, say 5 years, you will probably be allowed an installment plan upon completing the necessary IRS forms. If you owe more than $50,000, the IRS will probably require more paperwork to prove that you will be able to pay within the requested timeframe.

If You Failed to File Your Taxes

Now, this is the worst case scenario. If you were somehow completely unable to file your return or file for an extension, you could end up paying as much as 25% more than the original amount owed. If you end up paying more than 60 days after the deadline, the penalty becomes a minimum of $135 or 100% of your owed amount, whichever is smaller.

As mentioned previously, you should always still file your return (or extension) by the April 15 deadline and pay as much of the amount owed by the same date. This is because the late filing penalty could be ten times as high as the late payment penalty.

Don’t Leave Money on The Table – Get The Help of a Professional

Khaled Hazzouri has built strong ties with the local community of Canton, MI and the surrounding areas. We have been helping individuals with their tax and accounting needs for more than 16 years. Call us at 734-844-1614 or use our online contact form, and we would be happy to answer all your questions.

You can also come find us on the web:  Facebook fan page / Twitter Feed / Google+ Account