How to Navigate Payroll Tax Filing as Your Business Expands
Payroll tax filing can be a major compliance challenge when you operate in just one state, but the complexities only grow as you expand into multiple jurisdictions.
Payroll tax filing can be a major compliance challenge when you operate in just one state, but the complexities only grow as you expand into multiple jurisdictions. The state payroll tax rates are different in almost every state, as are the state minimum wage laws and how each state manages its unemployment insurance. Many local jurisdictions have begun mandating minimum wages for businesses operating within their borders.
State Income Taxes Are Different
Employers are generally required to withhold state income tax from employee paychecks, but the amount employers must withhold depends on what state your workers are in. Most states calculate an employee's state income tax based upon gross annual wages and claimed exemptions, so you'll need to consult a tax table for each state. To further complicate an already complex, multi-state matter, seven states including Texas, Florida and New Hampshire have no personal income tax at all, according to Fox Business.
It isn't just the amount of the state income tax withholdings that can be different by state, but when and how you submit your tax filing. The penalties for noncompliance are different too. Be sure you understand the "rules of the road" in every jurisdiction where you pay employees.
State Differences in Unemployment Insurance
Unemployment insurance is regulated by federal and state law. Each state has its own unemployment insurance tax rate and each state has their own wage base. For example, the wage base in Washington is $46,000 for 2017, while it's $14,000 in New Hampshire, and the state unemployment insurance (SUI) rates are different too, according to ADP's 2017 Payroll Tax Rates By State.
When unemployment rates are high, some states need to borrow borrow money from the federal govenment. If this the loans are not repaid, their is a reduction in the credit that is otherwise afforded to the states. Some employers may find themselves operating in the Federal Unemployment Tax Act (FUTA) credit reduction states. These states will need to pay the money back to the federal government, so employers in these states will need to pay more SUI taxes, according to the IRS.
Two Important Capabilities to Help Manage Payroll Tax Filing
1. Expertise and Advice From a Trusted Service Provider
When it comes to payroll, consider hiring a trusted adviser with national reach to help you manage compliance complexities of payroll tax filings as you expand into new jurisdictions. States are changing their tax rates and payroll-related ground rules regularly, so keeping up can be difficult. Your payroll service provider should be able to provide guidance and regular updates as you plan to expand into new tax jurisdictions. They can help you make sure you are taking a potential hiring tax credits or other cost-saving advantage that could boost your bottom line.
2. Agility With Your Data
When you have an integrated system that shares your payroll data with a larger HCM system, you can be in a better position to adapt to any changes that may arrive. Some states, for example, are moving to close the gender pay gap, so you may soon need to report what men and women are paid for similar work. If you can't leverage your data into actionable, compliance insights that lead to better and faster business decisions, you may be at a competitive disadvantage. Being set up to capture and report your data in different ways, depending on what a tax jurisdiction might require of you, is key for payroll tax compliance as you operate in multiple jurisdictions.
Payroll compliance across jurisdictions is just one part of your complex business world. But when you can effectively navigate this complexity, your business can be in a better position to grow. It's the job of finance leaders to help ensure their organizations have the necessary capacity to adapt. Is your business ready and agile enough to meet present and future payroll compliance challenges?