Payroll tax compliance checks for spring
Spring is a natural checkpoint for payroll tax compliance. While year-end reporting gets most of the attention, the months following tax season are when businesses are well-served to ensure their payroll processes remain accurate, current, and compliant. Overlooking key considerations can create mistakes that compound through the year and potentially result in penalties, interest, or administrative headaches that can divert your energy from running your business.
Our team has compiled the most important payroll tax reminders you should review each spring. Here are the guideposts you can follow:
Reconcile year-to-date payroll records
After filing annual forms such as W-2s and payroll tax returns, it’s essential to reconcile internal payroll records against filed reports. Confirm that totals for wages, withholding, and employer taxes match what was submitted to taxing authorities. Correct any discrepancies immediately to prevent issues from compounding as the year progresses.
Review employee classifications
One frequent source of compliance problems is worker classification errors. Spring is an ideal time to review your records and ensure that all workers are properly categorized as employees or independent contractors. Misclassification can lead to federal and state back taxes, penalties, and interest if discovered during an audit. If your workforce structure changed during the past year, reassessing classifications now can help avoid costly corrections later.
Verify withholding accuracy
Life happens, and that means we all live in a constant state of change. It’s possible that some of your employees’ withholding elections may no longer reflect their current financial situations. Encourage staff to review their Form W-4 after major life events such as marriage, divorce, or the birth of a child. You should also confirm that your payroll systems are applying withholding tables correctly, particularly if tax rates or regulations changed at the start of the year.
Check your payroll tax deposit schedules
The frequency of payroll tax deposit depends on employer size and tax liability. Missing deposit deadlines is one of the most common (and expensive!) payroll mistakes. Spring is a good time to confirm your assigned deposit schedule based on your IRS-determined lookback period and total employment tax liability and ensure reminders or automated payments are set up to help you consistently meet your due dates.
Update state and local requirements
Remember what we said about living in a constant state of change? Many states make periodic changes to unemployment tax rates or wage bases. If you operate in multiple states, you’ll want to verify you’re using the correct rates for each jurisdiction. Failing to apply updated rates can result in underpayment assessments or amended filings later.
Confirm benefit and deduction accuracy
You should review retirement contributions, health premiums, garnishments, and other deductions periodically to ensure they’re calculated correctly and recorded properly. Small errors repeated across multiple pay periods can grow into significant discrepancies and spell trouble by year’s end.
Maintain organized payroll records
Accurate recordkeeping is essential for compliance. Retain payroll records, tax filings, employee forms, and deposit confirmations according to federal and state requirements. For example, the IRS generally expects employers to keep key payroll tax records for at least four years after the tax is due or paid, and federal wage-and-hour rules often require certain payroll records to be kept for at least three years. Organized records not only support compliance but also make audits or internal reviews far easier to manage.
Why spring matters
Payroll compliance is a year-round activity, but getting into the habit of a proactive spring review will help ensure you correct payroll issues that could snowball by the time annual reporting season arrives. By conducting a compliance review in spring, you can identify problems while they’re still small and correct them before they become expensive.