As a business owner, there are a lot of things you have to deal with on a regular basis. One of those things is payroll. Payroll can be extremely confusing and complex. There are a lot of rules and regulations that you want to make sure you adhere to in order to prevent being hit with a bunch of penalties and fees. To help you better understand your payroll, check out the following information.
Employees should be properly classified.
Workers are often classified as independent contractors or employees. Proper classification is important. Depending on how the workers are classified, their earnings will either be reported on a 1099 or a W-2. This also determines whether you are going to have to pay benefits to the individual. Workers who are independent contractors aren't subject to income tax withholding, whereas, employees are. Because of the differences between the two types of workers, it is more important than ever that you have them properly classified to prevent any possible penalties or discrepancies.
1099 forms have to be issued.
Form 1099 is generally issued to any independent contractor or vendor who earns more than $600 during the fiscal year. Depending on what type of entity your business is classified as, you might not be required to issue one of these forms. If you are required to issue one of these forms and you don't do so, you could end up facing a pretty hefty penalty for not doing so.
Gift cards, awards and prizes count as employee income.
Many people don't realize that any prizes, awards or gift cards are forms of income. Even though you might perceive them as a gift to the employee, that individual is required to claim them as part of their income. This also means that income tax has to be withheld from that added income. Essentially, a gift card is the same as cash. Regardless of whether the gift card was worth $10 or $1,000, you have to include it in the employee's wages and tax them accordingly. Anytime the gift is the equivalent of cash, it has to be included in their wages.
If you ever have any questions about what you should or shouldn't be doing with your payroll taxes, you can always take the time to go over everything with a licensed accounting professional. This will eliminate any confusion or possible penalties down the road. Contact a business, such as A & C Accounting & Tax, for more information about accounting services.