Payroll Tax Issues that California Small Business Owners Must Address

 Posted on December 19, 2018 in Small Business Taxes

California employers are responsible for withholding payroll taxes, filing returns, and paying state and federal payroll taxes. The laws governing payroll taxes are complex, and as your small business grows, the onerousness of compliance with these tax rules will intensify.

What Are Payroll Taxes?

California has four state payroll taxes. Two are paid by the employer: Unemployment Insurance (UI) and Employment Training Tax (ETT). Two are withheld from workers’ wages: State Disability Insurance (SDI) and Personal Income Tax (PIT). Payroll taxes are administered by the Employment Development Department (EDD).

In addition, employers must handle federal payroll taxes. A small business will be required to pay federal taxes for Medicare, Social Security, and unemployment (FUTA). Also, an employer withholds federal personal income taxes, Medicare, and Social Security from workers’ wages.

Payroll Tax Challenges for Small Business Owners

There are several problems businesses often face in this area of taxation. Two common challenges are poor record keeping and underpayment. Both of these problems are potentially dangerous for a business and can expose it to liability. 

Another pitfall for small business owners is employee classification. Employers need not withhold or otherwise administer payroll taxes for independent contractors. If an employer mistakenly considers an employee to be an independent contractor, the business will likely end up owing a substantial amount of money in payroll taxes. The test used to determine whether a worker is an employee is called the “direction and control” test, and it looks at whether an employer controls how an employee performs his/her work and has the right to discharge the employee at will.

Failing to comply with state and federal payroll taxation laws could mean monetary penalties. However, if your business is in this situation, there are a variety of options that may be available to you so you can minimize penalties and paying back taxes that are due. However, to avail your business of these options, you must make specific legal arguments. For instance, you may show that the failure was due to reasonable cause and not willful neglect. These are not easy arguments to make and should be advanced by a legal professional.

Contact a San Jose, CA Payroll Tax Lawyer for More Information

If you are a small business owner, you should not let addressing payroll tax concerns become a problem for your business. Delegating these issues to a qualified San Jose, CA payroll tax attorney can be a great decision, allowing you to put your time and energy toward a more productive use while you gain the knowledge and experience of a legal professional.

Our tax law offices have helped many small businesses operate more efficiently, and most importantly, operate legally. Not being on firm footing with regard to payroll taxes can create complicated and expensive problems down the road. Call our offices today at 408-866-1810 to learn more about how we can help your small business avoid tax penalties.

Sources:

https://www.edd.ca.gov/payroll_taxes/

https://www.taxes.ca.gov/Payroll_Tax/