Payroll Taxes: It's More Than the Money

Ever-changing Regulations Complicate Compliance for Employers

DALLAS, TEXAS - 3/19/01 - Payroll tax compliance means more than just the money. "Withholding the right amount is only the first step," says Fran Bartlett, founder and president of FLS, a leader in software and services that manage the timing of government payments. "For each employee, an employer must know which taxing jurisdictions apply, when and where to mail payments, what tax forms to use, and what other data must accompany payments."

Payroll tax regulations from the nation's 12,000 federal, state and local taxing agencies are always changing, Bartlett says. "Employers need the latest information in order to avoid being hit with penalties."

The best compliance systems treat payroll taxes as part of cash management, Bartlett says. By knowing exactly when taxes are due to each agency, companies can pay on the due date - never early, so they earn maximum interest income on their money, and never late, avoiding penalties. Late penalties can reach 10% or more of a federal tax payment.

Bartlett says governments are always looking for more revenue. All but nine of the 50 states have a state income tax. Many counties and municipalities tax payroll at the maximum rate allowed by state law. Communities are also accelerating the frequency of tax deposits, often requiring payments monthly instead of quarterly. To speed the process, many tax agencies are moving toward receiving all employer payments and tax returns electronically.

A new FLS e-filing module gives employers a new affordable tool for electronic filing of quarterly payroll tax data with the IRS. FLS is the first tax processor approved by the IRS for non-EDI e-filing of employers' quarterly payroll tax returns.

The module exports payroll data as flat ASCII files, which are far cheaper and easier to produce than Electronic Data Interchange (EDI) files. Companies are looking for an alternative to EDI because EDI translation software for payroll tax compliance is very costly to build and maintain.

The IRS wants all tax returns generated by a computer to be submitted electronically by 2003. The Agency says another goal is 80% of all tax returns filed electronically by 2007.

While Congress and IRS are trying to make it easier for the small business taxpayer, "sometimes it seems they don't have a clear understanding of business processes," Bartlett says. For example, a recent IRS rule change allows small businesses with less than $2,500 in payroll taxes quarterly to pay quarterly instead of monthly.

"Most tax payments to federal, state, and local governments are made monthly, so a quarterly payment isn't synchronized with other payments businesses make," Bartlett says. "I'm concerned that the small employer could simply forget to pay. Any savings in cash float won't offset the potential tax penalty."

About Federal Liaison Services, Inc. (FLS)

FLS is the leading provider of software solutions and services to employers for government reporting and compliance. FLS solutions automate payroll tax payments and filings, wage garnishment processing, and year-end W-2 and 1099 processing. Applications are Web- and client/server-based, and are scalable to enterprises of all sizes. FLS clients include more than 400 members of the Fortune 1000, as well as several major government agencies.

Visit FLS online at www.flsinc.com or call 972/239-8881; fax 972/239-9540. The company's headquarters are located at 12001 N. Central Expressway, Suite 700, Dallas, TX 75243-3715.