Most Construction Businesses - Pay Federal, State and Local taxes often. How often is often? Most contractors file returns and pay on a quarterly basis due by the last day of the month following the end of the quarter.
Are You An Employee - Of your small business? By that I mean – do you take a formal payroll and receive a W-2 at the end of the year? Depending on your company structure you may or may not be an employee. Do you have any other employees? If you are anyone else in your company they need to an employee with regular payroll / taxes taken out of each check / W-2 at the end of the year and payroll taxes paid.
Payroll Taxes Are Calculated - On gross wages. Federal payroll taxes are paid based on the individual schedule set up by the Internal Revenue Service. It based on the total payroll liabilities – schedule can be semi-weekly / monthly / quarterly. The 941 payroll tax reports are due on a quarterly basis (including no payroll) All outstanding payroll liabilities must be paid by the due date of the quarterly report.
The Amounts Declared - On your quarterly 941 reports and your annual 940 (Federal Unemployment) and the year-end W-2’s all need to match each other. Otherwise you could send a red flag that may trigger an audit.
Things Have Changed - Now the IRS has can request a copy of your QuickBooks file for an intense review. Now more than ever you need to be sure your bookkeeping is clean and proper. This is one area where a Bad Bookkeeping can cost you and your company a lot of money in back taxes, fines and penalties.
Do Not Hire “1099 Employees” - Any non-employees need to be properly licensed as they are in business for themselves or should be an employee of another company. Any Casual Labor needs can be met by using “temp service” like Madden Industrial Craftsman or Labor Ready and as part of their fees it covers the cost of their employee payroll taxes.
Most States Have Online Databases - To check on the status of a business by company name or owner’s name. You need to be aware that State and Federal government agencies talk to one another. Most states have employers fill out a “New Hire” form to notify the State of the location of new employees.
Most States Will Check - Their records for “Outstanding Child Support” liabilities. This database is linked to all 50 states and Tribal Agencies. It is important for business owners not to get into a position where they will be forced to assume the financial liability for some or all of your employee's children due to issues regarding payments due to the state agencies.
State Taxes – Every employee triggers some form of state payroll taxes. Most common State tax is “Unemployment Insurance” and “Worker’s Compensation” (Labor & Industries in Washington State). Each state determines how they handle taxes; some require an insurance policy / larger companies may “self-insure”. Each Quarterly tax report will show both gross wages and total employee hours worked. Note – Your liability insurance audit may also request these reports to determine your risk factor and calculate your company’s rate.
Washington State – Administers the state payroll taxes / sets the rates / collects the taxes. Employment Security Department is the agency for state unemployment insurance. This is mandatory if you have employees. As the owner of your company you can “OPT” out the state unemployment insurance program. All payrolls are taxed at the state level receives a credit against the 940 federal unemployment insurance. Both Federal and State unemployment insurance is based on gross wages. When you have an active employer account – reports need to be filed quarterly (including no payroll)
Washington Department of Labor & Industries (L&I) - Has multiple roles and it gets a little confusing for new businesses. It is commonly known as Labor & Industries or L&I. License renewals and quarterly reports can be filed and paid online. Whenever a business is paying by check, REVIEW the mailing address and send to proper location. Each department has its own mailing address; transferring between locations can take weeks. Example Contractor’s renewals and Quarterly reports go to different cities. At first glance Master Business License and Contractors License annual renewals can appear to be one in the same – It’s not!
Why is that a big deal? - Whether it is your business license or contractor’s license clients may refuse to work with you unless your status is “Open” or “Active.” Your material supplier may cut off your credit / require cash only until corrected / refuse to sell to you / sell at retail rates (mfg. list) and as it is a retail charge they are required to charge local sales tax. It is their option – Is it worth the risk and hassle to get it corrected?
Washington State Labor & Industries Oversees License Compliance - For Contractor’s licenses and individual license tied to the construction trades (plumbers / electricians) that must have personal licenses with continuing education requirements. Labor & Industries makes it easy to check online the status of a business that is required to have a contractor’s license by company name or owner’s name. This is to assure the public that they are hiring legitimate building / specialty contractor who obtained a bond and liability insurance as part of the State of Washington’s licensing requirements.
Washington State Labor & Industries Oversees Worker's Compensation Insurance - To check on any other type of company to check on their work– a phone call to Labor & Industries is required. Every employee job description has a risk classification (code) and a composite rate to be paid by the company based on employee hours worked. At the employer’s option – a small portion can be deducted from employee’s payroll based on the specific rate set by Labor & Industries. The higher the rate the more likely employer will capture the deduction each payroll to offset company payroll liabilities. When you have an active employer account – reports need to be filed quarterly (including no payroll)
Washington Is One Of Several States - Where premium is based on hours and administered by the State. Other states have a rider on their liability insurance with specific language for the coverage. (Note: Not all carriers offer the approved coverage and may write a rider they “think” will work)
Many Cities Have Separate Business Licenses - And require businesses to file quarterly or annual reports and pay a Business & Occupation Tax. It may be an annual Flat Fee based on number of employee. It is common for a city to also have a quarterly tax report (business and occupation tax) based on gross sales of services (wholesale / retail / service) performed in their city. Some cities are assessing an additional flat tax based on number of Full-Time Employees (FTE).
Cities Receive Reports From The State - Reflecting the local taxes paid to the state revenue agencies. Amount reported to the city should match what was reported to the state (business and occupation / sales tax reports) Each state determines when a sale becomes income / if it is subject to sales tax / business & occupation / plus other taxes to apply. States are always looking for ways to increase their revenue base.
If You Are You Still Using the IRS Tax Guide – I recommend using a payroll subscription to properly calculate payroll / create payroll reports. Employers with Multi-state payroll needs should use a dedicated payroll service. They are payroll specialists who have staff to keep track (state by state) of the latest changes to the rules / forms / etc. As more state budgets are under pressure streamline their services more forms are available online and the state agency expects you the employer to know what form you need, when you need it, where to find it, how to fill it out properly and where to send it.
Having Processed Payrolls In Washington State - For over thirty years I understand their guidelines very well and I know who and where to call when the process gets “wacky”.
You Still Need A Way To Prove - That you sent the quarterly tax forms to the appropriate tax agencies and you need to make sure you can prove you sent it AND paid the business tax liability. I still use my printer, toner and paper as needed and suggest you do too!
We Offer Cloud Based Bookkeeping Services - And it is a wonderful alternative to having everything on your desktop or notebook computer. Electronic tax reporting forms can be quick and easy to fill out if you know what you are doing, if not we can help.
Have a great day!
QuickBooks Expert Specializing In Construction Bookkeeping Services
About The Author:
Sharie DeHart, QPA is the co-founder of Business Consulting And Accounting in Lynnwood Washington. She is the leading expert in managing outsourced construction bookkeeping and accounting services companies and cash management accounting for small construction companies across the USA. She encourages Contractors and Construction Company Owners to stay current on their tax obligations and offers insights on how to manage the remaining cash flow to operate and grow their construction company sales and profits so they can put more money in the bank. http://www.fasteasyaccounting.com/sharie-dehart/