How to help your employees remain tax compliant
Helping your employees stay tax compliant can help your business stay compliant with the IRS. Tax season is a time that everyone secretly dreads, and your employees are no exception. Not only does it pile on stress, but it can take away from their productivity. This is why it’s important for you to assist your employees in every way (you legally can) when it comes to taxes.
Help new hires (as much as you can)
Each new full-time employee must complete a Federal W-4 form so you can withhold the appropriate federal income tax from each paycheck. This process can be confusing for many new hires, especially younger ones doing it for the first time.
It is the employee’s responsibility to complete the form accurately and seek guidance if needed. What we mean by this is that you should not give employees tax advice. You don’t want to put your company or HR in a position where an employee is fined by the IRS and blames you as a result. If you’re in a rush to onboard a new employee, resist the temptation to speed up the process by helping them with the form. Assisting is legal (although not advised), but completing a W-4 for them is illegal.
So what do you do instead?
We suggest giving employees resources to help them complete their W-4 information correctly. This can be information from the IRS website or a trusted source. Also, remind employees to update their withholding information on a regular basis. If an employee gets married, divorced, loses a spouse, or experiences a significant income change, they should update their withholding information. Unlike health insurance open enrollment, employees can update their withholding information whenever they want.
We talk a lot about business tax credits, but federal and state governments also create tax credits to incentivize and help W-2 employees. Be sure you're prepared to provide any necessary documentation about income or employment for employees applying for programs or tax credits available to moderate and low-income workers, disabled workers, and those caring for children or dependents.
Here are a few tax credits to be aware of:
- Saver’s Credit: The Retirement Savings Contributions Credit, commonly known as the saver’s credit, is for eligible taxpayers who contribute to employer-sponsored 401(k), 403(b), SIMPLE, SEP, thrift savings plans (TSP), or governmental 457 plans. Depending on your adjusted gross income reported on your Form 1040 series return, the amount of the credit is 50%, 20%, or 10% of contributions.
- Earned Income Tax Credit: This is the federal government’s largest refundable federal income tax credit for low to moderate-income workers. In 2023, this tax credit ranges from $560 to $6,935, depending on the number of children claimed on the return. In cases where the credit is more than your taxes owed, you can actually get a refund.
- Child Tax Credit: This tax credit can lower your tax obligation by thousands of dollars if you have several children. As long as the children are under 17 and claimed as dependents on your taxes, you can qualify for this credit.
Send out W-2s on time
By law, employers must send W-2 statements to all employees by January 31st of each year. W-2s show how much income you paid an employee and the payroll taxes you withheld. You are not required to mail physical W-2 forms to employees, meaning digital forms are fine. Failing to send W-2s on time can land you in trouble with fines ranging from $30-$110 per W-2.
Offer an employee discount at a tax firm
Another idea to save your employees money during tax season is to offer discounts to get their taxes professionally done. Ask your accounting, finance, or HR department to vet a local tax company willing to partner with your company. Some employees may have complicated tax situations needing help.
Help yourself by helping employees
As a business owner, you know your team's importance to your success. Doing everything you legally can to help them stay tax compliant will only help you in the long run. Using a tool like ComplYant, you can set up reminders to avoid falling behind on employee-related tax deadlines.