The Internal Revenue Service is focused on closing the tax gap. One way it hopes to do so is by collecting under-withheld employment taxes. Many mistakes that are made are related to company payroll taxes. Following is the list of some common payroll mistakes that companies make:

Method of classifying employees as Independent Contractors

Workers are classified in to two broad categories; employees or independent contractors. This classification is reported to IRS, because the compensation for each category is different. Different benefits that the worker gets effects their status as an employee:

  • Medical insurance coverage
  • Retirement plan benefits
  • Grants of equity compensation

Whether a worker is subject to federal income tax and employment tax withholding is also contingent on status.

Employers do the mistake of not adding gift cards, prizes and awards in Employee’s income


For federal income tax purposes, most prizes and awards are considered taxable fringe benefits subject to federal income and employment tax withholding. Gift cards are the equivalent of cash and should always be included in taxable wages regardless of amount.

Incorrectly Excluding Expense Reimbursements from Reportable Wages

Whether expense reimbursements can be excluded from an employee’s wages depends on whether he or she is reimbursed pursuant to an accountable plan. If expenses are reimbursed under a policy or plan that does not meet these requirements, they must be included in taxable wages.

My Tax Help MD

Professionals at My Tax Help MD have the experience in payroll taxes. We can guide you throughout the process and file taxes on your behalf.

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