Yes, this subject is officially a fact.
The number of audits from the state of New Jersey in the last 12 months that we have witnessed and assisted our clients with has been at an all-time high.
There are two major types of audits the state of New Jersey is frequently conducting, sales tax audits and payroll tax audits. This blog will focus on payroll tax audits. We will write another blog for sales tax audits in the near future.
Payroll Tax Audits
With payroll tax audits, the wrongdoing that the state of New Jersey is looking for boils down to the classification of the workers that business owners hired, the state is concerned with whether the subcontractors should have been classified as employees, and therefore payroll taxes have to be imposed to all the compensation to the subcontractors.
If you are a small business owner who pays workers as 1099 subcontractors, you need to sit down and go through the following criteria to determine whether your workers are employees as opposed to subcontractors.
- Do your subcontractors invoice you for services provided?
- Do you have contracts signed with your subcontractors?
- Do you control your workers’ behavior, such as what you need them to do and how they do their job?
- Do you train your workers?
- Do your workers invest in their own equipment and pay their own job-related expenses?
- Do your workers have work relationships with their other clients?
- Do your workers have their own businesses with liability insurance coverage?
The answers to these questions can clearly indicate whether your workers should be classified as employees or subcontractors. Following the results of an audit, if your workers are determined to be employees, your exposures are the state employer payroll taxes on the total subcontractors’ compensation multiplied by the number of years the state decides to penalize you for, in most cases 3-4 years.
What we've learned
From the payroll audits we have been through, we learned that in the state of New Jersey, the only profession that is allowed for individuals to be subcontractors are real estate agents.
As your trusted advisors and money coaches, we ask you to reconsider how to compensate your workers if you have been paying them with no payroll taxes calculated, deducted, and remitted. You are cutting corners to save payroll taxes but the penalties are significant and will have a disastrous impact on your business and life.
Work with a Professional
If you have a business and are in the process of selecting a tax professional, we recommend you work with a professional with CPA credentials so that you and your business can be protected from losing vital data and overpaying taxes as a result. This happens very frequently and is something we have helped our clients with in the past. If you are looking to make the change but are intimidated by the process you can always reach out to our firm at email@example.com . We look forward to speaking with you and assisting you as you look to make the right decisions when it comes to your business.
HOW SCHWARTZ IS HELPING SOUTH JERSEY SMALL BUSINESS OWNERS
Navigating these legal changes and what it means for your small business in New Jersey can be one of the biggest challenges you face in the coming years. Fortunately, Schwartz & Associates is already familiar with relevant tax laws and regulations you need to comply with, including the impact of the Biden Administration's new tax proposals. The American Families Plan (AFP) and American Jobs Plan (AJP) will bring with them new taxes on businesses in the coming year, and Schwartz is prepared to ensure your South Jersey business is not only in compliance but maximizing its benefits.
Contact us for more insight into what these changes may mean for your business specifically and what we can do to ensure you're getting the most out of your deductions.