Taxes are easily one of the most complicated components of payroll and accounting for construction companies. This is made more complex when taking into account the need to calculate payroll taxes at the state, federal, and local level for every single employee. Failing to accurately calculate and pay these taxes leads to some of the most expensive tax penalties, making tax calculation an incredibly important part of running payroll.
As mentioned before, payroll taxes need to be calculated and filed at the federal, state, and local levels. At a fundamental level, this is the baseline for properly calculating the payroll taxes for your employees. While that isn’t incredibly straightforward, things only get more complicated from there.
Multistate Payroll Considerations
One thing we need to establish is what nexus is, as it is used thoroughly throughout the below tax considerations. Nexus is established by having a business presence in a state, such as an office, store, factory, or even by an employee entering into a state. For state income tax withholding, nexus determines whether an employer is required to withhold tax for a given state.
Multistate Payroll Taxes
Multi-state payroll refers to when an employee resides in one state but works in another. Oftentimes, employees will live in one state but work in multiple states throughout the course of a year – especially in the construction industry. The implications of this, tax-wise, are a host of new considerations when determining what to withhold from the employee’s check. One of these additional considerations is if the company has nexus in the state where the employee lives, if the state where the company is located has a reciprocity agreement with the state that the employee resides in, or if the employee has a non-resident certificate on file in the state(s) where they are working, but not residing. These are all incredibly important components of accurately filing payroll taxes, and unfortunately, it doesn’t get easier as we move to the local level!
Local Payroll Taxes
Did you know that local income taxes are imposed by 4,964 taxing jurisdictions across 17 states, with a heavy concentration in Rust Belt states, particularly Ohio and Pennsylvania?
Local payroll taxes can vary dramatically depending on the location, and that’s only made more complicated if your company is determined to have nexus at a local level. It’s also important to take into consideration that there are multiple rates that employees can be taxed at within these locations, depending on whether or not the employee(s) are residents of the state that the jurisdiction lies in.
Tax Issues Can Hold Your Business Back
Tax implications and the lack of having a resource in-house to properly get your workers set up with accurate tax payroll tax withholdings can absolutely hold your business back. Good labor is hard to find, and that’s especially true right now. With that being said, it’s important that you find skilled labor whenever and wherever possible. If prospective employees live in another state, and you would like to hire them without having them relocate, it’s important that you can handle the tax implications that come with employees living in other states. On the other hand, if your business is not prepared for the necessary tax considerations that come with working in another state or even a different local tax jurisdiction, you’re missing out on income.
Multistate payroll can be a headache and can impact your bottom line, whether that be through not being able to hire, missing out on jobs outside of your area, and even costly tax penalties. The good news? You don’t have to handle it on your own. ConstructionPayroll.com’s full-service online payroll software provides accurate, complete payroll tax calculations, payments, and reports to meet federal, state, and local requirements, with oversight from our accounting professionals.
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Are you ready to make running payroll for construction workers as simple and straightforward as possible? We offer simple pricing based on the unique size and specific needs of your construction company. Take our brief assessment to see if your current payroll system is setting you up for success or view a demo to see exactly how our software works.