Author: Meghan Hopkins
For many HR and payroll leaders, quarter-end brings a familiar wave of critical responsibilities. Ensuring payroll tax compliance represents one of the most complex and high-stakes tasks. Managing withholdings, filings and payments across multiple jurisdictions — especially for a remote workforce — demands precision and expertise. Mistakes can lead to costly penalties and erode employee trust.
Use this payroll tax compliance checklist to streamline your workflow, avoid common errors and ensure your organization remains in good standing with tax agencies.
A systematic review each quarter helps prevent errors before they become liabilities.
- Conduct a payroll tax audit: Verify all tax locations where employees currently work and live. Ensure your systems have properly configured earning and deduction codes for specific tax requirements. Check that tax rates and jurisdictional IDs are up to date.
- Update employee records: Account for any new hires or employee movements during the quarter. Set up tax withholdings for new work-in and live-in locations, including local taxes. Update tax exemptions or allowances based on newly submitted W-4 forms.
- Perform reconciliations: Ensure all taxable wages and taxes withheld within payroll match the quarterly tax filings, often submitted via IRS Form 941, the Employer's Quarterly Federal Tax Return. Check for missing tax payments or unfiled returns and verify that all tax liabilities are fully reported and paid. In our payroll tax consulting experience, we've seen vendors fail to file a specific tax because the vendor didn't receive the ID for the jurisdiction before the close of a quarter or a third-party administrator (TPA) didn't complete the filing on time.
- Verify tax rate updates: Make certain to update unemployment experience rates for the year. Identify any new paid family leave, disability or medical leave, income tax requirements or other new jurisdictional-specific taxes. HR teams typically complete these tax updates during the first quarter of the year. However, we've seen recent examples of tax changes occurring mid-year, like that of the New York Metro Commuter Transportation Mobility Tax.
- Manage agency correspondence: Review tax notices, audits or inquiries from agencies. Assess potential liabilities or exposure areas and respond promptly to avoid penalties and interest charges.
Establish best practices for ongoing payroll tax compliance
Proactive, continuous monitoring of tax compliance is critical, especially for employers managing a remote workforce. Follow these best practices to ensure you stay compliant:
- Designate an experienced payroll tax professional for your organization.
- Review payroll registers and validation reports every payroll, and on a monthly, quarterly and annual basis.
- Stay current on new state and local tax law changes. Federal agencies such as the IRS regularly provide updates for employers.
- Properly configure your payroll systems for tax calculations.
- Monitor changes in your organization's workforce and understand what those changes might mean in terms of tax compliance.
- Document processes to address tax changes when they occur.
- Consult professional tax specialists to support your tax planning, remediation and risk mitigation.
Avoid these common and costly payroll tax mistakes
Payroll departments most commonly make mistakes when they become overwhelmed and understaffed or when someone who isn't experienced in a payroll tax handles the work (because you don't know what you don't know).
Typical payroll tax mistakes include:
- Not analyzing tax validation reports regularly
- Overlooking new hire tax registrations in all required jurisdictions
- Failing to account for employee moves or work location changes
- Inputting incorrect tax exemptions or withholding codes
- Lacking a centralized process to handle tax agency notices
Work with a trusted partner to help ensure payroll tax compliance
Embrace payroll tax compliance as an ongoing, living process embedded in your everyday workflow — especially if you employ remote staff or hire in high volume. Payroll tax compliance requires diligent, proactive efforts each month and quarter.
Using the right guidance for payroll tax compliance throughout the year can help your business avoid penalties and fees. By teaming up with an experienced partner, you can mitigate risks while avoiding potential additional agency liabilities and risk to employee experience.
Gallagher's payroll professionals have helped organizations of all sizes and industries meet their payroll tax needs. Our experienced consultants can audit your current payroll system, put the puzzle pieces together, chart a roadmap to guide you and fill any gaps.
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