5 Top Payroll Tax Errors and How to Prevent Them
Are you kicking off a pilot for a new comedy series in Los Angeles? Or maybe, about to embark on a multi-million dollar blockbuster in Toronto? Whatever the size of your production, it helps to be aware of common payroll errors and how to avoid them. Luckily, with the help of our digital onboarding tool, SmartStart, it will be a breeze getting your employees paid on time with paperwork that is error-free from the start.
Let’s review 5 of the most common areas for payroll tax errors and how you can avoid them!
1. California Loan Out Withholding
If your production is performing services in California, you must register with the California Secretary of State. On EP loan out start paperwork (or in SmartStart), the loan out must note if they are registered with the Secretary of State of California, North Carolina, and South Carolina (SC and NC have the same registration requirement as CA). The Entertainment Partners Paymaster will verify that the Loan Out is registered and in ‘Good Standing,’ meaning you’re required to be up-to-date on all fees, and have filed a corporate tax return from the most recent year. You can verify on this website here.
If you miss checking this box on the Entertainment Partners Paymaster, the system will automatically withhold 7%, which quickly gets the attention of the loan out owner. Eventually, the production will ask for a refund, or the loan out will quickly correct any deficiencies and ask for a refund a few weeks later.
Solution: If the loan out does not check the ‘registered to do business in CA’ box, ask if they intended to leave it blank, and tell them they will be subject to a 7% withholding.
Check the EP edits (examples: SmartTime Edit, EP Employer Fringe Edit, EP Employee Fringe Edit). If you see a CA loan out withholding, verify that the loan out left the box unchecked. If they checked the box and the 7% withholding tax shows on the edit, call or email your paymaster with either of these questions:
- Was the item an oversight?
- Are they not registered with CA SOS? Sometimes it happens that they did register recently, but the website hasn’t been updated yet.
2. Loan Out Incentive Withholding
If your production is in one of the states on this chart, be sure the correct film incentive withholding is taken on each payment!
Missed withholding can impact the film credit and may be difficult to collect after the production goes to post-production.
Solution: Check your starts and your edits, especially if a loan out starts in the middle of production.
3. Escrow Payments
When Entertainment Partners is asked to record escrows, chasing the required taxation becomes an issue. That’s why this is one of the most challenging and time-consuming errors to fix, and it frequently happens in one of two ways:
- When pre-production escrows do not consider the film incentive taxation requirements.
- They are paid to an individual, but employment related taxes haven’t been held back.
Solution: Prior to sending an escrow or advance payment, contact the Entertainment Partners Tax Support team. Our finance experts will calculate the taxes to hold back for the production, and save you a big headache in the long run!
4. Incorrect Resident or Work State
Oftentimes, the work state, the place where an employee is working on a job may get mistakenly listed as the resident state, meaning the place where an employee claims as their permanent home for tax purposes. If this happens, crew members or talent may end up with a surprise W2 for a state they have never lived in and it can cause complications when they file! The error can be compounded if the resident or work state requires a local or disability tax, or an additional employer tax. If the withholding on an employee’s wages is also part of the state film credit (like loan out withholding) this can add additional complications.
Solution: In the first few weeks of a production, set aside a “check your paycheck” day! Verify resident and mailing addresses, email addresses and work locations with all crew members and talent on payroll.
5. Tax Days and Work Days
If the wrong number of ‘tax’ days are listed on a timecard, it affects the amount of taxes on the paycheck. For example, there is a significant difference in taxes when you list 7 tax days versus 5 tax days. Payroll systems are programmed to calculate a paycheck based on annual tables, so if you work one day, the system thinks you earn that same amount every work day of the year. This can cause taxes to be over calculated. The W4 an employee fills out makes the same assumption. Any intervention of either the tax days or changing the W4 could result in either an over withholding, or under withholding of the employee’s true tax liability. To further complicate matters, adding the wrong number of workdays can impact union benefits as well.
Solution: Check those edits! It’s a keying error. Thanks to the new edit report feature on New SmartTime you can check for those errors early. If you are not using New SmartTime, ask for both the employee fringe edit AND the employer fringe edit. You’ll need to see both to catch these common errors.
For additional insider tips like this to help with your accounting, and even more customized expert advice on payroll, we’re here to help make your production’s financial journey smooth sailing ahead!