Why Accurate Payroll Tax Withholding Matters to Film Budgets

Preparing for production is one of the busiest times of a project! There are so many moving parts to track, from location scouting to hiring crew. And although mistakes can happen, it’s important to safeguard your financials along the way. Accurate payroll tax withholding is one area production can’t afford to overlook because it can jeopardize whether you receive a tax incentive or film tax credit and significantly impact your overall budget.

Incentives Expert and Entertainment Partners' VP of Incentive Operations, Wendy Black, shares this guide to help clients effectively plan for a successful audit and never miss out on receiving those important incentive dollars.

Start With the Right Questions

As your production is getting off the ground, remember to ask these three questions:

1. How will payroll impact my production incentives?

Many productions choose to film in a certain jurisdiction based on the production or tax incentives offered by that location. In many cases, in order to qualify for those incentives, a production needs to withhold taxes on specific individuals or loan-outs and remit that income tax  to the state. If there is a failure to report and remit  the income tax withholding, then a production can lose the tax incentive related to that crew member or cast’s labor costs.

2. Who requires tax withholding?

Every jurisdiction has different legislation that impacts how much tax and who needs taxes withheld from their paycheck and remitted. Tax withholding often impacts a loan-out: individuals who set up a corporation in order to capture certain tax benefits. Because loan-outs are not working as individuals, their tax withholding is not automatic and withholding has to be triggered through a manual process. This can potentially leave room for large errors if not communicated or not communicated correctly to the paymaster.

3. What is the timeline to remit taxes?

Many jurisdictions are getting stricter about allowing late payments or adjustments, and this will cause a production to lose out on a tax incentive if not paid on time. Typically, the time to remit taxes is monthly or quarterly, but if you’re working with EP, our goal is to have all withholding processed in the at the time the employee is originally paid.

Avoid the Most Common Withholding Errors

Each jurisdiction has different incentive programs which are dictated by legislation. Productions often run into issues at the time their incentives are audited due to mistakes related to missed or inaccurate withholding. This can happen for a variety of reasons. Productions are busy, and sometimes communication breaks down between the production and payroll, especially when it comes to accurately identifying the location and knowing when to withhold.

Remember these best practices to help ensure your show is capturing withholding correctly:  

• Review any specific requirements when filming in a state with a production incentive. Make sure you understand what they require and who it applies to (BTL, ATL, residents, non-residents, loan-outs, etc).
• Advise your paymaster if you are filming in a production incentive state.
• Send the paymaster a list of all loan-outs and individuals requiring special withholding.
• Notify your paymaster if any loan-out companies or individuals do not require special incentive withholding.
• Alert your paymaster to any changes or additions affecting the production talent or crew.
• Ensure the proper work location is listed daily on the timecards, especially if you are working in multiple locations.
• Batch anyone requiring special withholding separate from regular payroll.
• Review all edits before releasing any payroll.

There is no 100% fool-proof way to ensure you’re capturing all qualified spend. Mistakes can happen. But strong communication between the production and paymaster can be key to reducing errors and ensuring accurate payroll tax withholding. For additional help on how to approach payroll when payroll withholding is required as it relates to incentives, download our withholdings best practices checklist.

Key Takeaways

• Understand the incentive rules of the jurisdiction a production is working in and if there are any special withholding requirements.
• Communicate those requirements to the person processing the payroll.
• Communicate any errors to your paymaster immediately so they can make adjustments.
• Follow up to ensure that the withholding actually happens before the payroll gets submitted, not later when a crew member or talent has completed their work on the project.

For more information on how to properly plan for withholding of your crew and loan-outs in incentive jurisdictions, watch our Master Series webinar: Best Practices for Accurate Incentive Payroll Tax Withholding. If you have any questions about specific incentives or withholding requirements in specific incentive states, please contact the Incentives Group at incentives@ep.com or (818) 955-6050. Our Tax Support team is also available at TaxSupport@ep.com or (818) 480-7333 to answer questions or resolve issues around withholding on a specific invoice or project. As your production partner we want to ensure correct withholding and state reporting, so your production is set up for success!