If you’ve ever researched a payroll or tax question and ended up more confused than when you started, this session is for you.
For many employers, questions like these don’t come with clear-cut answers. There are often more layers and implications than expected, and making the wrong decision, or delaying one for too long, can lead to unnecessary stress, risk, and expense for the business.
To help make these issues easier to navigate, we put together a short, 30-minute webinar featuring Gretchen Gorecki, our Tax Team Lead, and Robbie Frary, our Premier Client & Implementation Manager. In the session, they break down these topics in a practical, conversational way, similar to how we’d walk a client through them one-on-one. Enjoy!
View the presentation deck here.
Session Transcript:
Robbie Frary:
Today, we’re going to be talking about some frequently asked questions regarding payroll and taxes. This is geared for anyone who’s an existing client, anyone who’s newly onboarding with us. We just compiled some of the most relevant stuff, and I’d like to introduce your panelists. I am Robbie Frary. I’m the premier client and implementation manager. And because we had so many questions that are specifically related to tax, we decided to make this session taxes only. So I’ve invited Gretchen Gorecki, who is our tax team lead, who will be answering all manner of questions. Thank you so much for joining us, Gretchen.
Gretchen Gorecki:
Of course.
Robbie Frary:
So I want to kick off with one of the biggest things that comes up these days, which is regarding remote employees. Ever since COVID, remote employees is more the norm rather than the exception, and one of the questions we get very often is regarding work location. So, for example, I have a business in New York, but I have employees in lots of other states. What should I know about their work location? What exactly should their work location be?
Gretchen Gorecki:
Sure. So the place that the employee works is now their work-from-home location. And now, you as an employer are located in that state as having a business there. So in your instance here, it’s a New York employer, and let’s say they hired someone who works from home in California. That employer now has a nexus, a business activity with the state of California.
So that employee needs to have all California withheldings done on their payroll as well as unemployment needs to be reported to California, because they don’t work in New York. They work in California. So as you expand your employee base throughout different remote locations throughout the country, you do have employer tax responsibilities with each of those locations. Now, the tax piece is just one piece of it. There’s other pieces that are important for the employer to make sure that they’re being compliant with regulations for those states, things such as workers’ compensation policies and labor law posters.
Now, we do offer an electronic labor law poster service, which is really great for clients who have a remote employee workforce. Instead of sending an actual poster to that employee for them to post in their home, at their office desk, they can have an electronic version of that available to them, and your customer service rep could help you with that.
Now, each state is a little different with taxation. So that’s something that it’s great to speak with your tax professional when you’re setting up that new state. Some states include short-term disability policies as part of their packages. Some of them require you to get an outside account for that. Some include workers’ compensation as part of payroll. Some do not. Some states have no income tax withholding.
One of the biggest things that employers need to be aware of, especially if you’re hiring someone in Pennsylvania, Ohio, Kentucky, Missouri, local taxes. So if that employee lives and works in a jurisdiction that has local income taxes, you as the employer need to be registered with that jurisdiction so that those wages can be taxed properly and the reporting can be done.
Robbie Frary:
Okay. So that’s a lot. How do I know that I’m registering for the right class of taxes?
Gretchen Gorecki:
Right. So we do help clients with their tax registrations when that employee is onboarded into our payroll software. It’s a fabulous product. So it automatically knows what the taxation should be based off of that work location that is set up, and we’ll know if we need earned income tax, local services tax, unemployment taxes, and we can help you with all of that, whether it be you do the application and we’re just on standby for questions, whether you would like us to do it completely for you.
And then the third option is we do have an outside vendor that we use that can be used to do all of your registrations for you. So you’re never on an island by yourself when it comes to taxes and tax registrations. I’m here to help. Please reach out, and we’ll figure out the best option for you.
Robbie Frary:
Okay. Thank you. And then one last question. So my business is in New York, but my employee works in California, and that’s their work location. Where would they file for unemployment?
Gretchen Gorecki:
So that employee will file with California. If the work location was New York, they would file with New York. But because the work location is California, that’s going to drive all of their claims. So I say that for claims because it’s not just limited to unemployment specifically when we’re dealing with a state such as California. If that employee has a disability claim, that is a state that does have a state-mandated disability policy. So if that employee does have a claim for disability, that also would be filed through California, not New York.
Robbie Frary:
Okay. Thank you very much. All right. Moving along. Whoops. I’m on the wrong screen. Apologies. Whoops. And again. Okay. As a business owner, I’m suddenly receiving all kinds of notices from different tax agencies. What do I do with these? Do you need to know about these? Should I put them in my special file, or what should I be doing?
Gretchen Gorecki:
So best practices is to send any correspondence that is payroll tax-related to your customer service rep, who can then send it over to myself, or you can send it to me directly. Now, sometimes I do have the notice already. It really depends on the agency and how everything is set up on whether or not we automatically get a copy of the notice.
It is in place for the IRS notices. So we normally do get that IRS notice about the same day that you get that IRS notice. But states, they don’t tend to tell us that they’ve sent you a notice. So the only way we’re going to know that there’s an issue or something needs to be done is for you to send that to us. So that’s really important to get in the habit to always send it over to us. Sometimes we have it, and I’ll say we’re already on top of it, but sometimes we don’t.
You could have the frequency change changing from a monthly filer to a weekly filer, which is really important information for us to know so that you’re being compliant with the regulations for that jurisdiction. Another thing is rate notices. That’s really an important one, Robbie. Each year, the state will assign you, as an employer, an unemployment rate. And if we are not using the proper rate, you’re either overpaying or underpaying that return until we know what that proper rate is.
So always best practice, send it on over to us, and then that way, you know you’re good. And we’ll always let you know. If you end up sending me something that really doesn’t pertain to payroll, maybe you got a notice that you’re missing a sales tax return or that there’s a corporate tax return due that wasn’t filed, I’ll let you know, “Hey, you should send this to your CPA or your internal accounting team, and that this would fall under their jurisdiction to take care of.”
Robbie Frary:
Okay. So if I receive a rate notice that tells me, “Oh, this rate went into effect at the beginning of the year,” but I didn’t receive it until, say, February or March, am I going to get in trouble?
Gretchen Gorecki:
Not necessarily going to get in trouble. You may end up have some penalty or interest due, but for the most part, especially with our unemployment rate, that is for the entire calendar year, but the return gets filed quarterly. So an example for you, Robbie, would be for 2026, Massachusetts put out its unemployment rates to the employers in February, but that was retroactive to January.
So what we did here in our system with isolved is we did add those rates in with the effective date of January 1st. And on the next payroll that was processed, our system automatically recalculated and either collected the additional funds that were needed to satisfy where we should be for the year at that point, or it refunded it back to you if your rate went down. Happy for you, your rate went down.
But if it went up, we’re going to collect the extra that’s needed. And then that way, when we get to the end of the quarter to file that return, we should have already satisfied that liability with collections throughout the quarter so that there’s no big surprises at the end of the quarter.
Robbie Frary:
Okay. That makes sense. Okay. Hold on one second. All right. So the next question I have… Sorry, my screen just made an adjustment that I didn’t like. Let’s talk about tax forms. So something I’ve heard is that I should be encouraging my employees to fill out a new W-4 form every year. Why would this be needed?
Gretchen Gorecki:
So while it is not mandatory for an employee to complete a new W-4 every year, it is beneficial for an employee to at least give themselves a tax checkup each year, check in, and I still set up with the appropriate filing for what my personal finances look like. If they end up owing each year, there’s definitely something that could be changed on that W-4 so that they do not owe when it comes tax time on the personal side of their responsibilities.
So it is best practice to encourage the employee to review that data each year so they’re not surprised. Things change in someone’s personal finances that impact that W-4 and then your W-2 and your 1040. It all cascades together. So if you have children and they’ve now reached the ripe old age of 17, the credit that you were getting when they were under 17 has been greatly reduced.
And if you have not adjusted your W-4 to reflect that it went from one number down to a lower number, you’re not having the proper amount of taxes being withheld, and will likely have something due when you do your 1040. Another piece of that, which this was… The W-4 used to be single, married, three dependents. That all went away. And now, it’s single, married filing jointly, and head of household, but you are no longer marking how many dependents, exemptions, however you wanted to call it. That’s no longer there.
So you’re supposed to take account for, especially if it’s a joint return, your wages and your spouse’s wages when you’re completing that W-4. The higher earner of the two people specifically should be taking into account the lower-wage earner of that joint return, because when you’re doing just the one person by themselves, the system is calculating what the tax liability is, assuming you are all by yourself.
But once you add that spouse in together, you may now be in a new tax bracket, have new tax responsibility, and possibly being underwithheld, because you’re not accounting for the other person on your return. The new W-4 is designed for you to realistically be able to put in all of what you would have as a personal responsibility so that you can almost break even with the IRS when you do your filing.
You can account for other income items that you have as well as deduction items that will lower your tax responsibility that you normally have on your 1040, you can account for in your W-4. Now, our payroll software does offer a fantastic tax wizard that can walk you through how to complete your W-4. And always, best practice, speak with your accountant, your CPA, whoever your tax preparer is who’s doing your 1040. That’s something they should be helping you with.
“Hey, I’m doing my 2025, and I owe $2,000, and I really don’t want to owe $2,000 when I do my 2026. This is how I’m filing my W-4 currently. What should I be doing?” That accountant is the person to be asking. We are not tax accountants, and we cannot give you tax advice. We can tell you what the common problems are and what the results are with those common problems, but we cannot tell you how to complete that W-4 for you. Your CPA is your best avenue.
Robbie Frary:
Absolutely. And thinking of a recent example that you and I ran into where we had an employee who said, “I’m really being underwithheld,” and she was filing as married filing jointly and both spouses work. She had not checked the box on the W-4 that said, “Both spouses work.” So it’s really a two-part thing. It’s, which is your filing status, and then making sure you’re checking the box, if that is your filing status, to ensure the system is calculating your taxes correctly.
Gretchen Gorecki:
Exactly. Exactly.
Robbie Frary:
Okay.
Gretchen Gorecki:
It does make a difference.
Robbie Frary:
Yes.
Gretchen Gorecki:
As soon as you put that check mark in and you look at that check again, it is a higher amount that’s coming out.
Robbie Frary:
Absolutely. Now, I know there is one exception to the rule of filling out a W-4 each year is encouraged but not required. Can you tell us when it is absolutely required?
Gretchen Gorecki:
So this is the one exception to the rule, and it is always required. If you have someone who has completed their W-4 and indicated that they are exempt from federal withholding, that exemption is only good for that calendar year. And the exemption, it’s very few. Who will say that tends to be the young college student who knows they don’t owe anything each year, but when they mark off that they have said they’re exempt, you as the employer are required to obtain a new W-4 from that employee for the new calendar year to keep it going.
If they do not provide you a new W-4 by February 15th of that calendar year, you have to immediately change them over to however they were filing prior to giving you the exemption form or under a single. If they started out saying they were exempt, you don’t have something to go back to. So in that scenario, you would make them single.
So best practices for an employer. When you have an employee who says, “I’m exempt from federal withholding,” and we put that in place, just put a tickler on your little calendar for the end of January every year, maybe the middle of January, to reach out to that employee and say, “If you want to keep this going, please provide me an updated 2026 W-4 so that we can continue. If I do not hear back from you by February 15th, you will begin having the taxes withheld.”
Now, when we say someone’s federal tax-exempt, doesn’t mean that they’re exempt from the federal wages. The federal wages are still going to populate on that W-2. It’s just no tax will be withheld. And when I state that, I’m talking specifically about federal income tax, not Social Security, not Medicare. They are not exempt from that. That is still going to continue to calculate.
Robbie Frary:
Okay. Thank you. So something that some of our clients do is, annually, they will post a message in the employee self-service portal reminding employees, “Hey, take a look at your W-2. Feel free to go through the tax wizard to update it,” and then they can specifically call out, “If you have claimed exempt, you must go through and complete a new tax form.” And that way, they’re reminding everybody all at once, and the onus is on the employee to go through and make sure that those taxes look correct.
Gretchen Gorecki:
Exactly. And that’s great use of our software and the features that it offers.
Robbie Frary:
Yes. Okay. Thank you. So last but not least, let’s see. It keeps doing that. Nope, sorry about that. Let’s talk about short-term disability. So this is a big one, because it can be very confusing for employers. So if you have somebody going out on short-term disability, what should I be doing? Tell me everything I need to know.
Gretchen Gorecki:
So with short-term disability, some of the things to keep in mind is, which state are you in? Is it a state plan that you’re in? Is it a private insurance plan that you have your short-term disability policy with? Let’s go with the private plan insurance company. So let’s say you use Mutual of Omaha or Principal. There’s many vendors out there that clients use.
So the first thing that’s going to happen is your employee is going to speak with you, the business owner, maybe your HR director, to let them know, “Hey, I’m going to be going out on disability for whatever reason.” That employee is then going to complete some claim information with that insurance company. Usually, that data needs to be signed off by a physician on the length and all that information, and that’s all submitted to the insurance carrier.
Once the actual disability starts, you as the employer will not be paying that employee while they’re out on disability. The insurance company is. But you as the employer have some responsibilities with all of this, especially depending on how you’ve set up that plan and your plan’s policy with that vendor, but there’s Social Security and Medicare being withheld on that employee’s disability payment that they’re receiving. You as the employer have your piece that is owed to the IRS.
Once again, we go back to, how was your plan set up? Most times, you’ll have a statement that’ll say, “This is for your employer portion that you need to pay and remit. You need to report that over to your payroll company, and then we’ll know how to make the entry.” But there’s another big piece of that reporting, which is the W-2 preparation. Who’s doing it? Is the insurance company doing it? Are you as the employer responsible for the W-2?
So based off of those two, how that is answered lets us know, as your payroll processor, how the data needs to be entered into payroll so that it’s properly captured and put on the right returns and paid properly. So if it is the third-party provider pays the employee, pays the employee share of the Social Security and Medicare, the employer does the employer Social Security and Medicare and does the W-2, then everything gets entered in basically as an earning, kind of like a manual check.
We’re not going to pay out anything to the employee, because they already received the funds, but it’s kind of posting this manual third-party check so that the employer portion can be collected by us, remitted to the IRS, included on your 941, and included on the employee’s W-2. But if the third party is the one who is preparing that W-2 for the employee, you still need to do your employer portion of the Social Security and Medicare, but not included on the W-2, because the vendor is going to do that.
So with our system, instead of it being entered as a earning in that manual check posting, it’s entered as a memo basically saying, “This employee had these taxable wages. The employer needs to pay their responsibility.” And once again, we would collect the employer share, include that on your 941 filing to the IRS, but it will not be in the employee’s W-2 that we prepare. The third party would take care of that for you.
Now, that’s specifically short-term disability. If it was long-term disability, we tend to not get involved very frequently with that, because they’re paid out via a 1099, and most statements that come in specifically state that that insurance company is the one who is going to prepare that 1099 for an employee. Difference between short-term and long-term, Robbie? Any idea?
Robbie Frary:
Well, I know it has to do with the length of time you are out, and whether it’s-
Gretchen Gorecki:
Exactly.
Robbie Frary:
Go ahead.
Gretchen Gorecki:
Yeah. So once an employee’s short-term disability claim has hit six months, they’ve been out of work for six months now. Once we get over that sixth month, it changes to a long-term disability plan, and then there’s no longer Social Security and Medicare being withheld. It’s basically a different plan that you have with that vendor. They switch over from the short-term policy to the long-term policy.
But like I said, we really examine those statements when they come in. It’s really important for us, especially when it’s the first time you’ve ever submitted a third-party disability claim to us for putting into payroll. We don’t just want something saying, “So-and-so had this much paid.” And I want to see that statement, because it’s a lot easier to put it in properly the first time than go back and amend to correct later.
And with the states, it’s still the same situation. So if it’s a state disability plan, still the same kind of thing where you’re not reaching out to do the claim with the insurance vendor. You’re doing it through the state’s site, but you as an employer are going to get a statement saying that this disability was paid out and that you need to include it on the W-2, and send it on over to us. We’ve got you.
Robbie Frary:
Yes. I was going to say, if you are unsure, just forward us all the information. We’d rather have too much that we don’t need than not enough that results in you needing amendments or creating problems for your employees. That’s the last thing we want. Would you say that’s good advice, Gretchen?
Gretchen Gorecki:
It’s excellent advice. I’ve even seen some clients send it over, and when we say, “All right. Well, we’re going to do this one this way,” because it states that they’re doing the W-2 or we’re doing the W-2, and when we go back to the client and explain that, they said, “Well, that’s not what we wanted.” And then they go back to that insurance vendor and change their policy setup so that the reporting is going to work that the client desired.
Robbie Frary:
Okay. Well, thank you so much. So I would say, it just keeps going on the wrong screen. If you are an existing client and you have any additional questions, feel free to reach out to your customer service and support specialist. And if you are somebody who doesn’t work with us currently and you are interested, you can scan this QR code, and feel free to reach out to us. We would love to talk to you. Gretchen, thank you so much for joining us today. We really appreciate your time, and thank you, everyone, for joining us, and have a great afternoon.
Gretchen Gorecki:
Thank you, Robbie.
Robbie Frary:
Thanks. Bye-bye.
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