We would like to take this time to deliver a short PSA about the importance of correct dates when opening or closing a tax account. A significant amount of tax issues reported to us by our clients relate to having an incorrect liability start or ending date for an account. Incorrect opening or closing dates can create quite a mess and take considerable amounts of time to get resolved. To avoid these hassles, here are some quick tips to opening and closing tax accounts.
Opening an Account:
We always recommend completing the registration process for a new account before the first payroll with the tax is processed. But, early registration for an account can cause issues if the correct liability start date is not communicated to the tax agency. As a general rule, when you are opening an account, do it ahead of time and make sure the liability start date that the agency has on file matches the date of the first payroll with the tax. After the account registration has been confirmed, please immediately notify Dominion Payroll so we can have the tax added to the company profile in iSolved.
Closing an Account:
It would seem like common sense that you would close all accounts after the last quarter a payroll tax is used, but this is not always the case. Specifically, state withholding and unemployment tax account closures need to be handled differently since the return frequencies are different. With state unemployment taxes, returns are filed on a quarterly basis so the account can be closed after the return is submitted for the last quarter the payroll tax is used.
For example, a company has a single employee working in Virginia and the employee’s last pay date is April 4, 2019. If the employer does not anticipate having any more employees working in the state, the unemployment tax account for Virginia can be closed with an effective date of July 1, 2019 (since the last return that should be filed would be for the 2nd quarter.)
Using the scenario above, let’s say this employee’s withholding tax is paid to Virginia as well and they are the only employee with VA withholding. Since state withholding taxes have both returns that are filed during the year and the annual reconciliation that is filed at the end of the year, the withholding tax account would need to be closed effective January 1, 2020. Closing the withholding tax account earlier than January 1 of the following year can cause a lot of issues. Some states demand that annual reconciliation and W2s are filed within 30 days of the account closure. If the closure date is set earlier, this could lead to delinquency notices and filing penalties since these tax returns are usually filed after the close of the year.