Payroll Tax Records

Once you've paid over your payroll taxes and filed any necessary returns and reports, your last significant obligation is to maintain records that substantiate the payroll taxes you paid. For federal tax purposes, you must retain records for at least four years after the due date of the return or the date the taxes were paid, whichever is later. A similar record-keeping requirement exists in each state, with varying time periods.

Types of records. There is no particular form prescribed for properly retaining records. However, the records must be kept in a manner that will enable the IRS and your state tax authorities to ascertain whether any tax liability has been incurred and, if so, the extent of that liability. So, the types of information you should retain include:

• the name, address, and Social Security number of each employee
• the total amount and date of each payment of compensation
• the period of service covered by each payment of compensation
• the portion of each payment of compensation that constituted taxable wages
• copies of each employee's withholding exemption certificate (Form W-4)
• dates and amounts of tax deposits you made
• copies of returns you filed
• copies of any undeliverable Form W-2

IRS inspection. You're obligated to keep all your required records at convenient and safe locations that are accessible to IRS representatives. And, your records must be available at all times for IRS inspections.