The Payroll Tax Trap: Why Even the Best Providers Miss Things
Payroll should feel like the easiest part of running a business: hire the person, run payroll, taxes get paid, done.
But in reality, payroll tax is one of the most common areas where mistakes happen—even when a third-party payroll provider is involved. And the consequences? Penalties, angry employees, audits, and cleanup that can take months.
At L&L Bookkeeping, we’ve helped clients untangle payroll messes that cost thousands—all because something small slipped through the cracks. Here’s what we want every business owner to know.
Payroll Providers Don’t Catch Everything (And Sometimes They Don’t File At All)
Many business owners assume that if a payroll company is collecting the money, they’re also filing all the necessary reports and payments. But that’s not always the case.
Real story from our clients:
One of our clients was using a well-known national payroll provider. When we asked for logins to verify payments and pull reports, they were confused—“Isn’t that what we’re paying them for?”
Once they granted access, we discovered the provider had been withholding payroll taxes for over two years but hadn’t filed any of the reports or payments. The wrong EIN had been entered in their system. The result? Over $12,000 in penalties and interest.
The provider admitted the mistake… then stopped responding. The client had to get a lawyer involved. L&L stepped in with documentation, timelines, and saved communications. We helped them recover the funds—including reimbursement for our time and their CPA’s.
DIY Payroll? It’s Easy… Until It’s Not
Another client tried to handle payroll on their own using QuickBooks Online Payroll. They assumed the process was plug-and-play. But behind the scenes, they had skipped a key step: registering with the proper tax agencies.
Without those state and federal registration numbers, the software couldn’t send in payroll tax payments. They ended up over a year behind—racking up penalties, interest, and stressed-out employees whose withholdings were wrong.
Even things like employee reimbursements were coded incorrectly, showing up as taxable income. Their team wasn’t getting properly reimbursed, and it showed up in their year-end W-2s.
Where Payroll Goes Wrong
Whether you’re using a provider or going it alone, here’s where we most often see payroll-related issues:
Taxes are withheld, but not remitted to the IRS or state
Payroll platforms aren’t connected to agency accounts
New tax laws (like Michigan’s ESTA/PTO accrual rules) aren’t applied correctly
Reimbursements or benefits are recorded as wages, creating tax problems
Workers’ comp audits can’t be completed due to missing or incorrect payroll reports
Business owners assume everything is fine—until a penalty notice shows up
Even when everything looks fine on the surface, these kinds of problems can build up quietly in the background. To help business owners avoid the most common issues, we put together a quick checklist covering what we look for when reviewing payroll setups—especially when a provider is involved.
What L&L Does Differently
At L&L, we don’t just trust that payroll is “being handled.” We double-check:
Logins and access for all relevant tax agencies
Proof that funds have been both withdrawn and filed correctly
Payroll reports to ensure employee withholdings and reimbursements are correct
That benefits, PTO policies, and pay codes are set up to match current regulations
That everything aligns with what your CPA and insurance partners may need
We also gather and organize the reports you’ll need for workers’ comp audits, year-end filings, and agency requests—so you’re prepared, not panicked.
Want to Be Confident in Your Payroll? Start Here.
Most payroll issues happen quietly—and show up as surprises. The best time to catch them is before they snowball.
Book a free exploratory call and we’ll walk through what’s currently happening in your payroll process—and what could be slipping through the cracks.