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Business Tax Tips That Help Your Workers (and Your Bottom Line)

March 09, 2021

Running a small business is a balancing act. On the one hand, you’ve got to focus on your bottom line. On the other hand, you need to support the well-being of the employees that keep your business going.

You can do both by finding ways to support your workers’ financial wellness. Particularly now, during the COVID-19 pandemic, employers of all sizes are recognizing the importance of helping their workforce stay financially fit.

Experience has shown that financially secure employees are more productive and dependable. Conversely, those who aren’t can be a drain on your business. Research has found that money-related employee stress costs American businesses billions of dollars each year.

If you want to boost your employees’ financial wellness – and your bottom line – these employee-friendly tax strategies are a great start.

1. Offer the Right Retirement Plan
Offering attractive retirement benefits is one of the best ways to bring in, and keep, great employees. Setting up a workplace retirement plan like a 401(k) or Simplified Employee Pension (SEP) is an important way to support employees’ long-term financial needs.

Employer contributions can be deductible expenses*, and employees who contribute to their plans defer their income taxes until they disburse their funds (except for non-deductible plans like Roth IRAs). It’s important to educate your staff about the benefits of enrolling in and contributing to your retirement plan.

Be sure to partner with an experienced team to help you navigate the process of setting up and managing your workplace retirement plan.

2. Sweeten Your Employee Benefits Package
Giving regular pay raises can contribute to employees’ job satisfaction. But boosting non-salary perks offers a similar benefit.

Upgrading your insurance options could help your employees lower their out-of-pocket medical costs, which may provide more value to them than a standard pay raise. Because premiums are deductible expenses for businesses, contributing more to health insurance premiums avoids the tax increase* that accompanies a regular salary bump.

The best plan for your team will depend on their specific needs, such as whether they have families. If an employee needs less coverage and wants to save money with a qualified high-deductible health plan, contributing to their Health Savings Account (HSA) could be an added perk, providing a convenient way to save for medical expenses along with a number of tax advantages.*

3. Be Smart About Reimbursements
Many businesses have cut back on employee travel during the pandemic, but there may be times that your employees still need to go on business trips.

If this is the case, consider using an accountable plan to pay back employees who rely on their own car for business trips. An accountable plan is a reimbursement or allowance arrangement that can reimburse out-of-pocket travel expenses like gas, tolls, and wear and tear on their vehicle, but the money doesn’t have to be reported as pay on the employee’s W-2 form.

This helps you and your employees avoid extra payroll taxes* when managing travel reimbursements. Just be sure that your reimbursement method meets the IRS guidelines.

4. Keep Your Staff Savvy About Taxes
Unfortunately, many people are in the dark about important tax concepts and tax planning strategies. For example, many workers fail to withhold the correct amount from their salary. This means they could have too little of their paycheck available for day-to-day needs, or they could end up owing a lot of money at tax time.

Business owners or their HR departments can assist in educating their staff about tax essentials. Walking employees through their Form W-4 to help assess their tax withholding amount is one way of helping as well as directing them to the IRS Tax Withholding Estimator. You can also encourage employees to contribute to their company retirement plan to help reduce their taxable income, and you should remind eligible employees about the IRS’s Free File option around tax time.

5. Support Local Charities
Giving to charity is a great way to support the community while helping to lower your business’s taxes. To increase engagement from your staff, consider asking your team which local causes are important to them.

Businesses can donate either money or noncash assets such as vehicles, furniture, and computers. Just remember that not all organizations enable you to make tax-deductible donations*. Check that the organization you donate to has a tax-exempt status from the IRS.

We’re Here for You & Your Team

As your community-minded local bank, ENB has been serving small businesses for generations. Along with supporting your banking and financing needs, we can provide the expertise and resources to help you set up and manage a retirement savings program at your business, making it as easy as possible to offer this valuable benefit to your team.

*For tax questions, please consult your tax advisor.