When we Incorporated our business last year, we decided to use a payroll service. We used Payroll1 for the first three months of this year, and they were great. They took care of everything, got our checks to us right on time, handled all the reports, and sent our quarterly tax payment to the IRS and state gov. We paid them $55/month, which was very much worth it to me. But we talked with our accountant a few months ago, and she mentioned that she does payroll for $25/month plus $40/quarter to file reports (so the actual price is $38/month). We had just been using her on a consultation basis, and paying her $125/hour when we needed to sit down and go over questions/problems with her. But if she could save us $18/month on payroll, we figured that was worth it, so we switched.
April was our first month with her doing our payroll, and it worked out just fine. But there was an added bonus that I hadn’t thought of. When we were with Payroll1, they would deduct the payroll taxes from our bank account each month and keep them in a withholding account. Then at the end of the quarter, they would file our reports and send payment to the appropriate agencies. With our current system, our accountant just tells us how much we need to set aside each month to cover all the payroll taxes. But she doesn’t take the money. At the end of the quarter, she will complete all the reports we need, and send them to us. We’ll sign them, and then send them on to the govn’t along with the taxes we owe.
So when I got our payroll report in April, I took the exact amount that we needed to withhold for taxes (about $1000) and put it into an ING account. It will sit there until July, when we have to file the second quarter report. Each month I’ll take the amount that we owe and put it into the ING account (4.5% interest…) and then at the end of the quarter, I’ll just send it off with our quarterly reports. By my rough calculations (done in my head while driving home from the gym, so probably not very exact), we’ll make about $23/quarter in interest on the tax money as it sits in the ING account. When we were using Payroll1, they got to keep whatever interest was earned, since they deducted the taxes from our bank account monthly, and submitted them to the govn’t quarterly. So this is a good bonus, and makes the actual cost of using our accountant for payroll even lower.