Smart Tax Strategies Every Employer Should Know

As 2025 unfolds, employers face an evolving tax landscape that demands attention and proactive planning. Staying up to date on current tax laws is not just about avoiding penalties—it’s also a key opportunity to uncover valuable deductions, streamline payroll, and improve overall financial health. With growth and long-term stability as top priorities, here are some essential tax tips to help employers stay compliant, maximize savings, and make informed decisions throughout the year.

Tip #1: Maximize Tax Deductions for Employee Benefits

Offering benefits like health insurance, retirement plans, and education assistance can provide valuable tax deductions for your business. In 2025, employers should continue to take advantage of these deductions:

• Health Insurance Premiums: Employers can deduct the cost of providing health insurance to employees, including dental and vision coverage.

• Retirement Plan Contributions: Contributions to employee retirement plans (such as 401(k)s or IRAs) are generally tax-deductible. Consider offering matching contributions to employees' 401(k)s to take advantage of these deductions.

• Education Assistance Programs: Employers can deduct up to $5,250 annually per employee for education assistance, such as tuition, fees, and even student loan repayment assistance.

Tip #2: Understand Changes to the Employee Retention Credit (ERC)

While the Employee Retention Credit (ERC) was initially part of the COVID-19 relief packages, some companies may still be eligible for retroactive credits in 2025, especially if they didn’t claim it earlier. If your business experienced disruptions in operations due to the pandemic, consult a tax advisor to determine your eligibility for this credit.

Tip #3: Use the Work Opportunity Tax Credit (WOTC)

The Work Opportunity Tax Credit (WOTC) encourages employers to hire individuals from specific groups that face barriers to employment, including veterans, individuals with disabilities, and those receiving government assistance. Employers can receive tax credits up to $9,600 per employee by hiring employees from these target groups. Review your new hires to see if they qualify, and ensure you submit the necessary forms to claim the credit.

Tip #4: Beware of Misclassification of Workers

Misclassifying employees as independent contractors can lead to costly penalties. In 2025, continue to review the IRS guidelines to ensure you properly classify workers. If workers are classified as independent contractors but should be employees (based on factors like control over work and compensation methods), you could face audits and back taxes. Maintain accurate records and ensure that your worker classifications align with both federal and state regulations.

Tip #5: Take Advantage of Section 179 and Bonus Depreciation

If your business plans to purchase equipment or property, Section 179 allows businesses to deduct the full purchase price of qualifying assets (like machinery or office equipment) in the year they’re purchased rather than depreciating them over several years. In 2025, the maximum deduction amount under Section 179 is expected to remain high, providing an excellent opportunity for businesses to reduce their taxable income. Additionally, bonus depreciation remains available for qualifying property, enabling businesses to take a larger deduction in the year the property is placed into service.

Tip #6: Review Your Tax Withholding and Estimated Payments

Ensure your tax withholding and estimated payments are accurate to avoid penalties and interest. Consider reviewing your withholding tables and making adjustments if there are any significant changes in your business operations or employee numbers. The IRS has updated the Form W-4 for 2025 to reflect changes for businesses with employees. Please ensure you are using the correct form for withholding purposes.

Tip #7: Track Work-From-Home Deductions and Benefits

With remote work continuing in many industries, employers must be aware of tax implications for employees working from home. While employees cannot generally deduct home office expenses anymore, businesses can still provide certain allowances or stipends for home office equipment or work-related expenses. Ensure that these expenses are documented and that you follow IRS guidelines to maintain eligibility for deductions.

Tip #8: Keep Up with State and Local Tax (SALT) Changes

Beyond federal taxes, employers must also be aware of changes in state and local tax laws, which can vary widely. In 2025, several states are considering or have already implemented tax increases or new business taxes. Additionally, local jurisdictions may introduce payroll taxes or other employer-related obligations. Regularly check for any changes in your state or local regulations to ensure compliance.

Tip #9: Review Your Payroll System and Software

Efficient payroll systems are key to avoiding errors and ensuring compliance with all tax regulations. If your payroll software or system is outdated, it might not comply with the latest tax laws. Upgrading to a modern payroll system can help reduce errors, automate tax filings, and keep your business on track for tax deadlines.

Tip #10: Tax Credits for Hiring Veterans and Disabled Workers

The Work Opportunity Tax Credit (WOTC), mentioned earlier, is particularly beneficial for employers who hire veterans, individuals with disabilities, or other targeted groups. This credit can significantly reduce your tax liability, especially if you hire from underrepresented or disadvantaged groups.

Staying up to date with tax laws and taking advantage of tax credits and deductions can lead to significant savings for your business in 2025. Review your tax situation regularly with a professional to ensure compliance with all regulations and maximize potential deductions. By staying informed and proactive, you can make tax season less stressful and more rewarding for your business.

Sources: Merril Lynch; Department of Labor