5 Hidden Payroll Tax Deductions You Might Be Missing

A Payroll Tax Savings Guide from Workplace Solutions– Your business's Trusted Payroll Partner

If you run a business in California, you already know payroll isn’t just running checks and collecting taxes. It’s compliance, it’s paperwork, and it’s making sure you don’t miss any deductions that could actually save you money. Every dollar matters, especially when margins are tight.

But some payroll-related deductions are easy to miss. They’re not always obvious, and even if you use tax filing software, those systems don’t always catch everything. Below are five deductions we see get skipped all the time (and yes, we’ve helped clients just lie you recover money just by fixing these).

1. Employer’s Portion of Health Benefits for Employees

This is one many businesses overlook (including many of our clients). If you offer health, dental, or vision insurance and you’re covering part of the premium, your share can often reduce your payroll tax burden. The key is setting it up properly so it’s recorded in payroll the right way. We always double-check client benefit setups to make sure those deductions are being handled correctly. It’s one of those simple things that can make a noticeable difference.

(Example: A Sacramento restaurant we work with didn’t realize their 60% contribution to employee health premiums was deductible. Once we adjusted their setup, it saved them nearly $2,000 that year.)

2. Retirement Plan Contributions (Employer Side)

Employer contributions to retirement plans like a 401(k) or Simple IRA can qualify as deductible business expenses, but only if they’re logged correctly.

(Example: A small landscaping company had been contributing manually outside payroll. We added it to our software, and they got full deduction credit without extra paperwork.)

3. Payroll Tax Credits for New Hires (WOTC Program)

The Work Opportunity Tax Credit rewards you for hiring employees from certain groups, like veterans or people re-entering the workforce.

(Example: A local auto shop qualified for a $2,400 credit after hiring a veteran. They didn’t even know about WOTC screening for new hires.)

4. Reimbursing Employees with a QSEHRA

If you have fewer than 50 full-time employees, you can reimburse medical expenses through a Qualified Small Employer Health Reimbursement Arrangement (QSEHRA).

(Example: A 12-person office in Turlock, CA set up a QSEHRA to cover part of their employees’ premiums. Once it ran through payroll, they saved over $1,500 in taxes.)

5. State and Local Payroll Incentives

California and at the county level sometimes offer credits for hiring or training employees. See your local county tax webpage to see if this would apply to you.

(Example: A manufacturer outside Modesto applies for a local training credit, reducing their state tax bill by over $800. Small, but worth it.)

💬 Ready to Save More on Payroll?

If you’ve been handling payroll on your own or using a basic system that just “gets it done,” you’re probably missing out on savings you actually qualify for. At Workplace Solutions, we don’t just have payroll solutions, we help you find ways to keep more of your money and stay compliant while doing it.