As the end of 2020 is quickly approaching, there are many important duties that need to be done before we can welcome 2021. It’s imperative that your organization’s to-do list includes year-end payroll duties.
Using excerpts from our previous blog titled, “Do These 6 Things as Year-End Approaches,” we provide a few reminders for what you need to do as an employer before the year comes to an end. As a bonus, we also provide advice to keep your company on track as you start the new year.
What should I be doing before year-end, Dec. 31, 2020?
I find it challenging to keep track of year-end tasks.
Planning for December 31 can be a daunting task. The below list should provide some ease to ensure you are entering the new year with confidence:
1. What employee and contractor information do I need to review for accuracy?
I’m not sure what employee information I need to confirm before year-end.
To save you from potential stress in the subsequent processing of tax forms, be sure to review all your current employee and contractor information. While it’s important to check employee data for accuracy, the following details should be your top priority:
- Birth Date
- Social Security Number
- Correct Spelling of Names
- Up-to-Date Name Changes
- Accurate Tax ID Numbers for Independent Contractors
- Local Taxes
For contractors, you must verify the person's tax ID number, which can be found on Form W-9.
2. What should I be communicating with my employees?
It’s a challenge for me to know what to inform employees about as we approach year-end.
While you can find most of your employee information through double-checking W-2, W-9, and 1099 Forms, if you are unsure of any of the data we have listed above, verify with your employee. Be sure to let your employees know that they need to communicate with you regarding any changes made to address, name changes, etc.
Year-end is also a great time to communicate any pay date changes that may occur due to a holiday.
3. What if I had third-party payouts for disability payments?
I’m not sure where third-party sick pay amounts should be reported.
If you have had any third-party payouts for disability payments, ensure that everything is reported to your payroll provider.
Those amounts must be reported on tax returns and W-2 documents because timeliness and consistency are important.
4. How do I handle submitting payroll as year-end approaches?
I’m worried I am going to miss the cutoff for submitting payroll close to year-end.
It’s important to be mindful of federal holidays as year-end approaches. Be sure to keep an eye out for any communications sent from your payroll provider regarding cutoffs for submitting payroll around these holidays.
5. What if my organization offers fringe benefits?
I’m not sure when to submit fringe benefits.
Fringe benefits should be submitted to your payroll provider no later than your last scheduled payroll of the year. As an example, for the year 2020, fringe benefits should be submitted no later than your last scheduled 2020 payroll (with a check date in 2020).
6. How can I clean up invoices to prepare for year-end?
I have a hard time keeping up with accounting-related procedures.
December is a great time to clean up accounting-related procedures, so when the new year launches, you will be in a good position.
Make sure to run records to clear up any irregularities of outstanding bills or open invoices. Also, remove unused or closed accounts and clear any deposited funds.
7. Is there anything else I should add to my year-end preparation?
I find it challenging to plan for the new year during year-end tasks.
The end of the year is a great time to start thinking about your upcoming business goals, cleaning up your passwords, and providing feedback to your employees.
- Business goals: Your business goals don’t have to wait until the new year. Be sure to write them down and discuss with your employees before the year ends.
- Cleaning up passwords: Now is a great time to update any passwords that may be outdated. Not updating passwords frequently can be a security consideration.
- Providing employee feedback: Your employees are your biggest asset and vital to the growth of your organization. With that, communicating with your employees regarding their performance provides some great framework so they know where they are currently and what to expect for the year to come.
What should I be doing after the new year starts?
I am not sure what I am responsible for as the new year starts.
You have your year-end tasks complete, but what now? Some year-end duties will be carried out in the new year. The list below outlines the new year’s responsibilities to help determine what is next:
1. When do I need to file year-end payroll tax returns?
It’s difficult for me to stay up to date with reporting due dates.
According to the IRS, “Generally, employers must report wages, tips and other compensation paid to an employee by filing the required form(s) to the IRS. You must also report on the taxes you deposit.”
This may be a routine that you are used to, however, it’s important to keep in mind that you are fully responsible for filing payroll tax returns as you close out each quarter of the year.
Below are the filings due January 31 of each year provided by the IRS:
- Form 940, Employer’s Annual Federal Unemployment Tax (FUTA) Return.
- IRS Form 941, Employer’s Quarterly Federal Tax Return.
- Check the previous quarter Forms 941 to ensure that you have correctly reported and charged the withholding tax. If any inconsistencies remain, make corrections for the fourth quarter Form 941.
Don't forget to check the requirements of your state if it imposed a personal income tax since you are also required to submit forms of state payroll by the appropriate deadline.
The IRS provides all reporting due dates for employment taxes here.
2. Do I need to review the Affordable Care Act (ACA) reporting requirements?
I’m not sure if the ACA applies to my organization.
In a previous blog, we went over the history and basic requirements of the employer mandate under the ACA. As a quick overview, the employer mandate requires applicable large employers (ALEs) to offer coverage that is affordable and provides minimum value to their employees. An employer is considered an ALE when they have 50 or more full-time employees, including full-time equivalents, employed at their business.
The IRS has published its draft of 2020 instructions for Forms 1094 and 1095 which will help you prepare for ACA reporting.
- You can find the full instructions for Forms 1094-C and 1095-C here.
- You can find the full instructions for Forms 1094-B and 1095-B here.
For the fiscal year 2020, Forms 1094 and 1095 are due by Feb. 28, 2021, if you file on paper (or Mar. 31, 2021, if you report electronically).
Note: Insurance carriers typically file Forms 1094-B and 1095-B, while ALEs file Forms 1094-C and 1095-C. If you are a self-insured employer (e.g., small employer with a self-insured group health plan), you may need to file Forms 1094-B and 1095-B.
If you want help with compliance for next year, click here to learn more about our ACA Compliance Navigator.
3. When do I need to distribute W-2s to my employees?
I am concerned that I will miss the deadline for distributing W-2s to my employees.
In a previous blog, we explain, “Form W-2, Wage and Tax Statement, shows the income and taxes withheld from an employee's pay for the year and is necessary to file your taxes. While the Form W-4 instructs employers what to take out while collecting employee personal data, the Form W-2 is a summary of the wages paid and what was withheld throughout the year (thanks to the W-4).”
A Form W-4 is the employee’s responsibility to complete. A Form W-2 is an employer’s responsibility to complete. According to the IRS, Copies B, C, and 2 of Form W-2 must be provided to your employees by January 31. The IRS states, “You'll meet the furnish requirement if the form is properly addressed and mailed on or before the due date.”
4. If I have independent contractors when do I need to send out Form 1099?
I’m not sure how to handle reporting for independent contractors.
Also in a previous blog, we explain, “A Form 1099-MISC is to a Form W-9 like a Form W-2 is to a Form W-4. Except withholdings are not recorded. Like a Form W-2, a Form 1099-MISC must be filled out by the employer and provided to the individual or entity by January 31. This form will report what is paid to the individual or entity and their reporting details (like name, address, SSN or TIN), but all of the tax payments are up to the payee of this form.”
However, beginning with tax year 2020, Form 1099-MISC is no longer used for income. The IRS has introduced Form 1099-NEC for reporting non-employee compensation for tax year 2020. Amounts previously reported in box 7 of 1099-MISC (for example, certain payments to independent contractors) will now be reported on Form 1099-NEC. A redesigned Form 1099-MISC will continue to be used for other payments.
For more information regarding Form 1099-NEC, click here to view IRS Publication 1220.
As we mentioned earlier in this blog, a Form W-9 is to be completed by contractors. The main purpose of Form W-9 is to obtain details from the payee so that you can properly complete Forms 1099.
5. Where can I find state-by-state minimum wage increases?
I find it hard to keep up with minimum wage updates.
It’s important to keep an eye out for anything that can affect your employee’s pay. State minimum wage increases are provided by the Department of Labor (DOL) and can also be found on your state’s government site.
However, we did the research for you. You can find a complete overview of all state minimum wage increases in our recent blog titled, “2021 State-By-State Anticipated Minimum Wage Increases You Need to Know.”
For all the information above, be sure to check with your state’s reporting requirements, and follow IRS guidelines.
For more helpful articles, please see the links below:
- What Is the Difference Between Forms W-4, W-2, W-9 & 1099-MISC?
- The Affordable Care Act in Review
- Classifying Your Employees: Everything You Need to Know
If you deduct employees’ salaries for pre-tax benefits (including through a POP or Cafeteria Plan) or offer a health reimbursement arrangement, your plan is subject to nondiscrimination testing (NDT) requirements under the tax code. The plan must pass NDT as of the end of the plan year. We typically recommend performing a mid-year and end of year test to ensure compliance, as corrections can be made if a failure is discovered mid-year. If a failure is not discovered until the end of the year, tax forms must be adjusted or amended to correct that failure.
Considering a provider that offers solutions that empower businesses to focus on what matters most to them?
With 2021 quickly approaching, working with a payroll service and human capital management (HCM) provider can help you stay compliant.
Interested in a payroll, HR, and Tax solution designed for your exact needs? Fill out the form below and we will reach out to you.
Disclaimer: Please note that this is not all inclusive. Our guidance is designed only to give general information on the issues actually covered. It is not intended to be a comprehensive summary of all laws which may be applicable to your situation, treat exhaustively the subjects covered, provide legal advice, or render a legal opinion. Consult your own legal advisor regarding specific application of the information to your own plan.