Dustin Slightham It’s that time of year again, the end of the calendar year! The time for family, holiday celebrations, and preparing for the new year. For business owners, part of preparing for the following year includes completing a number of payroll tasks. Year-end payroll tasks are important for ensuring that employees are paid correctly, taxes are withheld and reported accurately, and the business meets compliance requirements with various employment laws and regulations.
Your busy schedule is well-known to us, so we made it a point to put together a year-end payroll checklist and provide advice to keep your company on track as you start the new year. And to help you increase efficiency with your own planning, we made a downloadable year-end payroll checklist as well.
What are my year-end payroll processing responsibilities?
“I find it challenging to keep track of payroll and tax tasks year-end.” If this sounds like you, you’re not alone. The below list should provide some ease to ensure you are entering the new year with confidence:
1. Review employee information.
WHAT EMPLOYEE AND CONTRACTOR INFORMATION DO I NEED TO REVIEW FOR ACCURACY?
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:
- Address
- Birth Date
- Social Security Number
- Correct Spelling of Employee 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. Communicate with your employees.
WHAT SHOULD I BE COMMUNICATING WITH MY EMPLOYEES?
While you can find most of your employee information by 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, as you want your employees to know when to expect their paychecks.
3. Report third-party payouts.
WHAT IF I HAD THIRD-PARTY PAYOUTS FOR DISABILITY PAYMENTS?
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. Coordinate when to process payroll.
HOW DO I HANDLE THE YEAR-END PROCESS FOR SUBMITTING PAYROLL?
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. Also, coordinate with your payroll provider when you’d like your final payroll to be processed.
Additionally, lean on a payroll calendar to keep track of federal holidays that may affect your deposit schedule. Having a payroll calendar can also help you be proactive about when to schedule your first payroll and last payroll.
5. Submit fringe benefits.
WHAT IF MY ORGANIZATION OFFERS 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 2022, fringe benefits should be submitted no later than your last scheduled 2022 payroll (with a check date in 2022).
6. Clean up invoices.
HOW CAN I CLEAN UP INVOICES TO PREPARE FOR YEAR-END?
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 invoices. Also, remove unused or closed accounts and clear any deposited funds.
7. Start thinking ahead.
IS THERE ANYTHING ELSE I SHOULD ADD TO MY YEAR-END PREPARATION?
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 them 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 a 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?
You have your year-end tasks completed, 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. Plan to file year-end payroll tax returns.
WHEN DO I NEED TO FILE YEAR-END PAYROLL TAX RETURNS?
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’s Form 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 tax and labor law 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.
Review ACA reporting requirements.
DO I NEED TO REVIEW THE AFFORDABLE CARE ACT (ACA) REPORTING REQUIREMENTS?
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.
Generally, you must file Form 1094-C and Form 1095-C by Feb. 28, if you file on paper (or Mar. 31 if you report electronically). The same goes for Forms 1094-B and 1095-B.
If you want help with compliance for next year, learn more about our ACA Compliance services
Distribute W-2 Forms to your employees.
WHEN DO I NEED TO DISTRIBUTE W-2S TO MY EMPLOYEES?
Form W-2, Wage and Tax Statement, shows the income and taxes withheld from employee wages for the year and is necessary to file your taxes. While Form W-4 instructs employers what to take out while collecting employee personal data, 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.”
Distribute Form 1099 to independent contractors.
IF I HAVE INDEPENDENT CONTRACTORS WHEN DO I NEED TO SEND OUT FORM 1099?
A Form 1099-NEC is to a Form W-9 like a Form W-2 is to a Form W-4. Except tax withholdings are not recorded. Like a Form W-2, 1099-NEC forms 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.”
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 Form 1099-NEC.
Review state-by-state minimum wage increases.
WHERE CAN I FIND STATE-BY-STATE MINIMUM WAGE INCREASES?
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.
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-NEC?
- The Affordable Care Act in Review
- Classifying Your Employees: Everything You Need to Know
Want a deeper dive into your state’s wage & tax rate information? Check out our Wage & Tax portal, updated annually.
Get your printed year-end checklist.
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