With the end of the year drawing near, companies throughout the United States gear themselves up for one of the most significant administrative jobs of the year - year end payroll processing. With proper payroll record-keeping, tax forms, and reporting needs of employees and independent contractors coming into play during year-end processing, there is a possibility of fines, delays, and stress.
A year end payroll checklist could prove very useful for the smooth running of this process that ensures companies are compliant, have accurate records, and provide their employees and independent contractors with their tax documents within time limits.
Why Year-End Payroll Preparation Matters in the USA
The year-end payroll procedure extends beyond just doing the end-of-year payroll process for the company.
Some considerations include:
- Accuracy of employee data
- Completeness of the payroll process
- Reporting of tax withholding amounts
- Recording of contractor payments
- Meeting federal and state filing requirements
Mistakes made after filing may result in the need to amend and resubmit documents.
A proactive approach reduces compliance risks and helps avoid last-minute problems.
Create a Year-End Payroll Timeline
One of the most effective ways of managing payroll duties is through setting a timetable several weeks before year-end.
Tasks to consider include:
- Reviewing employee records
- Validating payroll information
- Updating contractors' data
- Reconciling payroll accounts
- Filing tax documents
- Setting filing dates
By doing so, enough time will be left to handle any problems that may arise.
Review Employee Information
In order to file W-2 successfully, it is important to have proper records on employees.
The tasks involved include:
Employee Names
Ensure all the names comply with those of the Social Security Administration. Even slight differences may cause filing problems.
Social Security Numbers
Ensure that the Social Security numbers provided are accurate. This may prevent rejections of filed documents.
Addresses
Make sure that you have the correct address for your employees. They are used for delivering the filed W-2 forms.
Employment Status
Make sure that the classification of the employees is accurate.
Verify Contractor Information
Independent contractor reporting is also essential for year-end reporting.
The company needs to examine contractor documentation before preparing 1099s.
Collect Missing W-9s
All contractors need to have their completed W-9s.
These documents include:
- Name of the business
- Taxpayer Identification Number (TIN)
- Address data
- Classification for federal taxes
W-9 documentation that’s missing will cause problems when reporting at year end.
Check Payments
Examine the payments made to contractors. This will help ensure 1099 preparation is done accurately.
Reconcile Payroll Records
One of the most crucial activities at year-end is payroll reconciliation. Payroll should be compared with accounting records of a company.
Check Employees' Gross Income
Make sure that gross income is consistent with payroll software records.
Tax Withholding Review
Make sure federal, state, and local taxes withholding have been recorded.
Check Benefits Deduction
Make sure that you reviewed deductions for:
- Health insurance
- Pensions
- Flexible Spending Accounts
- Health Savings Account
Deduction accuracy helps to avoid mistakes in reporting.
Review Employers' Tax Payments
All payroll taxes payments should be deposited and properly recorded. It will help to avoid future corrections.
Review Fringe Benefits and Taxable Compensation
Some fringe benefits of employees might be required to report on year end.
- For example:
- The personal use of employer vehicles
- Group Term Life Insurance
- Moving Expenses
- Bonuses and Awards
- Prizes
Companies need to find out which of those benefits can be considered taxable.
Process Final Payroll Runs Carefully
The year-end payroll may need further analysis.
Think about:
Bonus Payments
In case there are bonus payments, check the calculation and filing of withholding.
Vacation/PTO Payment
Check for any year-end payment of unpaid vacation/PTO days.
Time Element
The timing of payroll is the element that determines the tax year for the payroll to be filed in.
What Is the W-2 Deadline for Employers?
One of the many questions that often come up regarding W-2s is: When does an employer have to file the W-2s?
The deadline for filing W-2s at the federal level requires employers to file W-2s with the employees and copies with the Social Security Administration by January 31 after the end of the tax year.
This deadline applies to:
- Paper filing
- Electronic filing
- Employee delivery
Failing to do so could result in penalties.
Since the filing requirements may change, it is best to check the current W-2 deadlines for every year with the relevant government authorities.
Best Practices for Meeting the W-2 Deadline
Some practices that will help avoid last-minute problems include:
- Verification of employee data early on
- Reconciliation of payroll records before January
- Evaluation of the withholding taxes
- Planning for payroll review ahead of time
- Using payroll software and/or payroll services
Good preparation results in better filing.
W-2 Forms Preparation
Once the payroll records are reconciled, one is ready to prepare the W-2s for the employees.
Things to check include:
- Wages
- Tax withholdings
- Benefits reporting
- Retirement plans
- State reporting
Quality check of all the W-2s before delivering them.
Understand 1099 Reporting Requirements
Companies making payments to independent contractors could be obligated to provide Form 1099-NEC or another appropriate information form.
In general, such reporting could become necessary if payments reach certain thresholds and are subject to IRS reporting rules.
The following needs to be taken into account by companies:
- Classification of contractors
- Amount of payments
- Filing rules
- State reporting rules
Proper classification is important.
Incorrect employee classification could result in problems with compliance.
What Are the 1099 Filing Deadline Businesses Must Know?
Yet another question that business entities usually have is: When is the 1099 filing deadline businesses need to be aware of?
The 1099 filing deadline at the federal level for most contractor reporting forms is January 31 in the year after the tax year.
Businesses need to:
- Make sure to give recipients copies
- File the required returns with the IRS
- Comply with all relevant state reporting requirements
Late filing may bring about penalties among other consequences.
Businesses need to check filing requirements annually as the regulations may change.
Practices to Help Comply with the 1099 Filing Deadline
There are certain actions businesses can do to ensure compliance:
- Request W-9 forms from contractors before making payments
- Keep track of contractor payments during the year
- Check contractors' information regularly
- Check filing requirements well ahead of time
- Do a year-end payment reconciliation
All of these will make the process of year-end reporting easier.
Check State Payroll Filing Requirements
Federal filing requirements are just a piece of year-end payroll compliance.
Some states have more requirements.
Businesses need to:
- Check the state requirements for W-2 filing
- Unemployment filing at the state level
- Income tax filing at the state level
- Local payroll tax filing
- Requirements differ
Conduct a Final Payroll Audit
Conduct a payroll audit before distributing payroll documents.
Consider:
- Employee payroll documentation
- Payroll documentation for contractors
- Payrolls sums
- Tax deductions
- Benefits
- Filing details
This will help detect any problems that may exist before the distribution of forms.
Common Year-End Payroll Mistakes to Avoid
A few common mistakes cause problems with the end-of-year filing.
Filing Late in January
This mistake may lead to rushing through the process and making mistakes.
Mistakes in Employees’ Personal Information
Typing misspellings and wrong Social Security numbers may cause filing problems.
Missing Contractor Information
The failure to receive the W-9 form may delay the preparation of 1099s.
Errors in Payroll Record Reconciliation
Incomplete payroll records may cause errors in the forms W-2 or 1099.
Worker Misclassification
An error in the worker’s classification can cause some tax problems.
Solving these mistakes in advance helps to decrease the risks.
End of year payroll reporting is one of the most essential compliance obligations for any business. Good record keeping and timely filings will prevent any problems. A structured approach to year end payroll checklist, verification of employee/contractor information, payroll records reconciliation, and preparation for the W-2/W-9 deadlines will help to reduce risk and increase reporting accuracy. Preparation in advance by The Fino Partners is the best approach to avoid any problems.
