There's a lot to do around year-end payroll, and it's easy to leave something out. Whether you're doing it for the first time or the twentieth, that's true. However, there's more to think about than just running the year's last payroll process and filling out some year-end tax forms.
What Is the Year-End Payroll Process?
The most noticeable aspects of the year-end payroll process are generating the year's final payroll run and creating the annual business tax return and other required forms. However, it might be even more important to focus on reviewing the past year's numbers and planning for the coming year. Most year-end payroll tasks can be and should be done before the year's final payroll is processed. Here are the tasks a business owner needs to take care of.
Verify Business Information
Particularly for a new business, year-end is a good time to double-check your state and federal EINs, your state unemployment account number(s), and your on-file company name and address to be sure they are accurate.
Validate Employee and Contractor Information
Inaccurate information can cause delays in processing your W-2s and 1099s. Ask employees and contractors to validate full names, SSNs, addresses, and contact information to ensure that correct documents are mailed to the right places. Make sure everyone understands the importance of accuracy. For example, if a person's name is hyphenated on a social security card but not on a W-2, that will be flagged as an error and can delay tax documents.
Make sure you have accurate W-4s on file and W-9s for all 1099 payees. Remind employees that year-end is a good time to change W-4s if their situation changes, for example, if their family income will be significantly different next year. Also, remind them about "use it or lose it" items such as FSA balances and, depending on your company policy, vacation days.
Review the Year-End Payroll Numbers
You can validate most of these figures before the last payroll is processed. First, review all pay periods for accuracy, including wage amounts, deductions for benefits, child support deductions, and any other deductions, benefits payments, and special tax exemptions that were relevant during the year. Double-check taxable amounts for perks that are partly used for personal use, such as company cars and cell phones.
Make a special effort to resolve any payment disputes before the end of the year. Also, look at paychecks that have yet to be cashed. If they were undeliverable, turn them over to the state revenue department and account for them as a liability.
Decide about Bonuses
Some companies distribute year-end bonuses. This is the time to decide who will get them and how much they will be. Account for them in the proper tax year, depending on whether your accounting is cash-based or accrual-based.
Prepare Payroll Processes for the Coming Year
Review any legal or regulatory changes that are required for the new year. See if any changes to minimum wage laws affect your business. Depending on your state, check for threshold changes that apply to exempt employees. If you use a payroll management system, it should take care of changes to social security wage maximums and Medicare cutoff points; if not, you will need to adjust for these.
Year-end is a good time to change payroll structure or other payroll policies. When budgeting for the coming year, consider the impact of any wage increase that may take place. Pay-on-demand may be suitable for your business as an extra perk to attract candidates and a benefit for current employees.
Run the Final Year-End Payroll
It's a good idea to review the year-to-date payroll numbers as soon as you process your last run. Reviewing the year-to-date numbers from your last payroll of the year is critical, as these are the numbers you will use for reporting to employees, contractors, the IRS, and state tax authorities.
Review at the employee level and the company summary level. Double-check the factors you looked at before this payday, for example, wages, taxes withheld and paid, benefits, and taxes on taxable benefits.
Run the New Year's First Payroll
If there are any issues with how payroll processing is set up for the new year, these will probably show up in the first payroll run. It's essential to take special care in validating this run and to double-check any factors that may have changed.
Tax Filing and Reporting
This should be smooth if all the preparatory work has been carefully managed. Deliver W-2s, W-3s, and 1099-NECs by January 31. Meet all the deadlines required by your state, business size, and industry. For most businesses, file quarterly 941 or annual 944 for federal income tax by the required date, which is January 31. File your business tax returns by the date required for your business structure; that's March 15 for most business entities.
Be Confident at Year-End with Exact Payroll
Year-end duties don't have to be intimidating. Streamline them by partnering with a payroll company such as Exact Payroll. We'll set you up with a system for year-end and keep you organized all year long. Please reach out to us, and let's work on your future, together.