Year-end payroll tips for employers

The Winter 2010 edition of the SSA/IRS Reporter included an article by the American Payroll Association (APA) which noted some tasks that employers should perform in December and January to make year-end processing go more smoothly. We have listed those tasks below that were included in the APA article plus added a few others:

December

  • Remind workers who have had life changes, such as marriage, divorce, or a change in the number of dependents, to make the appropriate changes to their withholding on Form W-4.
  • Remind employees who wish to continue claiming exemption from withholding to submit a new Form W-4 by Feb. 15, 2012. Beginning Feb. 16, 2012, you must withhold based on a marital status of “single” with zero withholding allowances for employees who claimed exemption from withholding in 2011, but who have not submitted a 2012 Form W-4.
  • Collect benefit and payroll adjustment information and post to employees’ payroll records. This information should include relocation, educational assistance, group-term life insurance, third-party sick pay, company cars, manual checks, and void checks.
  • Order enough W-2 forms for all the employees who have worked for you this year, as well as some extras to allow for any mistakes. Consider preparing, printing, and filing W-2s online at the Social Security Administration (SSA) website, if you don’t do this already.
  • Verify employees’ names and Social Security Numbers (SSNs) at http://www.ssa.gov/employer/ssnv.htm.
  • Run a special payroll, if necessary, to record all manual and voided checks issued between the last regular payroll and December 31st.
  • Conduct a final review of the general ledger for hidden wages (generally, taxable noncash fringe benefits).
  • Verify that the bank reconciliation is complete through November and ask the bank to prepare an early cutoff statement for December.
  • Make sure your payroll system will be updated by January 1 to take into account any changes in federal tax-free limitations and state unemployment taxable wage bases.

December-January

  • Obtain new forms, withholding tables, and publications. Review the new Social Security wage base, deferred compensation limits, mileage rates, and state unemployment wage bases.
  • Let employees know about changes to tax figures. The above communications may help reduce the number of questions that you receive from employees in the coming months.

January 1

  • Reset all year-to-date balances to zero.
  • Reset all wage bases, rates, and taxable limits.

January

  • Reconcile W-2 totals against the four quarterly 2011 Forms 941.
  • Run a report to verify W-2 information before printing forms. Make sure you have a Social Security number for each employee. Review the report for employees with: (1) wages over the 2011 Social Security wage base limit of $106,800; (2) benefits that must be reported in box 10 or 12 of Form W-2; or (3) statuses that must be checked in box 13 of Form W-2.
  • Buy postage for mailing W-2 forms.
  • If you offer any pre-tax deductions, prepare a notice for employees that explains the calculations in boxes 1, 3, and 5 of Form W-2.

W-2 electronic filing improvements. Beginning with this filing season, employers will be able to submit up to 50 W-2 forms to the SSA through W-2 Online (previously, up to 20 W-2 forms). Employers may now submit both current year and prior year W-2 forms electronically. Previously, only the current year could be submitted electronically.

W-2 deadline. W-2s must be mailed or delivered to employees by Jan. 31, 2012.

The APA article in the Winter 2010 SSA/IRS reporter can be viewed on the IRS website at http://www.irs.gov/pub/irs-utl/ssa_irs_reporter_winter.pdf.

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