Payroll Year-End Preparation
Author: Rena Pirsos, XpertHR Legal Editor
At the end of each calendar year all employers are responsible for closing out the year's payroll in compliance with all federal, state and local income and employment tax laws and regulations. This involves much coordination and myriad detailed tasks that, if not carefully planned out in advance, can become nothing less than overwhelming. It also can result in costly penalties if mistakes are made.
Effective year-end preparation is actually a year-long process. As a major part of this process, an employer must file accurate and complete Forms W-2 and W-3 with the Social Security Administration (SSA); and, at the beginning of the following year, provide copies of Forms W-2 to employees. The information and wage and tax amounts the employer reports on Form W-2, Form W-3 and the four quarterly Forms 941 that are filed with the Internal Revenue Service (IRS) must match exactly. An employer also must provide copies of Forms 1099-MISC to independent contractors who have been paid at least $600 in cash for services performed and file copies with the IRS.
To complete and file these forms correctly, an employer must monitor not only legislative and regulatory changes that occur throughout the year, but also any changes in the values used to calculate the amount of taxes to withhold from employees' wages, fringe benefits and other payments due to annual inflation adjustments.
Using XpertHR's various tools and resources, which are updated on a regular basis, will help employers establish and follow good payroll practices and procedures all through the year to ensure a successful year-end that is free of noncompliance penalties and fines.
Determine Federal Income and Employment Tax Withholding
Execute a Successful Payroll Year-End
How to Verify Social Security Numbers
How to Handle Failed Employee Name/Social Security Number Verifications
How to Handle IRS Lock-In Letters
How to Withhold on Supplemental Wages Using the Optional Flat Rate Method
How to Withhold on Supplemental Wages Using the Aggregate Method
How to Withhold on Supplemental Wages Over $1 Million
Policies and Documents
Payroll Year-End Practices and Procedures Checklist
IRS Form 940, Employer's Annual Federal Unemployment (FUTA) Tax Return
IRS Form 941, Employer's Quarterly Federal Tax Return, and Schedules B, D and R
IRS Form 944, Employer's Annual Federal Tax Return
IRS Form 945, Annual Return of Withheld Federal Income Tax
IRS Form 1099-MISC, Miscellaneous Income
IRS Form W-2, Wage and Tax Statement, and Form W-3, Transmittal of Wage and Tax Statements, and General Instructions
IRS Form W-2c, Form W-3c, Corrected Wage and Tax Statement and Transmittal Form
IRS Form W-4, Employee's Withholding Allowance Certificate
Employment Law Manual
Withholding Taxes: Federal
Taxation of Employee Benefits: Federal
Taxation of Employee Compensation: Federal
Unemployment Insurance Tax (FUTA): Federal
Depositing and Reporting Withheld Taxes: Federal
International Payroll Issues: Federal
Payroll Solutions: Federal
Unemployment and Disability Insurance Taxable Wage Bases by State
Temporary Disability Insurance Requirements by State
Taxation of Supplemental Wages by State
Internal Revenue Code Conformity by State
Annual Reconciliation Return Forms and Deadlines by State
Form W-2 Electronic Filing Requirements by State
Social Security and Medicare Tax Rates and Benefit Amounts
Annual Retirement Plan COLAs and Fringe Benefit Limitations
Health Care Reform Timeline
Calculation of Gross-Up - Worked Example
Calculation of Excess Group Term Life - Worked Example
Calculation of FICA Withholding - Worked Example
Gross Repayment - Worked Example
Health Care Reform
Which fringe benefits are nontaxable to an employee?
What kinds of transportation fringe benefits may an employer offer its employees on a tax-free basis?
What payments are considered wages under the federal Internal Revenue Code (IRC)?
Will the IRS penalize an employer for failing to deposit and report withheld taxes?
May an employee be paid via a standard 1099?
How long must an employer keep an employee's Form W-4?
Of what use is IRS Form 945?
Is the IRS Form 941-M still in use?
When does an employer have to comply with the Affordable Care Act's Form W-2 health care reporting requirement?
Related Glossary Terms
Electronic Federal Tax Payment System (EFTPS)
FICA (Federal Insurance Contributions Act)
FUTA (Federal Unemployment Tax Act)
IRC (Internal Revenue Code)
IRS (Internal Revenue Service)