Payroll Practices and Procedures Checklist
Author: Alice Gilman
When to Use
At the end of every calendar year, 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. However, to prevent the process from becoming overwhelming at year-end, an orderly and methodical plan of payroll practices and procedures should be mapped out and followed throughout the entire year.
Using the following checklist every pay period, and every month (in month order), will help an employer stay in control of payroll responsibilities all year long and easily tackle year-end challenges.
Year-End 2021/2022 Changes
The year-end process for 2021 and into 2022 is uniquely challenging due primarily to COVID-19 and related CARES Act relief provisions, as well as extensions of those provisions by the Consolidated Appropriations Act (CAA) and the American Rescue Plan Act (ARPA). The following resulting changes are reflected in the checklist:
- For 2021, Form W-2 reporting and notification of voluntarily-provided paid sick leave and paid emergency family leave taken by employees under the CAA and the ARPA in Box 14, if the employer took the payroll credit for providing such leave on Form 941.
- Reporting teleworkers' wages to state agencies in compliance with state nexus requirements during COVID-19.
- Claiming the tax credit on Forms 941 filed in 2022 for CAA/ARPA voluntary paid leave provided to employees between April 1, 2021, and September 30, 2021, as well as using Form 941-X to make any Form 941 corrections.
- Claiming the Employee Retention Credit against wages paid to qualified employees through September 30, 2021, as well as using Form 941-X to make any Form 941 corrections.
- According to the 2022 instructions for Form 941, amounts paid to employees for voluntary leave provided from April 1, 2020, through September 30, 2021, are taxable and must be reported on Forms 941.
- Depositing the makeup amounts of employer-deferred Social Security taxes.
Another change reflected in the checklist includes providing applicable large employers with an automatic 30-day extension of time to provide full-time employees with Forms 1095-C.
Preliminary Year-End 2022/2023 Changes
In 2020, many states borrowed heavily from the Department of Labor to pay unemployment benefits. If these states do not pay back the full amount of their loans by November 10, 2022, employers located in those states will have their full 5.4% FUTA credit reduced when they file their 2022 Forms 940.
The IRS issued proposed regulations that will decrease the mandatory electronic filing threshold to 100 or more information returns filed in 2022, and to 10 or more information returns filed in 2023. However, because the IRS was unable to issue final regulations in time for filing of 2021 information returns, it is anticipated that these lower thresholds will apply for information returns filed in 2023 and 2024, respectively.