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Payroll Year-End 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. This involves filing accurate and complete Forms W-2 and W-3 with the Social Security Administration (SSA) and providing copies of Forms W-2 to employees at the beginning of the following year. The information and wage and tax amounts employers report on Form W-2, Form W-3 and the four quarterly Forms 941 that are filed with the Internal Revenue Service (IRS) should match exactly.

Employers also must provide copies of Forms 1099-MISC to independent contractors who have been paid at least $600 in cash for services rendered and file copies of those forms with the IRS.

Year-end should not be managed as though it begins in October and ends in March. An orderly and methodical plan should be mapped out and followed throughout the entire year. Preparing in advance will help an employer to avoid mistakes and a last-minute scramble to get it all done in time, which often results in having to make time consuming and expensive corrections after forms are filed. An employer may also end up being liable for costly penalties and fines to federal and state taxing agencies, which negatively affects the organization's overall bottom line.

Use the following checklist to stay in control and easily tackle year-end planning challenges.