Use October to jump-start your year-end payroll processes
With the coronavirus still raging, it’s anybody’s guess whether trick-or-treating will happen this year. However, you can count on this: Complete these early year-end payroll tasks now and you can still have a sweet Halloween.
- Register with the Social Security Administration’s Business Services Online portal at www.ssa.gov/bso/bsowelcome.htm.
- Have employees confirm their addresses and Social Security numbers. If your payroll system masks SSNs, unmask them so employees can confirm them. Use the SSA’s Social Security Number Verification Service for SSNs that don’t match your records.
- Check W-2, Box 14 entries for employees who took pandemic-related sick/family leave.
- Direct employees to irs.gov/payments/tax-withholding so they can review their withholding for the remainder of the year.
- Find out when your software provider will publish tax updates for 2021.
- After you file your third-quarter Form 941, check your records against the totals on all three forms. Identify any over- or under-reporting of income, wages or tax credits. File Form 941-X to correct errors from prior quarters.
- Review authorization letters and corporate officers’ facsimile signatures for Forms 941, 940 and 945.
- Inquire whether other departments will need year-end reports from Payroll. Thank them for their timely input last year and remind them their cooperation will again be needed this year. Examples: HR, Accounts Payable, Accounting, Benefits, Accounts Receivable.
- Review the holiday processing schedule and remind managers of the dates employees’ time sheets are due to Payroll.
- Identify new outsiders, such as third-party 401(k) plan administrators or third-party payers of sick pay, with whom you’ll be working.
- Mark Nov. 2 or any later date as the cut-off date if you use the special accounting rule for noncash fringe benefits.
And here’s what to do the last two months to finish the year strong …
- Mark November 1, or any later date, as the cut-off date, if you use the special accounting rule for noncash fringe benefits.
- By November 10 (or the next business day, if November 10 is a nonbusiness day), file Form 941 for the third quarter with the IRS. This due date applies only if you deposited the tax for the quarter in full and on time.
- Once your third-quarter Form 941 is filed, check your records against the totals on all three forms. Identify any over-or under-reporting of income or wages, and adjust tax overpayments or underpayments on your fourth-quarter Form 941.
- Test computer programs for Forms W-2 that are due next year.
- If you print your own substitute Forms W-2, review the specifications in IRS Pub. 1141 and update your software. Run samples on plain paper to test for the current year and to ensure that all data appear in the correct boxes; shred samples before disposing of them. Rule of thumb: Have 125% of the forms you’ll actually need. The extra will account for forms used in tests, forms with mistakes, and duplicate forms your employees ask you to provide. Order envelopes for Forms W-2.
- Submit laser-printed substitute Forms W-2 (Copy A) and W-3 to the SSA for approval; e-mail the SSA at email@example.com.
- Check the IRS’s website www.irs.gov/app/picklist/list/formsPublications.html to ensure that you have the most recent Forms 941, 940, 944 and 945.
- Note the next year’s Social Security taxable wage base, employees’ withholding adjustments and income tax withholding tables.
- Schedule special year-end reports to/from other departments.
- Send memos to employees showing the next year’s paydays, the new Social Security taxable wage base, 401(k) pretax limit and state unemployment/disability
wage bases, if applicable.
- Make new folders for the next year.
- Check your SSA-issued website password; passwords expire every 90 days, so you may need to create a new one.
- Ask your bank to prepare an early cut-off statement for December.
- Head off last year’s problems for this year. Consider: Was the mailroom notified of the volume of out-going mail when Forms W-2 and 1095 were mailed? Was there enough postage in the postage machine?
- Decide whether employees’ Form 1095-C or Form 1095-B will be provided in the same mailing as employees’ Forms W-2; if yes, be prepared to adjust postage accordingly.
- Schedule bonus payrolls.
- Notify employees if you’re not withholding on their personal use of company cars or are using the special accounting rule to value noncash fringe benefits.
- Double-check employees’ pretax deductions, coding for Form W-2, Box 12 and year-to-date figures.
- Confirm final calculations of the taxable cost of group-term life insurance over $50,000 and employees’ personal use of company cars; finalize calculations for imputed interest for loans with below-market interest rates.
- If vacation isn’t allocated on a calendar-year basis, check that employees’ vacation balances aren’t re-set to zero with the first payroll of the new year.
- Distribute the next year’s Forms W-4 to employees. Employees whose family status changed within the last two years, or those who claimed an exemption from income tax withholding in the current year, must file new forms; everyone else may refile.
- Cut manual checks for employees fired in between the last payroll of the current year and the first payroll of the next year.
- Conduct a final review of the general ledger for “hidden” wages, notably noncash fringes.
- Let all interested parties (HR, IT and Accounting) know the cut-off date for the previous year’s payroll and the first payroll for the new year.
- Before processing the first payroll of the new year, make sure the new Social Security wage base, state unemployment and disability wage bases (if applicable), federal adjustments, state withholding allowances, federal and state tax rates and employees’ benefits data are input into the system.
- Back up your system before processing the first payroll of the new year.
- Inform your service bureau of your Forms W-2 schedule, and any changes for the coming year, including employees’ benefits deductions and new Forms W-4.