How to Guarantee a Smooth Payroll Year-End in 8 Easy Steps

November 21, 2016 Ralph Eovino

year end payroll checklist

Updated — November 2016

Year-end is approaching quickly and it's usually at this time of the year when that perfect relationship with your payroll company can go downhill because minor discrepancies weren't caught or fixed in time. 

But it doesn't have to be that way — we've got you covered with these eight easy steps that will guarantee a year-end that is smoother than a baby's bottom. 

While that reference might be a bit iffy, we can assure you that this comprehensive year-end payroll checklist is solid.

1. Verify Your Federal Employer Identification (FEIN), State Withholding and Unemployment Account Numbers.

One of the first steps in setting up your business is to register your company with the Internal Revenue Service (IRS) as well as the state and local agencies where you have employees.

You will receive a unique 9-digit FEIN number, which usually follows the format of 12-3456789, from the IRS and depending on the state a unique state account number for withholding and unemployment for your company.

All your tax remittances are paid out to the federal, state and local agencies associated with your company — making these ID numbers the one piece of information you never want to get wrong.  

While we strongly recommend checking this during and immediately after setting up with your payroll provider or bookkeeper, it's something you can always check again at year-end. Also, since your FEIN and state account numbers will appear on your W-2s and W-3s, you want to ensure that they are accurate.

Related: A Closer Look at W2s and Form 1099.

2. Maintain Accurate Employee Details

As an employer, you are legally required to collect and record your employees' Social Security Number (SSN) and U.S. citizenship by using Forms I-9 and W-4.  Year-end is a great time to make sure that all those employee records are accurate and up-to-date. 

  • You also want to make sure you have your employees' first and last names spelled correctly and that the address for each individual is current and correct.
  • If you are using an online payroll solution , your employees should be able to access and update personal details like their address, date of birth, etc. online, which is a lot easier than you making those edits individually.

A word of caution — The IRS may impose a penalty for each Form W-2 with a missing or incorrect SSNs or employee names. The government can also impose hefty fines if you misclassify your employees as contractors, so make sure that you've been classifying and your workers correctly.

Update — As of January 22, 2017, there is a new Form I-9 to be used for citizenship/immigration status verification. 

Related: Employee or Contractor 

3. Identify the Last Payroll(s) of the Current Year and First Payroll(s) of the New Year

Your accountant or payroll service provider will define the deadlines for when you can process your last “off-cycle” payroll and/or for when year-end adjustments need to be completed.

You may also need to update your employees' W-4 statuses, salary changes, 401(k) deferrals and benefit deductions after your last payroll of the current year and before your first payroll of the new year.

4.  Post Taxable Fringes, Manual Checks, Adjustments, Voids and Third-Party Sick Pay to Your Payroll System

You will need to verify deadlines with your bookkeeper or payroll provider for posting these items. To prevent late deposit penalties and other adverse consequences, review these items on your year-end adjustment list to determine if they should have been posted to taxable wages, on a periodic or other more frequent basis.

Related: How to Handle Taxes on Bonus Wages like a Payroll Expert

5. Ensure That Your Quarter-to-date (QTD) and Year-to-date (YTD) Amounts are Accurate.

Here's a checklist:

  • Wages, Tips and Other Compensation

    • QTD amounts appear on line 2 of Form 941.

    • Employee-level YTD amounts appear in Box 1 of Form W-2.

    • The total YTD amount for the company (FEIN) will appear in Box 1 of Form W-3.

Balancing Tip: The sum of line 2 for the four quarters on Form 941 should balance up to the amount appearing in Box 1 of Form W-3.

  • Social Security Wages/Withholding 

    • QTD amounts appear on line 5a of Form 941.

    • Employee-level YTD amounts appear in Box 3 of Form W-2.

    • The total YTD amount for the company (FEIN) will appear in Box 3 of Form W-3.

Balancing Tip: The sum of line 5a for the four quarters on Form 941 should balance up to the amount appearing in Box 3 of Form W-3.

  • Additional Tips For Social Security 

    • QTD amounts appear on line 5b of Form 941.

    • Employee-level YTD amounts appear in Box 7 of Form W-2.

    • The total YTD amount for the company (FEIN) will appear in Box 7 of Form W-3.

Balancing Tip: The sum of line 5b for the four quarters on Form 941 should balance up to the amount appearing in Box 7 of Form W-3.

  • Medicare Wages/Withholding

    • QTD amounts appear on line 5c of Form 941.

    • Employee-level YTD amounts appear in Box 5 of Form W-2.

    • The total YTD amount for the company (FEIN) will appear in Box 5 of Form W-3.

Balancing Tip: The sum of line 5c and 5d for the four quarters on Form 941 should balance up to the amount appearing in Box 5 of Form W-3.

  • Additional Tips for Medicare 

    • QTD amounts appear on line 5d of Form 941.

    • Employee-level YTD amounts appear in Box 5 of Form W-2.

    • The total YTD amount for the company (FEIN) will appear in Box 5 of Form W-3.

Balancing Tip: The sum of line 5d and 5c for the four quarters on Form 941 should balance up to the amount appearing in Box 5 of Form W-3.

  • State and Local Wages/Withholding 

    • Verify your QTD amounts from state forms with your accountant or payroll provider.

    • Employee level YTD amounts appear in Box 16 and 18  of Form W-2.

Balancing Tip: The sum of state and local wages and taxes for the four quarters on state forms should balance up to the amounts appearing in Box 16 and 18 of Form W-3.

The tips outlined above will help you spot  missed remittances, identify over or underpayments and catch up other payments well before you rack up any serious penalties.

Related: What You Need to Know About Payroll Tax Deadlines

6. Remember Key Payroll Due Dates

January 31

  • File Form W-2s with Form W-3s, Transmittal of Wage and Tax Statements, with the Social Security Administration (SSA). (Note: This is the federal deadline. While some states follow, others allow for later filings. If you're doing payroll manually, you'll need to check with each state in which you have employees. But if you're using payroll software, these dates are automatically in the system.)
  • Form 940 — Federal Unemployment Tax (FUTA)
  • Form 944 — (If notified by the IRS to do so)
  • Form 945 — Nonpayroll Withholding 
  • Copy A of Paper Form 1099 with Form 1096 — With entries for Box 7 (such as payments to independent contractors.) 

February 28 (paper/manual forms)

  • File Copy A  of all paper Form 1099 with Form 1096 — With NO entries for Box 7. (For electronic returns, the deadline extends to March 31.) 

  • File paper Form 8027, Employer’s Annual Information Return of Tip Income and Allocated Tips, with the IRS. (For electronic returns, the deadline extends to March 31.)

By March 31 (e-file)

  • File electronic Forms 1099 and 8027 with the IRS.

  • State W2 and 1099 Filing — It's recommended that you check with your state on the due dates for paper and electronic filings, as some states may follow the IRS but some may be different. (If you're using payroll software, these dates are updated automatically.)

Payroll Tax Deadlines for Quarterly Remitters 

  • If you are classified as a Quarterly Remitter for payroll tax purposes, you must submit Form 941 by January 31, April 30, July 31 and October 31 each year. 

7. Meet Affordable Care Act (ACA) Regulations

The rules regarding year-end reporting for health insurance have become more complex with the passage of the ACA.

Employee and employer portions of health insurance costs must now be reported on employees' W2 forms.

8. Update State Unemployment Rates

Depending on your state, you will receive a new SUTA rate towards the end of the current year or the beginning of the new year. To ensure accurate payments, you will need to pass this information onto your accountant or payroll provider or update it in your payroll system. (This is another thing that updates automatically with payroll software.) 

By following these eight steps, your year-end reporting should run smoothly for you and your employees. Plus, you minimize the risk of any penalties or discrepancies and that's always a good thing!

Download the 2017 U.S. Payroll Calendar 

Learn more about how fast, friendly payroll software can help make end-of-year and every day a much better experience. Request a free demo today. 

About the Author

Ralph Eovino

Ralph’s intensity shines right through his eyes, like the good guy in a 40’s era gangster movie setting out to right all kinds of injustice in the world. Along with fairness and loyalty, those traits are the hallmark of Ralph’s brand of customer service. Enough said. Oh wait...he also makes a mean Stuffed Zucchini with Ricotta and Herbs. A man of many talents!

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