As the year comes to a close, this guide is here to help you accomplish your year-end payroll tasks. Whether you're a beginner or an experienced user, it's recommended that you read this guide carefully. It contains valuable information to help you complete the required tasks for a successful year-end process.
Along with your Workforce PayHub Payroll contacts, you can also consult your tax professional and/or legal counsel for specific questions related to your business.
Ensuring Accurate Employee Totals
As the year comes to an end, it is very important to make sure that the number of employees you have on record is accurate. The final payroll scheduled for the quarter or year gives you the last chance to update any important figures that will be reflected in your end-of-quarter or end-of-year balances.
Here’s what you need to focus on to maintain accuracy:
Manual and voided check entries
Adjustments for third-party sick paymentsContributions towards group-term life insurance and dependent care benefitsAllocations for moving expensesContributions to 401(k), cafeteria plans, and other retirement savingsAccruals for paid time offValuation of taxable fringe benefits
Critical Timing: Please prioritize updating these totals by Wednesday, December 27. This is crucial for accurate Q4 reporting and bonus payrolls.
Special Payroll Considerations: If you need to process special payrolls for bonuses, manual checks, voided checks, or third-party sick payments after December 27, you should be aware of the possibility of a tight processing deadline. It is important to note that not meeting the deposit and filing deadlines set by government agencies could lead to penalties and interest charges.
Final Reviews: Run a final review to ensure that all necessary adjustments to employee wage and tax amounts have been made. This review is the last line of defense against discrepancies that could affect your financial reporting.
Processing Bonus Payrolls
Processing bonuses alongside your regular payroll is an option, but if you prefer distinct entries or if the bonus payments need to be dated differently from your routine payroll dates, they must be handled separately.
When preparing to issue bonus checks, please clearly define the taxation for these bonuses and any other deductions that should be applied. Should there be any uncertainties regarding the taxation of bonus checks, it is advisable to consult with your accountant before submitting the information for processing. For those who require separate bonus payroll processing, it's important to coordinate with your payroll specialist at least three business days in advance of the intended bonus distribution date.
To guarantee prompt processing of bonus payrolls and to avoid delays, we encourage early initiation of bonus payroll submissions, ideally three days before the planned check date. Please be aware that if your tax liability from bonuses amounts to over $100,000, the IRS mandates that the amount be due the next business day following the check date. Consequently, you will need to wire the funds to us on the day of processing to comply with this requirement.
Please note the timing of payment: If an employee is compensated in the subsequent year for work completed in the current year, the earnings and deductions will be recorded in the year of payment. Payroll taxes are determined by the payment date rather than the work date. This is a crucial consideration for accurate tax reporting.
W-2s & 1099s - Delivery
These will begin shipping on January 22, 2024. If you’d like to pick up your tax forms from our office, please notify us by January 3rd. Otherwise, depending on the number of forms, deliveries will take place via USPS or UPS.
ACA Reporting
If an employer has at least 50 full-time employees, including full-time equivalent employees, on average during the prior year (2022), the employer is an ALE (Applicable Large Employer) for the current calendar year (2023). ALEs must report certain health insurance information to the IRS via forms 1094-C and 1095-C.
The deadline to distribute 1095-C forms to full-time employees who worked in 2023 is March 1, 2024
Third-Party Sick Pay Reporting
According to the law, your insurance company has until January 15th to inform you about any disability insurance benefits that were paid to your employees during 2023. If you receive such a notification after submitting your last payroll for the year, please contact us.
It's important to note that third-party sick pay can impact all fourth-quarter and year-end returns, including W-2 forms. Therefore, if sick pay is reported after the cutoff date for year-end information (Wednesday, January 03, 2024), the processing of your returns may be delayed.
Managing Taxable Fringe Benefits
It's important to include the value of personal use of company cars or any other taxable cash or non-cash benefit on Form W-2. Please make sure to report these benefits before the last payroll for the year. By reporting them together with cash wages, the appropriate withholding taxes can be deducted from the employee's check.
If you pay any part of an employee's income tax or FICA withholding, the amount paid must be reported as additional taxable wages for the employee. Additional employment taxes, both employee and employer portions, must be withheld on this added income.
To provide more specific information about several types of benefits, please refer to the following:
Group-Term Life Insurance
Please ensure that you report the value of your group-term life insurance that exceeds $50,000 before your last payroll of the year. The value of the coverage is determined based on an IRS-published table that assigns a value for each $1,000 of excess coverage per month, based on the employee's age. If you are unsure about how to calculate the value of your coverage, we suggest you seek assistance from your accountant.
Dependent Care Assistance
Employers must include the amount of dependent care benefits paid or incurred for the employee in Box 10 (Dependent Care Benefits) on Form W-2.
This includes any amount exceeding the $10,500 exclusion. If you provided dependent care services to employees as part of an employer-sponsored program before the last payroll of the year, you should report the benefits paid or furnished.
Educational Assistance Program
The exclusion for employer-provided educational assistance under a qualified Section 127 plan for 2023 is:
- Non-job-related undergraduate and graduate courses are exempt up to $5,250.
- All job-related education assistance reimbursements are exempt from withholding and employer taxes if they qualify as a working condition fringe benefit.
If you haven't reported these reimbursements with your payroll yet, please do so before your final payroll of the year.
Health and Accident Insurance Premiums Paid by an S Corporation
When an S-corporation pays health and accident insurance premiums for 2% shareholder/employees, the IRS specifies two tax treatments:
Situation 1 – Non-Discriminatory Plan
If premiums are paid for a group of employees and dependents, the following will apply:
- The premiums are treated as exempt for FICA and FUTA.
- The premiums are included in the shareholder/employee’s federal gross income.
- The premiums are reported on Form W-2 in Box 1 (Wages, Tips, Other Compensation).
Situation 2 – Discriminatory Plan
If the premiums are not paid under such a plan, the following will occur:
- The premiums are treated like normal compensation and as such are subject to FICA and FUTA.
- The premiums are included in the shareholder/employee’s gross income.
- The premiums are reported on Form W-2 in the following boxes:
- Box 1, Wages, Tips, Other Compensation.
- Box 3, Social Security wages.
- Box 5, Medicare Wages and Tips.
If you paid premiums for any shareholder/employee, report amounts and plan type before year-end payroll.
Final Reminders
Verify Employee Data: Ensure all employee information is current and accurate.Confirm Payroll Totals: Double-check that all payroll totals for wages, taxes, and benefits are correct.Review Taxable Benefits: Audit fringe benefits for proper inclusion in taxable income.Report Bonuses Appropriately: Ensure bonuses are reported and taxed according to IRS guidelines.Complete Deposits: Confirm that all tax deposits have been made on time.Reconcile W-2 and 1099 Forms: Reconcile forms with payroll data to avoid discrepancies.ACA Reporting Compliance: For ALEs, ensure that ACA reporting requirements are met.Address S Corp Shareholder-Employee Premiums: Ensure proper tax treatment and reporting.Document and Archive Records: Securely store payroll records in accordance with federal and state laws.Unemployment Rates
States start sending out notices for unemployment rate changes in October of the prior year and the last states send notices in March of the current year. Please make sure to send us your updated rates as soon as possible, otherwise there will be a need for an adjustment during the first quarter tax processing.
Support from WFPH
At Workforce PayHub, we are dedicated to ensuring that your business has a smooth transition into the new year. We understand that payroll management can be a complex process with many moving parts that must be coordinated precisely. Therefore, we encourage you to contact us if you encounter any challenges or have any questions regarding your year-end payroll process. We are here to provide you with the support you need so that you can focus on running your business.
