It’s year-end and time for businesses to plan, organize and review their year-end payroll process. Managing your annual payroll responsibilities is a strenuous task and requires a lot of attention to make it error-free. Here is a quick guide to making the year-end payroll process seamless for you.
What is a year-end Payroll-
A thoughtful and cautious review of a business’s financial information at the end of a financial year. It is a detailed exercise to verify the wages paid to your employees and their tax liabilities. The process involves payroll reporting and tax filing.
When it is done- Fourth Quarter of a financial year, not later than 31st January
Payroll Taxes- Payroll taxes are those taxes that are withheld from an employee’s salary and paid to the government on behalf of the employee. A business’s payroll taxes are:
- Local taxes
- State income tax
- Medicare tax
- Social Security tax
- Federal income tax
Compliance- The process of year-end payrolls should be in compliance with the rules and regulations made by IRS. IRS’ employment tax forms are necessary for a business owner to fulfill their tax responsibilities.
A quick run through of the payroll checklist
If your run a business, work as an HR, or handle the accounts of a company, you surely juggle to fulfill your annual payroll responsibilities for better tax compliance of your company. Year-end Payroll is a rigorous practice that involves managing payroll forms, payroll reports, tax filing and documenting payroll reports. Here are some foundational steps to complete year-end payroll-
1. Acquiring and Distributing Payroll forms-
For a seamless tax filing of a business’s payroll taxes, it is required to obtain IRS’s employment tax forms and timely distribute it to your employees.
Following is the list of required IRS’S employment tax forms –
- W 2 forms- Reporting the salary and wages of your employees is an essential step of your payroll process. W 2 form is a statement of tax and wages that is filled by an employee. IRS evaluate the income of your employees and their tax liabilities with the help of W 2 forms. Therefore, IRS requires a detailed summary of the tax return and the federal and state taxes withheld from an employee’s paycheck. It’s essential to distribute W-2 form to your employees before the year ends. The ideal time to mail the W 2 form is not later than January.
Your W-2 forms must include the information about-
- Employee’s earnings from the previous year, including wage, salary, and bonus
- Amount of taxes withheld including social security and Medicare taxes
- Tip income (if it is there in your profession)
- Generic information about the employer (Name, id, and social security number)
- W 3 forms– It is a summary of the combined income of your employees. Whereas W 2 form is to be sent to the employees to fill and submit, it is the responsibility of the employer to fill W 3 form. It shows the number of employees you have and the total number of W 2 forms that your employees are filing. The form is mostly like W 2 forms. It is a way to verify whether the income and taxes shown by the employees in W 2 form are correct or not. The employer must submit the filled form to the social security Administration in the month of January, to be precise not later than 31st January.
Your W 3 form must include the information about-
- Control number, Employer details
- Total number of W 2 forms
- Amount of wages and tax
- Form 1099 NEC- Apart from reporting the payments made to your employees, you need to show the payment made to non-employees. Form 1099 summarizes the non-employee compensations made by the employer. IRS requires the details of payments and taxes withheld by the employer from non-employee’s paycheck.
Form 1099 NEC includes the amount paid to–
- Self-employed workers attached to your business
- Freelancers
- Individuals, partners, or service providers
- Independent contractors
- Form 940– Employers are required to keep track on how much tax they paid to fulfil employees’ federal unemployment benefits. A company must file form 940 annually.
- Form 941- To report various taxes withheld from an employee’s paycheck form 941 is used. Its quarterly due requirements make it essential for year-end payroll.
- Form 944- If you are a small business owner, you can use form 944 in place of form 940.
- Form 1095 B- If your organization provides health insurance coverage to the employees you are required to send the details to IRS By filing 1095 B.
2. Documenting Payroll reports-
Apart from filling the payroll forms, it is customary to generate payroll reports to better understand a company’s payroll choices, preferences, and workforce insights. It provides an opportunity for both the employer and employee to verify their tax liabilities and cross-check their financial data.
Some of the common payroll reports are-
- Employee summary report- It includes the personal information about an employee. It documents the summarized information regarding the wages, salary, working hours, overtime hours, and tax withheld from the wages, of an employee.
- Retirement Contributions report- This report documents the overall contribution of an employee and employer to the retirement account in one year. This provides an opportunity to make structural changes to the retirement contribution for the next year.
- Worker’s compensation report– It documents the workers’ compensation claims made in the financial year. This provides a comprehensive insight to the insurance provider of your company to thoughtfully evaluate coverage rates and premiums.
- Payroll summary report- It is simply a summary of employees’ tax deduction and their gross and net wages. This helps payroll providers and company administrators to have access related to tax and wages of the company workforce.
- Paid time-off report- To keep a record of an employee’s paid time-off and the remaining balance of the hour, a PTO report is required. PTO reports aids in running a business without any labor shortage.
3. A quick guide to the steps to complete the year-end payroll
- Establish a payroll process- Define a pay schedule, track your employee’s working time, and do comprehensive research on taxes and employee benefits and the deadline to release paychecks.
- Verify and review Employee information- Make sure that you have complete information about the employees’ address, social security number, paid leave, and overtime information. Ensure the type of employees you have and whether they are working full-time, part- time or on contract.
- Distribute and collect forms– To receive a detailed information about the tax withheld from employees’ paychecks, you need to mail W 2 forms to your permanent employees and get it filled out timely for submission to IRS. Also, try to collect IRS required forms for before the fourth quarter ends.
- Evaluate tax withholding– Try to access and review various tax withholdings, including local, state, and federal tax. Also, review Medicare and social security tax.
- Do payroll calculations- Ensure the accurate calculation of wages, salary, and tax deductions. Also calculate bonuses and insurance if your company provides it.
- Tax filing- Make sure to file all the payroll returns with appropriate payroll forms. Don’t miss the deadline given by IRS.
- Update Payroll software– Make sure that you update your payroll software for simplifying accounting.
4. Install a payroll software-
There are many benefits of payroll software for reporting.
- Automated process-Due to its automated process, a payroll software eases the strenuous task of manual calculation. Also, it saves a great amount of time and is helpful in meeting the deadlines.
- Cost-effective- It is a cost-effective way to cut the expenses incurred on extra labor and resources. Plus, it manages the entire process of calculating the salaries, making the taxes and evaluating the cost.
- Accessibility – In today’s hybrid work atmosphere where, a payroll software gives you the liberty to work from anywhere. You can have the access to all the data and information related to payroll at your chosen time.
- Security- A payroll software also comes with the security requirements; a business needs for its payroll essentials. All the sensitive data, entries, changes, and uploads can be secured in a payroll software.
- Customized– It is difficult to customize a payroll when it is done manually. The advantage of having a payroll software is that it enables you to customize the payroll forms, tax filing and other operations as per your need.
- Easy to operate- The functions of payroll software are easy to understand. It doesn’t require a high-end training to operate a payroll software. It increases the efficiency of your company’s operations.
All the benefits of a payroll software for reporting make it an essential part of accounting. Even if it is a startup, small business or a large company, a payroll software can make the entire payroll process hassle free and cost effective.