In addition to tax planning, December is the time to complete year-end payroll tasks and prepare for the new payroll year. With the amount of work it takes to calculate compensation and deductions, year-end payroll can become overwhelming. Fortunately, there are actions you can take to simplify the process. Here are five tips to help close out your payroll for the year and prepare for next year.
Order Form W-2 and Form 1099-MISC
If you prepare your own W-2s and 1099s, order forms from the IRS or purchase them from an office supply store. Because the red ink on Copy A is special and cannot be copied, you can’t download a W-2 from the internet. If you outsource payroll, ensure the provider has the necessary information to prepare the W-2s and 1099s in January and send them before month-end.
Verify Form W-4 and Form W-9 Information
Ask employees to verify that the information on their W-4 is accurate. If they changed their last name, moved to a new address, or want to adjust the amount withheld for federal income taxes, remind them to provide the updated information. If your state requires an income tax, ask employees to check their W-4 to determine whether to make changes to withholding amounts. Keep in mind that employees may change their W-4 as often as desired throughout the year, but only once for each paycheck. Also, have independent contractors, vendors, freelancers and gig workers verify that the address and tax identification number on their W-9 is accurate.
Verify Worker Names and Tax Identification Numbers
Check with the Social Security Administration to ensure employee names and Social Security numbers match and are accurate. Also, verify the tax identification number for each independent contractor, vendor, freelancer, or gig worker you paid more than $600 to for the year. You need current information to complete W-2s and 1099s.
Determine Taxable Benefits
Figure out taxable amounts for employee benefits. Examples include percentages for the personal use of company vehicles and cell phones by owners and employees and employer-paid educational expenses that are taxable. Consult your tax advisor for reporting requirements for these benefits. Record the information on the appropriate W-2.
Record Wages in the Correct Year
Ensure you record employee wages in the correct year. The accounting concept of constructive receipt rules that the date the person has unrestricted access to the funds is the date the wages need to be recorded. For instance, if a paycheck is dated for January 1, 2019, but the employee had access to the funds on December 31, 2018, wages need to be recorded for 2018.
Ensure Tax Compliance
Outsourcing your payroll to Red River Payroll means ensuring tax compliance. We bring cutting-edge technology and personalized service together to provide the best experience possible. Reach out to us to learn more today!