Year-End Payroll Guide

Our payroll experts have compiled monthly tasks, important information, and handy resources to make year-end payroll processing easier.

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October & November

Update Employee Contact Information

Audit employee data to ensure you are not missing critical Form W-2 information like complete Social Security numbers, employee names, and addresses. The Internal Revenue Service (IRS) may impose a penalty for each Form W-2 with a missing or incorrect Social Security number or employee name. If there are errors, you would then be subject to the following penalties:

Large Businesses with Gross Receipts of More Than $5 Million

Time Returns Files/ProvidedNot More Than 30 Days31 Days Late - August 1After August 1 - Not at AllIntentional Disregard
Due 1/1/2021 - 12/31/2021$50 per return or statement -
$556,500 maximum
$110 per return or statement -
$1,669,500 maximum		$270 per return or statement -
$3,339,000 maximum		$550 per return or statement -
No limitation

Small Businesses with Gross Receipts $5 Million or Less
Time Returns Files/ProvidedNot More Than 30 Days31 Days Late - August 1After August 1 - Not at AllIntentional Disregard
Due 1/1/2021 - 12/31/2021$50 per return or statement -
$194,500 maximum		$110 per return or statement -
$556,500 maximum		$270 per return or statement -
$1,113,000 maximum		$550 per return or statement -
No limitation

Furthermore, employee Forms W-2 and 1095-C must match what is printed on social security cards. For example, if an employee’s name is hyphenated on their social security card, but not on their Form W-2 or Form 1095-C, the IRS will return this as an error. Failure to verify this information as correct may result in penalties.

If you are not careful, these types of errors can add up to a sizable penalty. For some employees, updated addresses can be garnered from a new W-4 if their withholding allowances have changed or will change next year. Remind employees to fill out a new W-4 if their situation has changed:

  • Ensure employee names are entered correctly
  • Confirm the accuracy of employee addresses
  • Confirm the accuracy of employee Social Security numbers

Employers need to make sure all employee data is accurate, so they can avoid W-2 reprint fees. Employers who use a payroll processing company may have an online service where employees can review and correct data. If so, encourage your employees to use it as a means to review and edit critical data.

W-2 and 1099 Filing Deadlines

Due DateDeadline
January 31, 2021Supply W-2s to employees and ex-employees who worked in 2020. Supply 1099s to independent contractors who worked in 2020, as well as other payees.
January 31, 2021File paper W-2s and 1099s.
January 31, 2021e-File W-2s and 1099s.

It is recommended you distribute W-2s and 1099s before the end of January. Mail or e-File copies of Forms W-2 and 1099 with government agencies. Send W-2s and W-3s to the Social Security Administration. Submit 1099s along with Form 1096 to the IRS. You may also have to mail or e-File copies of these forms to a certain state(s), along with any state transmittal forms required, so check the requirements. Many localities also require copies of informational returns, so double-check this as well.

Form 940 Filing Deadlines

Due DateDeadline
January 31, 2021Submit Form 940 and deposit FUTA if your company owes any remaining amount.
February 8, 2021 (not recommended)File Form 940 if your company has paid all deposits on time.

Submit Form 940 for Federal Unemployment Insurance (FUTA). The FUTA tax rate is 6.0 percent, which applies to the first $7,000 you paid each employee as wages during the year. However, if you pay your state unemployment taxes on time, your FUTA rate will be reduced to 0.6 percent. For additional information, please visit our FUTA Credit Reduction page. If your company owes more than $500 in FUTA tax for the calendar year, you are required to deposit at least one quarterly payment. View the IRS' Publication 926 Household Employer's Tax Guide for more information.

Something to Consider: If your company is filing 250 or more Form W-2s, the Social Security Administration (SSA) requires they be filed electronically unless a waiver has been granted. You may file electronic W-2s using the SSA's Business Services Online (BSO) website. There is no charge for this service and you can register online.

Prepare for ACA Annual Reporting

Determine if you had 50 or more full-time and full-time equivalent (FTE) employees in the previous calendar year and what type of insurance (self-insured or fully insured) you offered. If your provider offers an FTE Calculator, you can use it to determine how many full-time and FTE employees you had in the previous calendar year. With this number and the type of coverage you offer, determine what forms you must use to report:

  • 50 or More Employees: Complete and file Forms 1095-C and 1094-C.
  • Less Than 50 Employees (Self-Insured): Complete and file Forms 1095-B and 1094-B.
  • Less Than 50 Employees (Fully Insured): Insurer is responsible for filing on behalf of the employer.
  • Less Than 50 Employees (No Insurance): Reporting is not required.

Note: When the combined total of full-time and FTE employees in a controlled group is 50 or more, each individual employer is subject to reporting.

If you are required to report, gather the information you need to complete the applicable forms and determine which reporting method you will be using. Depending on the method you use, you will need to compile information like:

  • The employee’s name, SSN or date of birth (if SSN is unavailable), and address.
  • The employer’s name, EIN, telephone number, and address.
  • The months in which the employer-offered coverage.
  • The employee’s share of the monthly premium for self-only coverage (in certain cases).
  • The months in which a safe harbor (or other situation) applied (e.g.., the employee was not a full-time employee).
ACA Annual Reporting Deadlines

Due DateDeadline
January 31, 2021Supply Forms 1095-C to employees.
February 28, 2021File paper Forms 1095-C with transmittal Form 1094-C.
March 31, 2021e-File Forms 1095-C with transmittal Form 1094-C.

PREPARE FOR VETERAN’S DAY PAYROLL PROCESSING

Veteran’s Day is Wednesday, November 11, and a federal holiday. Adjust your payroll processing accordingly to prevent delays and ensure your employees are not impacted.

PROCESS ALL YEAR-END W-2 ADJUSTMENTS

Before you process your last payroll of 2020, verify that all non-cash and cash income has been recorded and taxed properly, so it is reported on the W-2 and quarterly 941 tax return. Common W-2 adjustments include:

  • Group-term life insurance in excess of $50,000
  • Personal use of company vehicle
  • Third-party sick pay
  • Company provided transportation or parking
  • Non-qualified moving expense reimbursements
  • Non-accountable business expense reimbursements or allowances
  • Bonuses and other annual incentive pay
  • Employer-paid education not related to the employee’s job
  • Non-cash payments
S CORPORATIONS

Another common year-end adjustment is employer-paid health insurance for subchapter S shareholders who own at least two percent of the company. Although it is fairly easy to adjust a W-2 record to reflect this amount, it is always best to include it with a payroll run, so it is reported on the applicable quarterly and yearly payroll tax returns. View the IRS requirements for subchapter S filing to make sure your company is reporting correctly.

CHECK FOR EXCESS RETIREMENT CONTRIBUTIONS

Contributions 401(k), 403(b), or SIMPLE retirement plans cannot exceed IRS limits. The limits are as follows:

Type of Retirement Plan2021 Limits*2020 Limits
401(k) Elective Deferrals$19,500$19,500
403(b) Elective Deferrals$19,500$19,500
SIMPLE Employee Deferrals$13,500$13,500
*These limits are subject to change.

PROCESS ALL MANUAL AND VOIDED CHECKS

Any employee checks issued outside of the regular payroll process must be recorded and their tax liabilities paid by the applicable due dates. Confirm that all "manual checks" cut during the year have been accounted for and updated in the system. Likewise, all voided checks need to be recorded.

Some payroll checks cut throughout the year may not have been cashed. These checks should not be voided in the payroll system, but should instead be considered unclaimed property and reported to the appropriate state agency. The unclaimed property office may be a division of your state's department of revenue or treasurer's office.

To recap:

  • Account for manual checks written during 2020.
  • Confirm that all voided checks have been recorded.
  • Report uncashed checks to the appropriate state agency as unclaimed property.

CHECK TO SEE IF YOU’RE IN A FUTA CREDIT REDUCTION STATE

If your company operates in a state subject to higher taxes under FUTA, you will pay higher FUTA taxes per employee. It is important to plan now for the funding of this additional tax. You can view an estimate of your total FUTA payment by checking your 2020 IRS form 940, where your FUTA tax is reported. Visit our FUTA Credit Reductions page for more information.

REVIEW THIRD PARTY SICK PAY

Third-party sick pay is a disability insurance benefit that provides employees with partial or full-wage benefit payments in the event of an injury or illness that prevents the employee from working. The payments are not made through the employer, but through an insurance company, union plan, or a state temporary disability plan.

Make sure to submit the total amount of any temporary disability payments your employees received in 2020 to your payroll provider no later than December 31, 2020. You can use the third-party sick pay statement you received from your carrier for reporting purposes.

REPORT FRINGE BENEFITS

A fringe benefit is considered a form of payment for the performance of services. For example, you provide an employee with a fringe benefit when you allow the employee to use a business vehicle for personal use. Any fringe benefit you provide is taxable and must be included in the recipient’s pay unless the law specifically excludes it.

You must report the value of fringe benefits as taxable income unless the law specifically excludes it. Fringe benefits are subject to taxes and the amounts must be included on the form W-2 in boxes 1, 3 and 5. In addition, the amount will be listed as a memo in box 16.

PREPARE FOR THANKSGIVING PAYROLL PROCESSING

Thanksgiving Day is Thursday, November 26, and a federal holiday. Adjust your payroll processing accordingly to prevent delays and ensure your employees are not impacted.

End-Year Tips

Why it Pays to Check Social Security Information

The Social Security Administration (SSA) charges a fee to correct wages posted incorrectly to the wrong individual. To help avoid filing incorrect SSNs, check out the free verification tool the SSA provides on their website.

Furthermore, the IRS requires that employee Forms W-2 and 1095-C must match what is printed on social security cards. For example, if an employee’s name is hyphenated on their social security card, but not on their Form W-2 or Form 1095-C, the IRS will return this as an error. Failure to verify this information is correct may result in penalties.

Large Companies: Consider Electronically Filing Your W-2s

If your company is filing 250 or more Form W-2s, the Social Security Administration (SSA) requires electronic filing unless a waiver has been granted. You may file electronic W-2s using the SSA’s Business Services Online (BSO) website. There is no charge for this service and you can register online.

Are You Eligible for Disaster Assistance
and Emergency Relief?

Special tax law provisions may help businesses recover financially from the impact of a disaster. Depending on the circumstances, the IRS may grant additional time to file returns and pay taxes. Visit the IRS website for more information.

December

Before Processing Last Payroll

Finish Updating Employee Contact Information

Audit employee data to ensure you are not missing critical Form W-2 information like complete Social Security numbers, employee names, and addresses. The Internal Revenue Service (IRS) may impose a penalty for each Form W-2 with a missing or incorrect Social Security number or employee name. If there are errors, you would then be subject to the following penalties:

Large Businesses with Gross Receipts of More Than $5 Million

Time Returns Files/ProvidedNot More Than 30 Days31 Days Late - August 1After August 1 - Not at AllIntentional Disregard
Due 1/1/2021 - 12/31/2021$50 per return or statement -
$556,500 maximum
$110 per return or statement -
$1,669,500 maximum		$270 per return or statement -
$3,339,000 maximum		$550 per return or statement -
No limitation

Small Businesses with Gross Receipts $5 Million or Less
Time Returns Files/ProvidedNot More Than 30 Days31 Days Late - August 1After August 1 - Not at AllIntentional Disregard
Due 1/1/2021 - 12/31/2021$50 per return or statement -
$194,500 maximum		$110 per return or statement -
$556,500 maximum		$270 per return or statement -
$1,113,000 maximum		$550 per return or statement -
No limitation

Furthermore, employee Forms W-2 and 1095-C must match what is printed on social security cards. For example, if an employee’s name is hyphenated on their social security card, but not on their Form W-2 or Form 1095-C, the IRS will return this as an error. Failure to verify this information as correct may result in penalties.

If you are not careful, these types of errors can add up to a sizable penalty. For some employees, updated addresses can be garnered from a new W-4 if their withholding allowances have changed or will change next year. Remind employees to fill out a new W-4 if their situation has changed:

  • Ensure employee names are entered correctly
  • Confirm the accuracy of employee addresses
  • Confirm the accuracy of employee Social Security numbers

Employers need to make sure all employee data is accurate, so they can avoid W-2 reprint fees. Employers who use a payroll processing company may have an online service where employees can review and correct data. If so, encourage your employees to use it as a means to review and edit critical data.

W-2 and 1099 Filing Deadlines

Due DateDeadline
January 31, 2021Supply W-2s to employees and ex-employees who worked in 2020. Supply 1099s to independent contractors who worked in 2020, as well as other payees.
January 31, 2021File paper W-2s and 1099s.
January 31, 2021e-File W-2s and 1099s.

It is recommended you distribute W-2s and 1099s before the end of January. Mail or e-File copies of Forms W-2 and 1099 with government agencies. Send W-2s and W-3s to the Social Security Administration. Submit 1099s along with Form 1096 to the IRS. You may also have to mail or e-File copies of these forms to a certain state(s), along with any state transmittal forms required, so check the requirements. Many localities also require copies of informational returns, so double-check this as well.

Form 940 Filing Deadlines

Due DateDeadline
January 31, 2021Submit Form 940 and deposit FUTA if your company owes any remaining amount.
February 8, 2021 (not recommended)File Form 940 if your company has paid all deposits on time.

Submit Form 940 for Federal Unemployment Insurance (FUTA). The FUTA tax rate is 6.0 percent, which applies to the first $7,000 you paid each employee as wages during the year. However, if you pay your state unemployment taxes on time, your FUTA rate will be reduced to 0.6 percent. For additional information, please visit our FUTA Credit Reduction page. If your company owes more than $500 in FUTA tax for the calendar year, you are required to deposit at least one quarterly payment. View the IRS' Publication 926 Household Employer's Tax Guide for more information.

Something to Consider: If your company is filing 250 or more Form W-2s, the Social Security Administration (SSA) requires they be filed electronically unless a waiver has been granted. You may file electronic W-2s using the SSA's Business Services Online (BSO) website. There is no charge for this service and you can register online.

REVIEW YOUR INFORMATION FOR ACA ANNUAL REPORTING

If you have determined you need to report, review your information to avoid any errors. If your payroll provider offers ACA reporting with an error-checking algorithm, you should be able to perform the following tasks automatically:

  • Complete your Form 1094-C.
  • Import and populate your 1095-C data.
  • Review your 1095-C forms, make edits, correct any conflicts, or manually add a 1095-C.
  • Approve and print your 1094-C and 1095-C forms for distribution to employees and reporting to the IRS.

FINISH PROCESSING ALL YEAR-END W-2 ADJUSTMENTS

Verify that all non-cash and cash income has been recorded and taxed properly so that it can be reported on the W-2 and the quarterly 941 tax return. Common W-2 adjustments include:

  • Group-term life insurance in excess of $50,000.
  • Personal use of company vehicle.
  • Third-party sick pay.
  • Company provided transportation or parking.
  • Non-qualified moving expense reimbursements.
  • Non-accountable business expense reimbursements or allowances.
  • Bonuses and other annual incentive pay.
  • Employer-paid education not related to the employee’s job.

Non-cash payments. Another common year-end adjustment is employer-paid health insurance for subchapter S shareholders who own at least two percent of the company. Although it is fairly easy to adjust a W-2 record to reflect this amount, it is always best to include it with a payroll run to ensure that it is reported on the applicable quarterly and yearly payroll tax returns. View the IRS requirements for subchapter S filing to make sure your company is reporting correctly.

FINISH PROCESSING ALL MANUAL AND VOIDED CHECKS

Any employee checks issued outside of the regular payroll process must be recorded and their tax liabilities paid in accordance with the applicable due dates. Confirm that all “manual checks” cut during the year have been accounted for and updated in the system. Likewise, all voided checks should be recorded.

Some payroll checks cut throughout the year may not have been cashed. These checks should not be voided in the payroll system, but should instead be considered unclaimed property and reported to the appropriate state agency. The unclaimed property office may be a division of your state’s department of revenue or treasurer’s office.

To recap:

  • Account for manual checks written during 2020.
  • Confirm that all voided checks have been recorded.
  • Report uncashed checks to the appropriate state agency as unclaimed property.

PREPARE FOR CHRISTMAS PAYROLL PROCESSING

Christmas Day is Friday, December 25, and a federal holiday. Adjust your payroll processing accordingly to prevent delays and ensure your employees are not impacted.

BEFORE DECEMBER 31, 2020

CHECK TO SEE WHAT YOUR FUTA PAYMENT WILL BE

If your company operates in a state subject to higher taxes under FUTA, you will pay higher FUTA taxes per employee. It is important to plan now for the funding of this additional tax. You can view an estimate of your total FUTA payment by checking your 2020 IRS form 940, where your FUTA tax is reported. Visit our FUTA Credit Reduction page for more information.

PROCESS YOUR FINAL PAYROLL FOR THE YEAR

Check with your payroll provider to find out the last day you can submit final 2020 payrolls to avoid penalties and interest charges. Make sure to review your W-2s to verify the following information prior to processing your last payroll of the year:

  • The spelling of employees’ names
  • Social security numbers
  • Addresses
  • Wages

Many companies issue bonuses for company performance. If you are issuing bonuses and withholding retirement deductions, make sure the deduction does not exceed the annual limit. It is also important that bonuses are processed before the end of 2020 so tax payments are made on time to avoid penalties.

If you have to run another payroll before the end of the year, you will have to review your company, employee, and contractor totals again.

Remember: Earnings and deductions for payments received in the next year for days worked in the current year are reflected in the new year. Payroll taxes are based upon the date wages are paid.

PROCESS 2020 QUARTER-END AND YEAR-END REPORTS

Close the quarter and file Form 941 Employer’s Quarterly Federal Tax Return by January 31, 2020. Wrap up calendar year 2020 and prepare to process payroll in 2021. Print and mail W-2s and 1099s to employees and contractors.

Report employee income and withholding amounts to employees, ex-employees who worked in calendar year 2020, and government agencies using Form W-2. Use 1099s to report the income paid to independent contractors and other payees.

PREPARE FOR NEW YEAR'S DAY PAYROLL PROCESSING

New Year’s Day is Friday, January 1, and a federal holiday. Adjust your payroll processing accordingly to prevent delays and ensure your employees are not impacted.

End-Year Tips

Is the Minimum Wage Rate Changing in Your State?

The federal minimum wage rate is $7.25 an hour. To see what the minimum wage is in your state, visit our Minimum Wage Rates by State.

Are You Prepared for ACA Annual Reporting?

Did you know there are 18 potential conflicts between lines 14 and 16 on the Form 1095-C? An ACA reporting solution with an error-checking algorithm ensures codes are valid and data is formatted correctly for reporting to the IRS. Learn more about Form 1095-C reporting codes.

Are You Eligible for Disaster Assistance
and Emergency Relief?

Special tax law provisions may help businesses recover financially from the impact of a disaster. Depending on the circumstances, the IRS may grant additional time to file returns and pay taxes. Visit the IRS website for more information.

January & February

BEFORE YOUR FIRST 2021 PAYROLL

REVIEW AND UPDATE EMPLOYEE DEDUCTIONS

The first payroll of the year is a great time to review and update your employee deductions. Don’t forget to review deductions like:

  • Medical
  • Dental
  • Life Insurance
  • Retirement deductions - 401(k), 403(b)
  • Other voluntary deductions

REVIEW AND UPDATE RETIREMENT PLAN CATCH-UP CONTRIBUTIONS

Retirement plan regular and catch-up contributions will deduct automatically out of the first payroll for 2021. Review your retirement plans and report any changes needed and submit those updates with your first payroll for 2021.

FINISH ACA REPORTING

Make sure you wrap up ACA annual reporting and filing to avoid penalties for late or incomplete paperwork:

  • Failure to file complete and accurate Forms 1094-C by the form deadlines will result in penalties equal to $270 per return.
  • Failure to file and provide correct information on Form 1095-C could result in a $270 penalty per return.

REVIEW STATE MINIMUM WAGE CHANGES

Click here to get complete Minimum Wage Rates by state. If any changes apply to your business, be sure to update the information with your payroll provider.

REVIEW SUTA WAGE BASE CHANGES

Click here to get complete SUTA Wage Bases by state. If any changes apply to your business, be sure to update the information with your payroll provider.

If you receive a new state unemployment insurance rate notice for 2021, please send the notice to your payroll provider for updating.

Second Week of January

PREPARE FOR MARTIN LUTHER KING, JR. DAY PAYROLL PROCESSING

Martin Luther King, Jr. Day is Monday, January 18, and a federal holiday. Adjust your payroll processing accordingly to prevent delays and ensure your employees are not impacted.

ENd of January 2021

COMMUNICATE WITH EMPLOYEES ABOUT THEIR FORM W-2S

If your employees are receiving paper copies only, communicate when they can expect to receive their Form W-2s in the mail. If you have the option to provide your employees with online access to their W-2s, let them know how they can access their copies.

FILE YOUR FORMS W-2

January 31, 2021 is the deadline to file Forms W-2 by paper or electronically.

FILE YOUR FORMS 1099-MISC

January 31, 2021 is the deadline to file your 1099-MISCs with a Form 1096.

Form 1099-MISC is the miscellaneous income form that employers must file for non-employees who are paid compensation of $600.00 or more (including fees, commissions, prizes, and awards) during the year. Forms 1099 are typically issued to contractors.

DISTRIBUTE W-2S AND 1099S TO EMPLOYEES AND CONTRACTORS

January 31, 2021 is the deadline to distribute W-2s to your employees and 1099s to contractors.

DISTRIBUTE 1095-CS TO EMPLOYEES

January 31, 2021 is the deadline to distribute Forms 1095-C to your employees.

PAY YOUR FUTA INVOICE

If additional funds are required for your Federal Unemployment, check with your payroll provider to see when your account will be debited.

ENd of February 2021

FILE FORMS 1094-C AND 1095-C

February 28, 2021 is the deadline to file paper Forms 1094-C and 1095-C. If you are filing electronically, you have until March 31, 2021 to file.

End-Year Tips

You’re Almost Done with Year-End Processing!

Make sure you distribute Form W-2s to your employees by January 31, 2021.

What’s Your Plan for ACA Reporting Next Year?

If ACA compliance and reporting was a headache this past year, make 2021 the year of change! Take the complexity out of ACA compliance and reporting with a solution that unifies your human capital management processes.

Are You Eligible for Disaster Assistance
and Emergency Relief?

Special tax law provisions may help businesses recover financially from the impact of a disaster. Depending on the circumstances, the IRS may grant additional time to file returns and pay taxes. Visit the IRS website for more information.

YEAR-END RESOURCES

Year-End Payroll Checklist
Use this checklist to keep track of your important year-end payroll tasks.

SUTA Wage Bases
Find out what your SUTA wage base is for the new year.

FUTA Credit Reduction States
Check to see if your state has a FUTA credit reduction.

Payroll Taxes: Rates and Changes
Stay up-to-date on payroll tax changes from year to year.

Minimum Wage Rates
Look to see what the current minimum wage rates are for each state.

ACA Reporting and Compliance
Use this handy guide for navigating the year-end ACA reporting and compliance.

APS SOlutions for your business

Benefits Administration with Carrier Connections - Easily conduct online enrollment, submit information to your plan providers, and adjust benefits plans as needed.
Manager and Employee Self Service - Save time and empower your managers and employees with online access to their payroll information.
APS Hire - Attract, hire, and onboard top talent with our recruiting and onboarding solution.

YEAR-END LINKS

HELPFUL ARTICLES

THE ONLY YEAR-END CHECKLIST YOU’LL EVER NEED

Keep track of all your monthly year-end payroll tasks with our handy checklist.

Get Yours Today

How APS Can Help

The APS Affordable Care Act Solution makes it easy to manage ACA compliance and reporting with features like part-time staff management, measurement period management, and e-filing of Forms 1094-C and 1095-C. Employees can also review and correct their data when needed with the APS employee self-service portal. HR managers can then review changes and commit them to employees’ records, saving critical time during year-end processing.

If your organization is not utilizing a benefits administration system, conducting open enrollment can be a challenge. APS Benefits Administration houses this necessary information in a truly unified database, making it easy to manage online open enrollment, multiple benefit plans, and reporting. 

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