Year-End Payroll Guide

Audit employee data to ensure you do not miss 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

Furthermore, employee information on Forms W-2 and 1095-C must match 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. Employers can garner updated addresses from a new W-4 if an employee’s 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 that 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

Form 940 Filing Deadlines

Submit Form 940 for Federal Unemployment Insurance (FUTA). The FUTA tax rate is 0.6 percent, which applies to the first $7,000 in wages you paid each employee during the year. However, if you did not pay your state unemployment taxes on time, your FUTA rate will increase to 6.0 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 must deposit at least one quarterly payment. View the IRS's Publication 940 Employer's Annual Federal Unemployment (FUTA) Tax Return for more information.

Something to Consider: If your company is filing 250 or more Form W-2s, the Social Security Administration (SSA) requires electronic filing unless granted a waiver. 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.

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. Using 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 how you report, you will need to compile data, including:

• 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 some instances).
• The months in which a safe harbor (or other situation) applied (i.e., the employee was not a full-time employee)

ACA Annual Reporting Deadlines

*In the past, the IRS has extended the January 31 deadline by 30 days.

How APS Can Help

APS’ Affordable Care Act solution makes it easy to manage ACA compliance and reporting with features including part-time staff management, measurement period management, and e-filing of Forms 1094-C and 1095-C.

Veteran’s Day is Thursday, November 11, and a federal holiday. Adjust your payroll processing accordingly to prevent delays.

Review employee classifications regularly to ensure compliance. Refer to the duties tests and guidance provided by the Department of Labor to manage your employee classification.

Before you process your last payroll of 2021, verify you have recorded and properly taxed all non-cash and cash income on the W-2 and quarterly 941 tax return. Typical W-2 adjustments include:

• Group-term life insurance over $50,000
• Personal use of a 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 adjusting a W-2 record to reflect this amount is relatively easy, it’s best to include it with a payroll run. This process ensures reporting 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.

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

*Subject to change.

Record any employee checks issued outside the normal payroll process and pay their tax liabilities on the applicable due dates. Confirm that all "manual checks" cut during the year have been accounted for and updated. Likewise, record all voided checks.

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 2021.
• Confirm that all voided checks have been recorded.
• Report uncashed checks to the appropriate state agency as unclaimed property.

If your company operates in a state subject to higher taxes under FUTA, you will pay higher FUTA taxes per employee. It is essential to plan now for the funding of this additional tax. You can view an estimate of your total FUTA payment by checking your 2021 IRS form 940. For current FUTA credit reduction information, visit our website.

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. These 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 2021 to your payroll provider no later than December 31, 2021. You can use the third-party sick pay statement you received from your carrier for reporting purposes.

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 allowing the employee to use a business vehicle for personal use. Any fringe benefits you provide are taxable and must be included in the recipient's pay unless the law expressly excludes it.

You must report the value of fringe benefits as taxable income unless the law expressly excludes it. Fringe benefits are subject to taxes, and employers must include the amounts on Form W-2 in boxes 1, 3, and 5. The amount will also be listed as a memo in box 16.

Thanksgiving Day is Thursday, November 25, and a federal holiday. Adjust your payroll processing accordingly to prevent delays.