What is contained in the U.S.A Payroll Year-End Checklist?

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The current checklist for Payroll Year-end consists of two sections that the employer must follow in order to plan and organize their obligations effectively.

Phase one is to be complete before the last Payroll of the current calendar year in addition to the normal verification procedures currently in place.

The phase involves the checking of both employee and employer indicative data that is used when processing the quarterly tax reports and W-2 forms. For ADP clients the document that is used must be the “Quarterly Tax Verification Letter”.  The employer must further indicate to which retirement plan as listed in box 13 of form W-2 the employee belong. Care should be taken to confirm employee names and social security numbers in the correct format as the IRS could impose a penalty for each W-2 submitted with incorrect or missing data. In the event of an employee that died the coding must be correctly completed.

Phase 1 also require that all wage, tax and benefit data is correctly entered and that all deferred compensation plans types is correct with the employee contributions. Group-term life insurance adjustments must be updated and submitted with any other applicable special tax items such as compensation, 3rd party sick pay, reimbursements for business expenses incurred and any applicable fringe benefits received by the employee. This includes tip allocation and dependent care benefits received.

The employer must further verify that the state unemployment insurance tax rebate and their taxable wage limit for the state in which they operate is correctly recorded. Any uncollected social security and Medicare taxes for former employees and those that retired in the year must be correctly computed. Additionally the employer must verify that any withholdings were made properly or withhold it from the final paycheck for taxable benefits such as the following; Group-term life insurance that is in excess of $50,000, any 3rd part sick leave, the employee using a company vehicle for private use, moving expense reimbursements that is non-qualified, where the employer provide either transportation or parking facilities to the employee, education paid by the employer that is not directly related to the work of the employee, bonuses received by employees as well as payments made not in cash. To complete this procedure the employer must check for any required backup withholdings and verify the amounts involved.

The final requirements of this phase is that the employer must schedule any special bonus payrolls for the current year and request special reports that may be needed to complete the Year-end procedures. Employers must ensure that the have adequate payroll supplies to complete the requirements for the current year and to begin the next year. This includes blank checks, payroll and W-2 forms. Employers must determine and ensure that all the adjustments are applied to the payroll or that they have an adjusted payroll scheduled. Employees must be reminded to complete their W-4 forms if any changes in their situation have occurred. To complete Advance Earned Income Credit the new forms called W-5 must be obtained. The employer must also account and update their paperwork with regard to all manual checks issued during the year and that all voided or reversed checks is accounted for in the system.

The second phase is after the last Payroll bur before the first payroll of the new calendar year where a check should be done on all employee and employer indicative data such as discrepancies in address and social security numbers. In cases of terminated employees the coding must be checked and they must be removed from the database. All terminated employees should have zero balances for loans, vacation and sick leave. All these items should have been discovered during the 1st phase of the Payroll where it was corrected or adjusted.

Additionally all data pertaining to wages, taxes and benefits must be checked to determine whether Earned Income Credit were submitted properly and coded correctly. Any discrepancies must be reviewed and include negative quarter and year-to-date fields as well as qualified pension coding entries. The new state unemployment insurance tax rate and the taxable wage limit must be verified for each state in which the organization has employees and if applicable verify the new state disability insurance rates and the taxable wage limits that may apply.

The employer must test tax withholding for social security for reasonableness in addition to Medicare withholding. The reasonableness of the employer’s matching Medicare tax should be double checked with the state unemployment insurance tax.

Comparisons of the payroll register totals against W-3, W-2 forms to the state must be verified against local report totals. Wages reported for each tax must be checked and reconciled if needed. This implies that taxes reported on W-3 should equal tax deposits on Form 941. Employers must further check contributions and distributions from section 125 with regards to child care and medical care. In the case of high earning employees checks should be made for excess contributions to qualified plans such as 401)k), 403(b) and the simple plans. All tipped employees must be checked for tip allocations and any employee tax or taxable blocks must have been removed that is not required for the New Year. Ensure that all requests from employees for fringe benefit deductions in the New Year is auctioned and finally confirm that the settings and clearing of special accumulators is in place for the New Year.

To conclude the requirements all special procedures must be checked and special bonus payroll must be scheduled. The New Year month-end close-out dates must be verified for accuracy and management reports must be scheduled for the New Year. Check that the correct weeks are scheduled and confirm that the schedule of pay dates or period ending dates do not fall on holidays or weekends.

Source Link: http://www.adp.com/tools-and-resources/compliance-connection/payroll-resources/year-end-checklist.aspx

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