As one year ends and the new one begins, we want to help you best prepare your payroll in order to avoid penalties from the IRS and generally ensure that you do all the things you need to do the best for your employees. We have collected seven tips that will keep you in line with everything the government and your employees need. Let's dive in.
1. Process year-end W-2 adjustments
Even before you process your final payroll of 2019, you should verify that all income and taxes have been recorded so they are reported properly on W-2 and quarterly tax documents. Common W-2 adjustments include non-cash payments, employee-paid education not related to the job, third-party sick pay, use of a company vehicle or company-provided transportation/parking, or group-term life insurance greater than $50,000.
2. Process final payroll for 2019
Now that you've verified the accuracy of your W-2s, check with your payroll provider, check when the last day to submit final 2019 payrolls—avoiding penalties and other charges.
3. Process quarter- and year-end reports
By January 31, 2020, you should file Form 941—Employer's Quarterly Federal Tax Return—to close out Quarter 4. The 941 Form for any given quarter is typically due by the last day of the first month of the following quarter (e.g. January 31st).
4. Update contact information
Audit all employee data and ensure that you are not missing any information from W-2 forms like Social Security numbers, employee names, and addresses. For example, if an employee's name is hyphenated on their Social Security card but not on W-2 or 10995-C form, this is an error. The IRS may impose penalties for inaccuracies. Errors can add up and lead to a large penalty.
5. Prepare for ACA reporting
Determine if in the 2019 calendar year, you had 50 or more full-time and full-time equivalent employees. Also, determine what type of insurance you offered to those employees—self-insured or fully insured.
If you have 50 or more employees, complete and file 1094-C and 1095-C forms. If you have fewer than 50 employees and self-insure, you should fill out 1094-B and 1095-B forms. If you have fewer than 50 employees and fully insure, the insurer is responsible for filing on your behalf. Finally, if you have fewer than 50 employees and do not provide insurance, reporting is not required.
7. Check for excess retirement contributions
The IRS has increased limits on contributions to retirement plans for 2020. For 401(k), 403(b), and SIMPLE plans all see $500 increases from 2019. For 401(k)s and 403(b)s, the limit is now $19,500 and the SIMPLE plans is now limited to $13,500. These numbers are subject to change. If you give out performance or seasonal bonuses, they are included in these limitations.
7. Process all manual and voided checks
Any employee checks that were issued outside of the regular payroll schedule must be recorded and their tax liabilities paid in accordance with due dates. Confirm that all these checks have been accounted for and updated in your system. Voided checks should be recorded as well; treat these checks as unclaimed property and report them to the appropriate state agency.
2020 is a special year for payroll specialists. Not only does the Leap Year bring about the possibility of an extra payday (read more about that here), but the IRS has also unveiled a new W-4 form (backlink).