Are you having year-end nightmares or fringe benefits anxiety attacks? Are you dreading those brutal wage and tax reconciliations that come with year-end balancing? Relax! Incorporating the following year-end “best practices” and reminders into your planning process will help overcome some of these year-end challenges. Wage & tax discrepancies. Many payroll professionals find that the most crucial part of year-end is ensuring that all wages and taxes are in balance. If wages and taxes aren’t in balance, then W-2 forms are inaccurate. Who wants to ring in the New Year correcting W-2 forms? Why not get them right the first time around? To ensure that wages and taxes are in balance, you should start your reconciliations before the 4th quarter, especially before your final payroll is processed. Adjustments to wages and taxes should be made as discrepancies are discovered. Best practice is to correct them in the same payroll that they are discovered or no later than the next payroll cycle. Finding the error that has caused the discrepancy is much easier in the current cycle rather than waiting months after the error has occurred.
Some common errors that may cause wage and tax discrepancies include:
• Reporting tips on employees with no wages for the current pay period
• Negative wages/taxes
• Misrecording taxability of deductions or benefits
Fringe benefits taxation. This is one of the most talked-about subjects at year-end in the payroll world and probably the most stressful. But fret not, the IRS provides plenty of guidance on this subject. See IRS Publication 15-B, Employer’s Tax
Guide to Fringe Benefits. Trying to collect the data needed from other departments, vendors, and administrators is a task in itself, so start early and get the documentation that you need. Verify that deductions are correctly applied to the applicable tax
able wage categories. If deductions are applied incorrectly, you will have wage and tax errors, resulting in inaccurate W-2 forms. So tax it right! Employee Information. Verify social security numbers, names, and addresses. Be sure to request that all employees verify the accuracy of their SSN, name, and address before you prepare W-2 forms. An incorrect social security number can result in penalties imposed by the IRS as well as some state governments. Check with the Social Security Administration to be sure employee names and social security numbers match and are accurate. See the SSA’s Business Services Online section for more information. Deceased Employees. Confirm that deceased employees are properly coded. W-4 Form-Employee’s Withholding Allowance Certificate. Remember to have your employees fill out a new W-4 (and state form, if applicable) if their tax situation is changing for 2015. Employees may complete W-4 forms at any time, and the end of the calendar year is a good time to remind them to review their W-4s to make sure the information is accurate and the amount they want withheld for federal income taxes is accurate. If your state requires income tax, employees should also check their state’s income tax withholding form for changes and withholding amounts. As a reminder, employees can change their W-4 forms as often as they want throughout the year, just not more than once for any one paycheck, of course. Deductions. Verify that all of your company deductions are properly mapped to the appropriate W-2 boxes. Box 12 has multiple codes per the IRS Reference Guide. Additional information on W-2 box assignments can be found on the IRS website, www.irs.gov. Before you visit the site, you should consider asking the appropriate department-specific questions regarding certain deductions.
• Should the Retirement Plan box be marked for Box 13 of the W-2?
• How will imputed income for GTL be tracked and calculated? Will terminated employees be handled any differently than active
• Are moving expenses qualified or non-qualified?
• Did anyone receive any non-cash compensation?
• Will the employer be preparing the W-2 and reporting/filing taxes for third-party sick pay or will the third-party vendor do so?
• Are we tracking the aggregated cost of healthcare benefits (employer and employee costs)?
These are all questions that must be answered prior to running your last payroll of the year.
Federal/State Tax. Review all wages of $200,000 or more and validate that the Medicare tax rate of 2.35% was
applied to those wages. Also, review those states that have yet to pay back their federal unemployment loans taken in previous years to pay unemployment claims. The Department of Labor released a preliminary listing of these states, which can be found on its website. The final list will be posted in November. These states’ federal unemployment credit will be reduced, thus resulting in employers having to pay additional FUTA tax for all employee wages up to $7,000. You should determine right away how this will affect your company so that there are no big surprises at year-end.
Finally, don’t let your year-end chores put a damper on your spirits. Be prepared and stay on top of those wage and tax reconciliations. Fight off those evil fringe benefits spirits with help from the IRS. Prepare a year-end checklist of all the things for which you need reminders. Remember, the sooner you start to prepare, the better. In no time, you will be ready to take on those year-end challenges. No more 2014 year-end nightmares, only sweet dreams of 2015.
Tonya Caldwell, CPP, is Director of Payroll & HRIS for CBC Restaurant Corp. in Dallas and a member of APA’s Board of Contribu
ting Writers and Certification Advisory Group.