Now that the Q4 is finally here, stress levels are at an all-time high as you’re planning for the holidays and – if you’re running a business – completing year-end payroll. The process of year-end payroll is a complex one as it involves accurately calculating taxes, deductions to be withheld, flipping through paycheck records, and compensation. With so much paperwork in so little time, common mistakes are bound to be overlooked. Our payroll team at Trackforce Valiant has outlined some important tips for the year-end payroll process.
Year-End Payroll Tip – Review Employee Contact Information to Avoid Penalties
The first thing on your year-end payroll checklist should be to conduct an audit of employee information. This will prevent you from missing vital information on their W-2s such as Social Security Numbers (SSN), employee names, and addresses. A penalty may be imposed by the Internal Revenue Service (IRS) for every W-2 form with incorrect or missing Social Security numbers or employee names. If there are any oversights, you will incur the following penalties:
- $50 per W-2 form filed within 30 days of the due date with a maximum penalty of $194,500 for small businesses, and $556,500 for large businesses with gross receipts of more than $5 million.
- $110 per W-2 form filed after 30 days from the due date with a maximum penalty of $556,500 for small businesses, and $1,669,500 for large businesses.
- $270 per W-2 form filed after August 1, 2020, or not at all with a maximum penalty of $1,113,000 for small businesses, and $3,339,000 for large businesses.1
Did You Know: You can validate social security numbers for current or former employees online or over the phone? To verify an employee’s social security number via the internet, go to The Social Security Number Verification Service (SSNVS). Information regarding verification by phone can be found at the Telephone Number Employer Verification Service (TNEV).
Additional Reporting Items on Form W-2
Employer Medical Reporting (W2 Box 12-DD) : Beginning with the tax year 2012, and going forward, employers are required to report the total cost of medical insurance for their employees on the annual federal wage reporting Form W2 in Box 12-DD. The amount that should be reported is the total of both the employer and employee contribution Please note that this is a requirement for employers filing 250 or more W2s from the prior calendar year. This is optional for employers filing less than 250 W2’s from the prior calendar year.
*For more information, please refer the IRS website @ https://www.irs.gov/affordable-care-act/form-w-2-reporting-of-employer-sponsored-health-coverage
Fringe Benefits: Any taxable cash or non-cash benefit, for example, personal use of company cars (PUCC), must be included on Form Please report these benefits before the last payroll for the year. Reporting taxable benefits with cash wages allows the appropriate withholding taxes to be deducted from the employee’s check. If these amounts are processed without wages, you may be required to pay the employee’s portion of social security and Medicare taxes.
Group-Term Life Insurance (W2 Box 12C) : Please report the value of group-term life insurance in excess of $50,000.00 before your last payroll for this year. The value is based on an IRS-published table that assigns a value for each $1,000.00 of excess coverage per month based on the employee’s ag The value of group-term life insurance in excess of $50,000.00 that is included in total wages is FICA taxable, even if the insurance was provided through a cafeteria plan. As the employer, you are liable for the employee FICA if you decide not to withhold it from the employee’s pay. If you need to report group-term life insurance information for a terminated or retired individual, please contact your payroll consultant.
Dependent Care (W2 Box 10): Employers are required to report the total amount of dependent care benefits paid or incurred for the employee, including any amount in excess of the $5,000.00 exclusion. If you provided dependent care services to employees under an employer-sponsored program before your last payroll for the year, please report the benefits paid or furnished to your payroll team.
Flexible Spending Accounts (FSA) (W2 Box 14 optional): Contributions made to an FSA are pretax and are used to pay non-reimbursable health and dental costs.
Paid Family Leave (Box 14 Code PFL): Employers deducting premium amounts for Paid Family Leave Law during 2019 must report the amount deducted on the employee’s W-2 in box 14.
Prep for ACA Annual Reporting with Year-End Payroll Reports
Next, verify the number of full-time or full-time equivalent (FTE) employees in the previous calendar year and what type of coverage was provided, whether they were fully insured or self-insured. These are crucial year-end reports for payroll. An FTE calculator can help you determine the number of full-time and FTE employees that worked in the previous calendar year. Using the total and the type of insurance provided, decide which forms you must fill out to report:
- Complete and file 1095-C and 1094-C forms for 50 or more employees
- Complete and file 1095-B and 1094-B forms for less than 50 employees (Self-Insured)
- Insurer is to file on behalf of the employer with less than 50 employees (Fully Insured)
- Reporting isn’t necessary for less than 50 employees with No Insurance 2
Processing Final 2019 Payroll – A Checklist
When you are looking to finalize payroll for the year’s end, there is a lot that you need to know as an employer. Trackforce Valiant is not only a workforce management software provider, but we are also a trusted advisor that helps businesses. This checklist will help you to understand what you need to report and verify before submitting final payroll for the year:
Please make sure to verify these items before the end of 2019: Has this information been reported?
- ✔ All manual checks issued
- ✔ Voided checks
- ✔ Third-party sick pay insurance benefits
- ✔ Employee pension information
- ✔ Group term life adjustments
- ✔ Compensation adjustments paid to employees that need to be included on employee Form W2 (e., charitable contributions, union dues)
- ✔ Any premiums for health and accident insurance paid by an S corporation on behalf of 2% shareholder/employees
- ✔ Taxable cash and non-cash fringe benefits (i.e., personal use of a company car)
- ✔ Any dependent care services provided to employees under an employer-sponsored program
- ✔ Total cost of Employee Medical Insurance
Has this information been verified?
- ✔Employees’ names and addresses
- ✔Employees’ social security numbers (SSN’s)
- ✔1099 payees’ SSNs or taxpayer ID numbers
- ✔Identification numbers for state and local agencies on each return.
At Trackforce Valiant, we pride ourselves on informing customers and potential customers about various payroll methods. With the holiday season right on our heels, there’s a lot of pressure to make sure year-end payroll is done right and on time. You’ve got this! If you’d like to learn more about what to add to your year-end payroll checklist, get in touch with a member of our team today for further assistance.
Sources: Internal Revenue Service – Increase in Information Return Penalties  Internal Revenue Service – Information Reporting by Applicable Large Employers