One year is ending and another is beginning. It’s a time for wrapping tasks up and starting new things—including your payroll. At the end and beginning of each year, there are certain payroll requirements you must complete. To help you stay on top of your responsibilities, use a year-end payroll checklist.
Year-end payroll checklist
You know the saying—out with the old and in with the new. But, you can’t do that in your business if you don’t wrap up your payroll at the end of the year.
Use our end-of-year payroll checklist to complete all your payroll tasks on time and set your business up for a successful new year.
For your convenience, we’ve split up our checklist into two groups: year-end procedures you need to finish before the new year and things you should do at the beginning of the new year.
Take a closer look at your responsibilities by learning more about each task of the year-end checklist for payroll.
Before the end of the year
Don’t enter a new year with disorganized records and loose ends. Make sure you complete the following tasks before your New Year celebrations begin.
1. Confirm employee information
Is all of your personal employee information correct? Make sure your records accurately convey each employee’s:
- Full legal name
- Social Security number
- Current address
- Other contact information
You should already use this information when you run payroll. But if there are any mistakes, you must correct it before distributing a W-2 form to each employee.
A missing or incorrect name or Social Security number can lead to penalties.
2. Make sure you recorded all paychecks
Did you correctly record all paychecks from the year? Hopefully. If not, you need to update your records.
Include all payments for commissions, bonus pay, or anything run outside of the normal payroll (e.g., retro pay).
Don’t forget to include handwritten checks. And, make sure you accurately recorded any voided paychecks you had throughout the year.
3. Verify employee wages, benefits, and deductions
Make sure you have the correct pay rate listed for each employee. Double-check each employee’s benefits and their deductions (e.g., child support withholding).
4. Look up time off balances
If you offer employees paid time off (PTO), you need to know how much time they have used and have left.
Find out if employees want to roll over their accrued time off or cash it out, depending on your policy. Or, if you have a use-it-or-lose-it policy, notify employees of when they need to use it by. Keep in mind that there are PTO payout laws by state you must follow.
5. Order Forms W-2 and W-3
Make sure to order Forms W-2, Wage and Tax Statement, and W-3, Transmittal of Wage and Tax Statements, as part of your year-end payroll checklist.
You can buy these forms from the IRS or another authorized provider. You will need to distribute both forms in the new year, explained later.
6. Get updated labor law posters
Get updated labor law posters to hang up next year. You must meet both federal and state labor law posting requirements.
You might need posters for things like the:
- Employee Polygraph Protection Act (EPPA)
- Fair Labor Standards Act (FLSA)
- Occupational Safety and Health Act (OSHA)
The U.S. Department of Labor poster advisor can help you determine which federal posters you need. Be sure to also check state and local laws.
7. Check your tax rates
Tax rates and wage bases are subject to change annually. Check your tax rates for federal, state, and local taxes, including:
- Federal income tax
- FICA tax (Social Security and Medicare taxes)
- Federal unemployment tax (FUTA tax)
- State income tax
- State unemployment tax (SUTA tax)
- State-specific taxes (e.g., Oregon transit tax)
- Local income tax
In addition to checking up on general tax rates, you should also find out if there are new wage bases in the upcoming year. Pay attention to Social Security, SUTA, and state-specific tax wage bases.
8. Ask employees to review withholding allowances
Although employees can typically change W-4 forms at any time, you should encourage them to review their withholding allowances at the end of the year.
Employees indicate their withholding allowances from federal income tax on Form W-4. Generally, employees will need to fill out their state W-4 form for state income tax withholding.
9. Determine your deposit schedule in the new year
What is your next year’s deposit schedule for payroll taxes?
You must pay these taxes on a monthly or semiweekly basis. Your deposit schedule is based on a lookback period.
Your deposit schedule can change every year, so make sure you determine your schedule before the beginning of the new year.
After the new year
Your payroll year-end checklist doesn’t finish when one year ends. Some tasks carry over into the next year.
Take a look at the following things you’re responsible for in the new year.
1. Update your payroll
Once you’ve gathered information from your employees about new withholding allowances and deductions (e.g., health insurance policy), make sure to update your payroll.
If you’re doing payroll by hand, be sure to account for any new tax rate changes. Using a previous year’s income tax withholding tables or Social Security wage base will throw off your payroll in the new year.
Make sure all of your information is correct when you run the first payroll of the year.
2. Distribute Forms W-2 to employees
Give a Form W-2 to each employee by January 31. Employees will use this to file their individual tax returns.
3. File Forms W-2 and W-3 with the SSA
You also can’t forget to send Forms W-2—along with Form W-3—to the Social Security Administration (SSA). If applicable, you also need to send the forms to state and local governments.
The deadline for filing Form W-2 with the SSA and state and local governments is January 31.
4. Deposit and report taxes
Another part of your payroll year-end process should be to deposit and report FUTA, federal income, and FICA taxes from the previous year.
File your FUTA tax return—Form 940—by January 31. Your fourth quarter FUTA taxes are also due by January 31.
You must also file your federal income tax and FICA tax returns in the new year. You will either use Form 941 or 944, depending on how often you must file. Both the quarterly Form 941 tax return and the annual Form 944 are due by January 31.
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This article has been updated from its original publication date of December 18, 2014.
This is not intended as legal advice; for more information, please click here.