Preparing Payroll for Year-End

Frequently Asked Questions

Posted on October 27, 2011

December and January are very busy months for payroll processing. As one year comes to a close and the new year begins, several payroll-related tasks need to be accomplished by employers. Some activities need to occur prior to the new year and others after the new year has begun.

In an effort to organize payroll activities and plan for the new year, several questions may arise:

What do I need to do before my last payroll of the year?

• Confirm accuracy of current data - It is important that all employee information is checked for accuracy and updated if necessary. Employee names, addresses and Social Security numbers (SSN) are information required on Form W-2 that must be updated prior to the final payroll processing for the year. Incorrect or mismatched employee names or Social Security numbers can result in penalties imposed by the Internal Revenue Service (IRS) as well as some states. (If an employee does not have an SSN, information on how to apply for a Social Security number is available through the Social Security Administration’s website.) It is recommended to have each of your employees verify that their SSN is recorded correctly in your system. SSNs can also be verified online through the Social Security Number Verification Service or through E-Verify on the U.S. Citizenship and Immigration Service’s website. 
• Employer identification numbers (known as EIN or FEIN) should be checked for accuracy. Please note that tax identification numbers (TIN) should not be used for payroll purposes. Information regarding EINs and how to apply for one can be found in IRS Publication 1635.
• Schedule any special or bonus payrolls.

• Ensure that all year-end adjustments are recorded in the payroll.

• Review federal holiday schedules and adjust your payroll date(s) as necessary.

• Verify that proper withholdings for taxable fringe benefits have been made.

What do I need to do after my last payroll of the year, but before the first payroll of the new year?

• Inform employees of the need to complete a new Form W-4 if their taxing situation has changed or if they are claiming exemption from federal withholding in 2012. Some employees may also need to complete a state Form W-4 if they claim differently for federal versus state withholdings.
• Make any necessary changes to employee deductions for benefits such as medical, dental, 401(k), life insurance, etc.
• Verify that any extra taxing or blocked taxes that are no longer desired have been removed.

It is also recommended that you verify your state unemployment tax rate as soon as possible, but no later than the end of the first quarter in the new year. In the last few years, state unemployment tax rates have changed dramatically in some states. Be sure to check with your state to ensure that you are calculating this tax at the appropriate rate for 2012.

My pay period end date is December 30, 2011. My pay period check date is January 5, 2012. In what year do I include these wages on Form W-2?
Wages are reportable in the year in which they are actually received (i.e. check date of January 5, 2012). Therefore, these wages should appear on the Form W-2 for the 2012 tax year.

When do I need to mail Form W-2 to my employees?
By federal law, all Forms W-2 must be postmarked on or before January 31 of each year for the previous year’s data.

An employee has requested a duplicate copy of his W-2. Do I need to create a new one?
If an employee’s Form W-2 has been lost, destroyed or misplaced, you may make a copy of that employee’s W-2 from your employer reference copy. Type “Reissued Statement” at the top before presenting it to the employee.

I have a worker who is an independent contractor, not an employee. Do I need to issue a Form 1099 to this worker?
Earnings of $600.00 or more must be reported to the IRS through Form 1099 for all nonemployees. Earnings less than $600.00 are not required to be reported.

CompuPay is one of the leading payroll, tax filing and HR-related service providers in the country. For 30 years, we have established relationships with thousands of accounting professionals, allowing them to better attract, serve and retain business clients.

The material contained in this document is for informational purposes only and is current as of the date of publication. CompuPay is not a legal advisor or financial advisor and makes no claims as such. For financial or legal advice, please seek the advice of a professional.

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