Don’t forget to update your payroll year-end information as the end of the year approaches and consider how your total workforce management service fits into the process. Below, we provide a year-end payroll checklist you can use to stay on track as you finalize payroll activities and set compensation and benefits for 2023.
When it comes to end-of-year payroll, it’s easy to miss some important steps. It’s the little things that can turn into big things — which matters, especially if you’re not staying on top of them.
For instance, 2023 tax-bracket changes could increase some workers’ take-home pay, with bracket thresholds going up by 7 percent due to inflation adjustments. “Because inflation is higher than at any time in the past four decades, tax code adjustments are unusually high as well. Assuming all else stays the same, this means workers will see higher take-home pay starting in January.”
That’s only one of multiple checklist to-do’s. It’s easy to overlook the transition between the last payroll period of any calendar year and the first payroll of a new year. That’s why year-end guidance can help you make sure you don’t forget anything.
Year-End Payroll and Total Workforce Management
During the fourth quarter of the calendar year and into the first quarter of the following year, you should review and verify your financial information to prepare for tax season. Any business or organization is responsible for year-end payroll tasks, including:
- Making sure you’re prepared for local, state, and federal employment regulations that might affect your business.
- Making sure you track all payments correctly in the new year by reviewing relevant tax documents.
- Irrespective of your state or local tax department, you’ll need to file forms with the Internal Revenue Service (IRS), the Social Security Administration (SSA), and any other tax agencies you’re dealing with.
- Calculating taxes, employee compensation, and deductions to withhold from employee paychecks.
This end-of-year task is just one great element of a total workforce management system. As all businesses must deal with payroll, automation is key. It’s the single-most important HR function. You should automate certain basic payroll processes by setting up those that monitor hours worked and pay employees automatically.
Nonetheless, just as important is end-of-year payroll duties. It’s all integrated from a yearly operational perspective.
End-of-Year Forms: What Do You Need?
The SSA and the IRS require employers to send wages and tax information to employees and contractors by the end of January. Here are some of the year-end forms commonly needed: Form W-2; Form W-3; Form 1099-NEC; Form 940; Form 941; Form 944; and Form 1095.
Filing Duties and Total Workforce Management
Be sure not to miss payroll year-end deadlines for submitting forms and taxes. Depending on your state, business size, industry, and a few other factors, most businesses will have to file (or fill out):
- A Business tax return by March 15 for partnerships, LLCs with multiple members (limited liability corporations), and S-corporations, or April 17 for corporations — depending on your business structure.
- W-2s and W-3s by Jan. 31 for employees.
- 1099-NECs, if applicable.
- Form-940 and fourth-quarter FUTA taxes by Jan. 31 (Federal Unemployment Tax Return).
- Quarterly Form-941 or the annual Form-944 by Jan. 31.
Don’t forget that year-end payroll taxes need to be prepared well in advance as you tailor your total workforce management solution to your specific needs. Keeping up-to-date payroll records is always a good idea to help you meet deadlines and simplify these tasks.
Prepare for the Final Payroll of This Year
Payroll preparation involves a lot of steps. Even before your last payroll check is processed, here’s what you can do now to get ready for the end of the year:
- Decide what your compensation will be next year. If your employees are getting raises, you may want to take that into account when you prepare your budget. After you factor in costs like employee compensation and payroll taxes, the amount you offer depends on how much you can afford. As an employer, you’ll have to pay more FICA taxes in 2023 since the Social Security portion of FICA will be $155,100 (Federal Insurance Contributions Act). This means you’ll be paying 6.2 percent more. You should check your state and local minimum wage increases for 2023 for non-exempt employees. For exempt employees in some states, businesses should check if salary thresholds have changed that require adjustments.
- Make sure the business information is correct. You need accurate business information on file for tax purposes, so now is the time to make sure they’re right. Verify your company name and address, along with your state and federal employer identification numbers (EINs). The same goes for your state unemployment account number.
- Examine bonuses at the end of the year. Some companies give bonuses to their employees every year. You can deduct bonuses, but when? You have a few options if you report income and expenses on a calendar year. You can deduct bonuses when you pay them if you’re a cash-basis business. It’s deductible for 2022 if you pay bonuses in 2022. Paying 2022 bonuses in 2023 is deductible in 2023. When you’re an accrual-basis business, bonuses declared (and accrued) before the end of the year are deductible this year if they’re paid within two-and-a-half months of the year’s end (as long as the employee is employed on the bonus declaration date, not on the bonus payment date). S-corporation employee-shareholder bonuses, however, are not deductible until they’re paid. For owner-employees in a C-corporation, bonuses are deductible only if they’re paid to a personal service corporation or the majority owner (more than 50 percent owner).
Also, your total workforce management system should align with how the company’s benefits policies are managed and communicated. Employees’ 2022 benefits may expire at the end of the year. Think about your company’s policies for these benefits and tell your employees about:
- Medications and dependent care that are covered by flexible spending accounts (FSAs).
- Time-off for vacation, sick days, or personal leave.
Get Ready for First Payroll of a New Year
- Initiate next year’s payroll schedule, and review the upcoming payroll year.
- Finish up your tax, wage, and benefit paperwork.
- Take care of payroll tax forms and deposits with the IRS at year’s end.
- Administer changes to the minimum wage in your state/locality.
- Manage tax forms like W-2s, W-3s, and more.
- Make sure employees’ identifying information is correct.
- Decide what payroll policies you’ll use next year.
- Send all employees their W-2 forms on time.
- Keep track of all your paychecks.
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