2020 Year-End Payroll Process

End-of-year payroll can be a daunting process, this year it is especially draining due to COVID-19 and the disruptions in business processes. Creating a payroll strategy early will help ease stress and may save your company time and money.

Closing out year-end payroll begins in October by verifying information and ends by January 31st with W-2 distribution and filing the correct forms with the government. It is crucial to keep detailed and up-to-date records throughout the year so that year-end payroll goes as smoothly as possible, avoiding delays and penalties.

Verification

Initiate this process by verifying all company and employee information.

Company Information Verification

Begin by making sure all of your company's information is accurate and up-to-date. Verify the company name, tax ID, and tax information to confirm all are entered and spelled correctly. This year, if you made any changes due to COVID-19, double-check this information is accurate to avoid filing disruptions and delivery delays.

Employee Information Verification

Next, you will want to confirm that all of your employee information is up to date. Check the following for errors and any missing information:

• Name and address

• Social Security Number

• Lived-in and worked-in jurisdictions

• Email addresses

W-4 Update

If any of your employees married, divorced, had children, or moved, make sure to have them fill out a new W-4 to ensure employee information is accurate. Any discrepancy may lead to a reprint of W-2 forms and subsequently incurring fees.

Correct Social Security Number

To ensure employees recorded their correct social security number (again, to avoid unwanted fees), check Social Security's records through their website at https://www.ssa.gov/employer/ssnv.htm

The final verification step is to confirm accurate wages, taxes, and benefits against payroll records; before December 31, update any discrepancies or omitted totals before the final payroll of the year. Failure to do so will make it difficult to modify these amounts once employee's W-2's are printed, and the current payroll tax year has been closed.

Analyze the following for accuracy:

• Yearly PTO accrual

• Worker status

• Filing Status

• Number of exemptions

• Year-to-date wages and taxes

• Pre-tax amounts

Payroll Reports and Forms

Multiple forms will be needed for auditing, adjusting, and year-end closing. Get a head start by ordering these forms in December. Some forms, like the W-2, for example, take ten business days to mail. Make sure you have all of the following:

• Quarterly and Annual Earnings

• Payroll Tax Report

• State Quarterly Returns

• 941 Quarterly Return

• Employee W-2

• Company W-3

• Vendor 1099

Covid-19

If your company was affected by COVID-19, make sure all Covid Response Act information is filled out correctly.

The Coronavirus Aid, Relief and Economic Security (CARES) Act, the Families First Coronavirus Response Act (FFCRA), and the Paycheck Protection Program (PPP) wages have to be tracked differently than wages and benefits are typically tracked.

If your company took advantage of Social Security deferral, it's essential to track how much and when you will need to pay it back. Record all this information on the 941 and 7200 forms. For further information, visit IRS Covid-19

Year-End W-2 Adjustments

All cash and non-cash income must be recorded and appropriately taxed before the last 2020 payroll is processed. Make sure retirement contributions are not in excess. Also, account for manual checks written, record all voided checks, and report any uncashed checks. Failure to do so will result in running an off-cycle payroll and charged with government agencies' penalties and interest.

Standard W-2 Adjustments

There are W-2 adjustments that may need to be updated. They are as follows:

• Taxable group-term life insurance over $50,000

• Personal use of a company vehicle

• Third-party sick pay

• Company provided transportation and/or parking

• Reimbursed moving expenses

• Non-accountable business expense reimbursements or allowances

• Bonuses and other incentive pay

• Employer-paid education not related to the employee's job (5,250 is the Federal Limit)

• Non-cash tangible payments

Benefits and the Final Payroll

PTO

Review your company's PTO policy. Some companies grant PTO as one lump sum, and others distribute it throughout the year. Determine which your company does. Examine unused time and whether or not PTO resets in January. Also note, some states have mandates on whether or not a company can clear employees PTO at the start of the following year.

Bonuses

If your company gives bonuses to employees, distribute this payment with the last paycheck of the year. Record all bonuses remitted. You will need this information for tax purposes.

Final Payroll

Once information is updated, company and employee reports run, forms filled out, adjustments made, benefits reviewed, and bonuses paid, it is time to process the year's final payroll. Ask your payroll provider when the last day to process payroll for the year is, to avoid any penalties or interest charges.

Update, Print, and File

Before First Payroll of 2021

After you process your final payroll of the previous year, do the following before the first payroll of 2021; check for new tax rates, reset or carry over PTO, review and update all employee deductions, and adjust employee information if necessary. Verify annual limits, report health coverage information to the IRS, and review state minimum wage changes for 2021.

Notify employees of any impact on their paycheck.

File, Print and Distribute

After all the needed updates are complete, it's time to file, and print and distribute W-2s. The forms include:

• W-2, W-3, and 1099 forms

• 940 (FUTA)

• 941 (FICA)

• 944 (Paid payroll tax return)

At the end of the payroll year, follow up with a post-year-end evaluation of how the process went. Make a list of action items for year-end 2021 to make the subsequent year-end payroll run smoothly.

As 2020 draws to a close, preparation is key to successfully and smoothly ending the payroll year. We hope these tips help guide you over the upcoming weeks, and if you need payroll help, we are here and available to suit all your payroll needs. Contact us at 855-554-8997 or info@cornerstonepayrollconsulting.com