This year-end payroll checklist and guide can help you make sure your small business clients meet payroll tax deadlines and comply with payroll tax laws and start the new year strong.
How can I prepare my small business clients for end-of-year payroll?
The year-end payroll process may vary for each business based on size, industry and location. There are, however, many common steps to preparing a business for year-end payroll processing.
Use this payroll year-end checklist to help your small business clients.
Before the last pay period of the year:
- Verify business information. Ensure the information on file is accurate, including state and federal employer identification number (EIN), state unemployment account number(s), and business name and address.
- Ask employees to review and confirm their personal information, including full name, address and Social Security number.
- Remind employees to check their W-4 to make sure it is up to date and reflects their preferred federal withholding. You can also share the IRS W-4 tax withholding estimator tool so they can estimate the withholding amount that works best for them in the new year.
- Plan for additional payroll runs, including bonus and holiday checks.
- Estimate FUTA credit reduction, if applicable.
- Be aware of how Christmas and New Year's Day bank holidays may affect the payroll schedule.
- Run last payroll of the year before December 31.
- Review and update employee handbook policies.
After the final pay period of the year:
- Run a payroll summary report. Review payroll records and verify payroll tax withholdings, gross wages, net wages, deductions and other information.
- If you run payroll manually, you will need to order paper year end payroll forms. If you work with a full-service payroll provider, like SurePayroll(r) By Paychex, you’ll have to access the forms you need through your payroll account.
- Plan to complete and distribute W-2s to employees and 1099-NECs to contractors by January 31.
- Submit Form W-3 to the IRS, state’s revenue department and the Social Security Administration by January 31.
- Deposit and report FUTA (Federal Unemployment Tax Act) taxes.
- Deposit FICA taxes for the previous year.
- Before January 1, review and update tax rates and set any new wage base limits. This could include federal and state unemployment tax, Medicare, Social Security (also known as Old Age, Survivors and Disability Insurance or OASDI), and state employment taxes.
- Update any employee earnings or deductions before processing the first payroll of the year.
- Review worker’s compensation coverage and payouts to assess premiums.
- Review or start a small business 401(k) retirement plan for employees.
- Any end-of-year payroll taxes you owe are usually due by March 15. Pay them online via the IRS’ electronic federal tax payment system (EFTPS).
S-Corp 2% Health Insurance
If your client is set up as an S-Corporation and they own more than 2% of the company’s stock, their health insurance benefit needs to be treated differently. An S-Corp can provide health insurance to non-owner employees as a tax-free fringe benefit. However, if the company provides health insurance to employees, owners or shareholders that own more than 2% of stock in the S-Corp, the cost they pay for their health insurance is subject to income tax.
Therefore, your client needs to include the amount of the S-Corp shareholder health insurance premium in those employees’ taxable wages. If they haven’t done so yet, it’s important that this information is recorded in their payroll account by year-end. More year-end S-Corp 2% Health Insurance information can be found on the IRS website.
What year-end payroll forms do small business owners need?
In addition to Forms W-2 for employees and 1099-NEC for contractors, small business owners may also need to complete and submit the following year-end payroll tax forms:
- Form W-3: This form summarizes all the W-2 information the business filed.
- Form 940: Use this form to report annual Federal Unemployment Tax (FUTA) liability.
- Form 941: The employer’s quarterly federal tax return reports income taxes, and Social Security and Medicare withheld from employees’ paychecks. You also use this form to pay the employer’s portion of Social Security or Medicare.
- Form 944: If annual payroll taxes for Social Security, Medicare and federal income tax is $1,000 or less, the small business might be able to pay them annually with Form 944.
- Form 1095-B: This form is used by self-insured small employers to provide information on any health insurance you provide employees. You will give a copy to the IRS and your employees.
Simplify Payroll for Your Small Business Clients
Your clients trust you to guide them through their small business financial decisions. You can count on SurePayroll to simplify your success with services that can help you boost revenue and streamline client support.
You can be sure our dedicated reseller support team will be with you every step of the way, so you can be there for your clients.
Connect to see how easy it is to bring payroll to your small business clients with the SurePayroll Reseller Program.
