Merry Christmas! It is that time of year where thoughts turn towards friends and families and how much our lives are truly blessed by their presence. As business owners your thoughts should also be turning towards year-end bonuses and the dreaded W-2 filing and those pesky 1099 Misc forms!
Make sure to run all bonuses paid to employees through normal payroll processes to ensure appropriate payroll taxes are withheld and paid in a timely manner. Bonuses are subject to 25% federal withholding in most cases but please check with your tax professional if you have any questions or concerns.
• The following procedures are performed to ensure all amounts reported on Forms W-2 and Form W-3 match what was reported during the year on your quarterly payroll filings. Form W-3 is the total of all Forms W-2.
• The sum of line 2 for the four quarters on Form 941 should balance to the amount appearing in Box 1 of Form W-3.
• The sum of line 5a for the four quarters on Form 941 should balance to the amount appearing in Box 3 of Form W-3.
• The sum of line 5c for the four quarters on Form 941 should balance to the amount appearing in Box 5 of Form W-3.
• Test reasonableness of Social Security wages and withholdings (multiply Box 3 from Form W-3 less excess wages by 6.2%).
• Test reasonableness of Medicare wages and withholdings (multiply Box 5 from Form W-3 by 1.45%).
Additional year end payroll considerations.
• Verify all taxable benefits are included in Forms W-2.
• Compare individual employee amounts from the payroll register totals to Forms W-2.
• Box 14 of Form W-2 may be used to report contributions to Section 125 (Cafeteria) Plan for childcare and medical care.
• Check for excess contributions to qualified plans (401(k), SIMPLE, etc.).
• Calculate any personal use of company vehicles and add to wages in Box 1 only of Form W-2.
• For S-Corporations, health insurance paid by the corporation for a 2% or more shareholder is included in Box 1 only of Form W-2.
• The employee name on all payroll reports should match what appears on the employee’s Social Security card. If you are unsure of a number or want to verify that you have correct numbers you can go to http://www.ssa.gov/bso/bsowelcome.htm and register with SSNVS.
The deadline for employee copies of W-2 forms is February 1, 2010. The deadline for Form W-3 and copy A of the W-2 forms is March 1, 2010.
There are numerous 1099 forms that can be issued at year end. We are only addressing the most common, which is form 1099-MISC, as well as the most common payments reported, which are rents and subcontractors payments. According to our resources 1099 audits are on the rise so please make sure you file these important forms! The deadline for recipients of Form 1099-MISC is February 1, 2010. The deadline for Form 1096 and Copy A of the 1099-MISC is March 1, 2010.
• All vendors, except corporations, paid $600 or more for services and/or rent should be issued a 1099-MISC.
• Attorneys should be issued a 1099-MISC for any and all payments made to them, regardless of the dollar amount.
• It simplifies the year-end process if you submit a Form W-9 to all vendors during the year to receive confirmation of their federal ID number and the type of entity before issuing them payment. If you do not have a Form W-9 from these vendors the IRS could consider you an employer of this vendor which would make you liable for taxes to be withheld and remitted at 28%.
• Prepare a final 2009 backup of your software and put in a safe place.
• Remind employees they need to file a new W-4 by handing out new W-4s with final payroll of 2009.
• Verify that employee requests for fringe benefit deduction changes for the new year have been applied.
• Change withholding tables and social security limitations in your software either manually or through the update provided by your software company.
• Verify your 2010 state unemployment rate and make necessary changes.
Verify your lookback period to make sure you haven’t changed from a monthly depositor to a semi-weekly depositor. The lookback period for 2010 is from July 1, 2008 to June 30, 2009. Add the total taxes (line 8 of Form 941) you reported during the lookback period. If the total amount is $50,000 or less you are a monthly depositor, if the total amount is more than $50,000, you are a semi-weekly depositor.