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 deadline for employee copies of W-2 forms is January 31, 2011. The deadline for Form W-3 and copy A of the W-2 forms is February 28, 2011.
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 value of any personal use of company vehicles and add to wages only in Box 1 of Form W-2.
For S-Corporations, health insurance paid by the corporation for a 2% or more shareholders is included only in Box 1 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.
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