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, 2012. The deadline for Form W-3 and copy A of the W-2 forms is February 29, 2012.
- 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 W3
- The sum of line 5a for the four quarters on Form 941 should balance to the amount appearing in Box 3 of Form W3
- The sum of line 5c for the four quarters on Form 941 should balance to the amount appearing in Box 5 of Form W3
- Test reasonableness of Social Security wages and withholdings (multiply Box 3 from Form W-3 less excess wages by 4.2%).
- 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 and 16 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.
There are numerous 1099 forms that can be issued at year end. We are only addressing the most common form, 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 delivery to recipients of Form 1099-MISC is January 31, 2012. The deadline for Form 1096 and Copy A of the 1099-MISC is February 29, 2012.
- 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%. Find Form W-9 at www.irs.gov/pub/irs-pdf/fw9.pdf.
2011 Financial Information Checklist
- Reconcile all bank accounts and review outstanding checks and deposits for those that have been outstanding for over 6 months to determine whether they need to be re-issued or voided, while staying in compliance with state unclaimed property laws.
- Review accounts receivable aging report for reasonableness, adjust allowance for doubtful accounts, and verify aging report balance ties to accounts receivable account on the balance sheet.
- Perform a year-end inventory count and make any necessary adjustments.
- Review prepaid expenses for reasonableness.
- Review unbilled services for reasonableness.
- Adjust depreciation to actual.
- Review accounts payable aging report for reasonableness and verify aging report balance ties to accounts payable account on the balance sheet.
- Accrue payroll, if applicable.
- Tie out loan balances to bank statements and verify accuracy of other liability balances.
- Verify balance as of 1/1/11 in retained earnings has not changed from the prior year. Verify against your tax return if necessary.
- Review all income and expense accounts for reasonableness.
- Verify net income on balance sheet ties to year-to-date net income on income statement.
- Update information on employees and vendors (i.e., address, SSN, EIN, etc.).
Income Tax Information 2011 vs. 2012
- Standard Mileage Rate cents per mile (Jan-June 2011) $0.51 $.555
- Standard Mileage Rate cents per mile (July-Dec 2011) $.555 $.555
- Personal Exemption $3,700 $3,800
- Annual Gift Exemption $13,000 $13,000
The standard deduction amounts are as follows:
- Single $5,800 $5,950
- Married Filing Jointly or Surviving Spouse $11,600 $11,900
- Married Filing Separately $5,800 $5,950
- Head of Household $8,500 $8,700
Payroll Tax Information 2011 vs 2012
- Federal Minimum Wage $7.25 $7.25
- Colorado Minimum Wage – as of Jan. 1st $7.36 $7.64
- Social Security Maximum Taxable Earnings $106,800 $110,100
- Social Security Tax Rate-employer 6.2% 6.2%
- Social Security Tax Rate-employee 4.2% 6.2%
- Medicare Tax Rate 1.45% 1.45%
- FUTA Maximum Taxable Earnings $7,000 $7,000
- FUTA Tax Rate (with max credit of 5.4%) 6.2% 6.2%
- CO SUTA Maximum Taxable Earnings $10,000 $11,000
- CO SUTA Tax Rate ——-varies by company——
Employee Retirement Contribution Maximums:
- 401(k), 403(b) and SEP plans $16,500 $17,000
- SIMPLE plans $11,500 $11,500
- Maximum catch up for 401(k) plans $5,500 $5,500
- Maximum catch up for SIMPLE plans $2,500 $2,500
Before running your 1st payroll in 2012
- Prepare a final 2011 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 2011.
- 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 2012 state unemployment rate and make necessary changes. For 2012 in the state of Colorado, the subject wages is increased to $11,000.00
- Verify your lookback period to make sure you haven’t changed from a monthly depositor to a semi-weekly depositor. The lookback period for 2012 is from July 1, 2010 to June 30, 2011. Add the total taxes (line 10 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.
We hope you find this information useful. Please feel free to call or email us if you have any questions or concerns at 970-226-4686 or info@NoCoCPAs.com.