With the federal government looking for ways to balance its budget, you can expect the IRS to crack down on payroll compliance violations to fuel their revenue growth. Since December is right around the corner, now is the time to prepare your business for year-end payroll compliance and protect your organization from any IRS fines. Below are the six areas that you need to address to verify that your company is prepared.
Verify Employee Data
This is the area from where the IRS will try to squeeze the most fines out of, because minor clerical errors are fineable compliance violations and they are easy to point out by detail-oriented IRS agents.
Verifying employee data should include the following steps:
- Make sure that the statuses of your employees are properly coded (deceased, terminated, etc.)
- Double check that your employees’ personal data is correct, especially their name and social security number – this is the area where the IRS is most likely to spot a fineable violation
- Be proactive in reminding employees to update their W-4 tax forms if any relevant information changes (marital status, number of dependents, etc.)
Audit Payroll Data
Triple check with your accounting department to verify that all of the following data is included correctly:
- Special tax items such as employee business expense reimbursements, third-party sick pay, fringe benefits, etc.
- Employee withholdings
- Total gross wages
- 1099 payments
- Uncollected Social Security and Medicare taxes, including retirees
- Voided checks
Verify Employee Benefits Data
Make sure that all of the following benefit data is correctly recorded:
- Group-term life insurance that exceeds $50,000
- Health insurance
- Education assistance provided
- Sick pay
- Employee bonuses
Prepare Your Supplies
Part of year-end payroll compliance is making sure that you have all of the tools that you need to follow all relevant procedures. Ensure that you have the following resources ready for use before the last payroll of the year, or employ a service that can handle them for you:
- Federal and State tax returns
- W-2 and W-3 tax forms
- 1099 and 1096 tax forms
Check for Tax Law Updates
Both state and federal tax laws are constantly changing; it is very likely that this year’s tax laws are different from last year’s. Double check for any recent updates in tax laws to see if you need to do anything different from last year in order to remain compliant. For example, review the latest release on the FUTA Tax Credit Reduction. In addition, look ahead to 2014 for the new regulations that begin January 1. Plan and prepare for any changes required to comply.
Report the Cost of Health Insurance
Federal law requires that employers with 250 or more W-2 tax forms in the previous year report the full cost of health insurance on the W-2. If you had fewer than 250 W-2’s in 2012, then you are exempt from this requirement in 2013. If you outsource your payroll, the provider should be able to assist you with this. You will, however, need to provide them with the correct information for all employees.
To learn more about how to prepare your company for year-end payroll compliance, contact us at PAYDAY Workforce Solutions today. We can be reached via phone at (714) 467-3434 or via our website at www.paydayonesource.com.