Quarterly and Year End Payroll Procedures Presented By: Genevieve Schulte & Kristal Hamm Donna Denker & Associates
What is an accrued liability? An obligation that comes into existence as a result of past contractual commitments or tax legislation (Payroll Liabilities)
Why are they important? Need to make sure our obligations are recorded properly. Need to make sure they are recorded in the right time frame.
How should we check our accrued liabilities? • When you process payroll a liability is automatically created for taxes due to agencies (IRS, State, etc.) • These liabilities reside on the balance sheet. • Compare balances to a report from your payroll module and identify any discrepancies. • Examples: • Balances for SUTA and FUTA accumulating • Adjustments from prior quarters rolling forward • Payroll check voided AFTER taxes are called in (results in a Debit balances in the liability account)
General Rule Liability accounts for FICA and FIT should “zero” out after every pay period!
Other Notables Garnishments and Deductions These follow the same rules as payroll taxes and should “zero” out each pay period.
Quarterly and Year End Payroll Procedures Quarterly Payroll Procedures
First things first… • Prepare bank reconciliations for quarter. • Are there any outstanding payroll checks? • How are you going to handle these outstanding payroll checks • Reissue • Wait • Void
First things first… • Ensure updates are completed: • Print a new circular E (Publication 15) – www.irs.gov • Unemployment Rates • SD Investment Rate is .53% • SD Surcharge Rate is 0% for Quarters 1 & 2 • SUTA wage base is $11,000 • FUTA (Federal Unemployment Tax Act) wage base is $7,000 – If Applicable • FUTA rate is .8% for Quarters 1 & 2, and .6% for Quarters 3 & 4 • FICA max ($106,800 Social Security)
First things first… Check tax deposit dates. Did you make all of your deposits? Were they made on time? Were they applied to the correct quarter?
First things first… • Make sure benefit and deduction codes are set up properly with respect to pre-tax designation (See Publication 15, Pages 10-14) • Health Savings Accounts • 401k Deductions • Employer paid fringe benefits
First things first… • Health Savings Accounts • Employer contributions are not subject to Social Security, Medicare, or FUTA • As long as the amount is used for excludable expenses • Employee contributions • Included in gross wages • Unless made in a section 125 cafeteria plan
First things first… • 401 K Liability (Employer Contributions) • Excluded from the employer’s gross income • Make sure the liability does NOT affect taxes
First things first… • 401 K Deductions (Employee Contributions) • Pre-tax contributions excluded from Federal Income Tax, but included for FICA • Include contributions in Box 3 & 5 on W-2s • Include contributions in lines 5a and 5c on Form 941 (4a and 4c of Form 944) • Please See IRC Section 415 for more information and Publication 15 B of Circular E
First things first… • Fringe Benefits • Vehicles used for commuting to and from work • Cash payments • Tickets to entertainment and sporting events • NOT considered taxable fringe benefits: • Services provided at no additional cost to the company • Expenses the employee can claim
First things first… Obtain new W-4:
Now we are ready… • Prepare Forms • 941 • If a biweekly depositor make sure line 10 equals bottom line on Schedule B • Schedule B is tax liability NOT taxes paid. This is IRS’s cheat sheet. • Use 941x for corrections • Due Dates • Monthly depositor is the 15th of the following month • Semi – Weekly • Pay date is Saturday through Tuesday, due on Friday • Pay date is Wednesday through Friday, due on Wednesday
Now we are ready… • Penalties • 2% to 15% in penalties • Will pay interest on balance due as well • Separate deposit arrangements • Deposit payroll taxes in separate bank account • Will not be able to access • Will be required to file a 941- M
Now we are ready… • SUTA Form 21 • Make sure rates are updated • Make sure excess wages are correct • State has updated online submission. Register online at : sd.wagereport.com • Rates: • SD Investment Rate is .53% • SD Surcharge Rate is 0% for Quarters 1 & 2 • SUTA wage base is $11,000
Quarterly and Year End Payroll Procedures Year End Procedures
Preparing W-2’s • Compile Following Payroll Reports: • Form 941 – Previous 4 Quarters • Unemployment Forms – All 4 Quarters • Form 940 (If Applicable) • Prepare Bank Reconciliation for January • Prepare Forms • Prepare W-2’s and W-3 • Tie W-3 number to total of all 4 quarters of 941
Preparing W-2’s • W-2 to Employee by January 31st, 2012 • W-2’s and W-3 to Social Security Administration by: • March 1, 2012 (Paper File) • March 31, 2012 (Electronic File) • State Copies of W-2’s and W-3. (Check with each individual state) • 941 and SUTA Reports • January 31, 2012
Group-Term Life Insurance for Employees’ • Include in income in boxes 1, 3, 5, and 12 on form W-2 • And on Form 941 and SUTA • Calculation for every $1,000 over $50,000 of coverage you provide for employees • Calculation table found in Publication 15B
1099’s Categories of Evidence in determining Employee vs. Independent Contractor Facts that provide evidence of the degree of control and independence fall into three categories: Behavioral Financial TypeofRelationship
Categories of Evidence • Behavioral • Type of instructions given • Degree of instruction • Evaluation systems • Training • Set hours
Categories of Evidence cont’d.. • Financial • Significant investment • Un-reimbursed expenses • Services available to the market
Categories of Evidence cont’d… • Type of Relationship: How the worker and business perceive their relationship to each other. • Written contracts • Employee benefits • Permanency of the relationship
1099’s & board/tribal council Are Board and Tribal Council Members Employees? • Tribal Council- Employees but not subject to FICA. FIT voluntary • Appointed Board Members- Use category of evidence method to determine status.
1099’s & board/tribal council cont’d… Stipends are taxable. Board Members should be treated as employee’s not Independent contractors. IRS Publication 4268 “Employment Tax Desk Guide for Indian Tribal Governments” www.irs.gov
Issue 1099’s for… • Uncollected/unreconciled Travel Advances for non-employees • IF the IRS audits and finds these situations you will be assessed penalties and interest for failure to issue 1099’s.
Unreconciled Travel and Payroll Advances are: • Considered compensation to employees • Should be included on W-2 and reported on 941, SUTA, etc… • Creates an increased expense for the organization • Important to reconcile monthly or as frequently as possible. • IRS has indicated that amending returns might be necessary. • If you record an allowance for these, you should probably have included it on the W-2.
Loose Ends SUTA rates will be issued in December Health Insurance reporting on W-2 has been delayed one year. Not reportable until 2012. Social Security withholding decreased by 2% (from 6.2% to 4.2%) for employees – Employers still pay 6.2% IRS will no longer be sending blank forms out. You must retrieve them from the IRS website. www.irs.gov