Payroll Year-End: A Comprehensive Guide for Small Businesses

Payroll year-end is the process of reviewing and finalizing a business’ payroll activities for the year. This can include tasks like payroll reconciliation, tax form preparation and filing, and other finance-related tasks.

That said, this can often be challenging for small business owners in the USA who are juggling multiple deadlines and navigating complex tax regulations. Because of this, they should have tools that can simplify this process. In today’s article, discover how you can use our pay stub and invoice generators to save time and ensure a smooth and efficient payroll year-end.

Let’s start!

Key Takeaways

• A comprehensive payroll year-end checklist should include employee verification, payroll reconciliation, tax calculation, year-end form distribution, and new payroll policy evaluation.
• Some important deadlines you should keep track of for payroll year-end include those for Forms W-2 and W-3, Form 945, and Form 1096.
• The penalty for missing payroll year-end deadlines will depend on how long you take to submit the missing form; this can usually range between 5% to 25% of the unpaid tax.

Comprehensive Payroll Year-End Checklist: 8 Crucial Tasks to Do

While every company’s full payroll year-end process will be different depending on several factors, such as size and industry, there are some common tasks you will find on every payroll year-end checklist in the US.

Let’s see what they are:

#1. Verify Employee Information

The first step in every payroll year-end process is to verify employee information and ensure that all data is accurate and up-to-date. You should double-check the following information so you don’t run into any problems when sending out year-end forms:

• The correct employee name and spelling
• The right Social Security number
• An updated address and contact information

#2. Review Benefits and Deductions

After verifying and updating employee information, the next thing to do is to review their benefits and deductions to confirm that these match the amount on their monthly payroll. These often include fringe benefits, health insurance premiums, and other contributions.

You can also check the following to accurately determine if an employee was properly compensated during the year:

• Employee PTO
• Tax filing status
• Worker status

#3. Reconcile Payroll Records

The next step in your payroll year-end process will be to conduct payroll reconciliation, which is the process of comparing your records and bank statements to ensure that everything is aligned. Any discrepancies in employee payments or tax filings lead to penalties and can be a red flag for the IRS.

To do this, start by reviewing an employee’s gross wages, net pay, and withheld taxes with your payroll ledger. Then, verify that all applicable benefits, deductions, and taxes are properly accounted for and documented. If you find any discrepancies, make sure to address them right away to avoid further issues.

#4. Check Potential Tax Credits

Payroll year-end is also a great time to check any potential tax credits that your business could qualify for. Small businesses, for instance, can claim several tax credits, such as the Small Business Health Care Tax Credit, that can help you gain additional finances and reduce your tax liabilities.

Just make sure that you properly review the eligibility criteria before claiming any tax credits to avoid getting rejected. If needed, you can work with a tax professional to identify which credits you qualify for.

#5. Process the Final Payroll for the Year

While the last payroll period for the year can be tricky, as it falls during the holiday season, it’s crucial to process it before December 31 to avoid penalties and other charges. To ensure a stress-free payroll year-end, ensure that an employee’s annual payroll, including any bonuses or commissions, is properly taxed and accounted for.

You can reconcile payroll records with bank statements again to confirm that you aren’t missing any taxes or deductions. Doing this as part of your payroll year-end will help prevent any disputes at the beginning of the next year.

#6. Prepare and Distribute Year-End Forms

As a business owner, one of your responsibilities is to provide year-end forms, such as W-2 and 1099, for employees and contractors, respectively. These forms include information about an employee’s wages, taxes, and other compensation received during the year and are essential for proper filing.

The best and easiest way to do this is by using a professional generator like Paystub.org. Our software provides you with several templates you can use to create standardized forms in seconds, so you can be assured that each form is accurate and contains all the right information.

#7. Calculate and Report Taxes

Accurate tax calculations and reports are crucial for staying compliant with tax laws, so make sure that you properly calculate all withheld taxes and compare them with your payroll records. If everything looks good, you can start to prepare and submit the necessary tax forms.

It’s best to do this early on so you don’t miss the deadline and be subject to penalties. The beginning of the year can often be a busy time for businesses, so it’s easy to forget about any pending dues.

#8. Determine Payroll Policies for the Following Year

Your payroll year-end can include an assessment of the company’s payroll policies. While these don’t have to change every year, it’s still important to take the time to review your current payroll schedule and policies to keep employees happy.

Consider reviewing the changes in regulations, such as updated tax brackets or changes in employee benefits, to ensure that your policies comply with the legal requirements. After deciding on the changes, don’t forget to communicate them with your employees to avoid any confusion.

Important Deadlines for Payroll Year-End

Regardless of your payroll year-end process, there are some important payroll year-end dates and deadlines for filing tax forms that you should keep track of if you are running a business in the US:

Penalties for Missing Deadlines

The penalty for missing deadlines will depend on how late you submit the tax forms:

• Form W-2 and W-3. Late Form W-2 or W-3 filings are subject to an initial penalty of $60 per return if amended within 30 days. After 30 days, the penalty goes up to $130, and after August 1, you’ll have to pay $330 per return or statement.

• Form 940, Form 944, Form 945. Failing to file these forms on time means you will be subject to the Failure to File penalty and would need to pay between 2% and 15% of the total tax due.

• Form 941. Late filing for Form 941 is subject to a 5% penalty for every month missed.

• Form 1099-NEC and Form 1096. If you miss the deadlines for these forms but are able to file them within 30 days, you’ll have to pay $50 per return. The penalty increases to $110 per return if filed after 30 days and goes up to $280 if filed after August 1st.

• Form 1095-C. Missing the deadline for Form 1095-C has a steep penalty of $310 for forms filed before August 1. After this date, the penalty increases to $630 per return.

Streamline Payroll Year-End Processes with Paystub.org!

If you’re finding it difficult to keep track of payroll processes and employee records, consider using Paystub.org’s professional generator to create financial documents like pay stubs and invoices and to make Form W-2 or 1099 for payroll year-end.

By automating this process, you not only improve efficiency and accuracy but also maintain more organized records so you can meet year-end deadlines stress-free.

Final Thoughts

Conducting payroll year-end procedures ensures your business complies with tax regulations, helping you avoid hefty fines and penalties, but they can require a significant amount of time and effort to accomplish.

To help you simplify this process, you can use Paystub.org’s invoice or pay stub generator to create standardized employee records. This will make it easier for you to find the information you need when it’s time to conduct a payroll year-end process, helping you reduce errors and save time.

Payroll Year-End FAQ

#1. How can I correct payroll errors after year-end?

To correct payroll errors after year-end, you need to submit an amended return to the IRS. Alternatively, if you are subject to penalties, you can also call the IRS to report the error and set up a payment plan.

#2. What happens if I miss a payroll year-end deadline?

If you miss a payroll year-end deadline, you will have to pay for the corresponding fines and penalties from the IRS. Moreover, your business may be subject to payroll audits from the IRS to ensure that you are complying with the rules and regulations.

#3. Do small business owners with only a few employees have to file year-end payroll forms?

Small business owners with just a few employees still have to file year-end payroll forms. If your business’s annual tax liability is less than $1,000, then you need to file Form 944 instead of Form 941.

#4. What are payroll liabilities at the end of the year?

Payroll liabilities at the end of the year refer to the payments a company owes to employees or government agencies in relation to its payroll processes. This can include withheld taxes, fringe benefits, or employee compensation.