The Ultimate Year-End Payroll Checklist for Small Businesses

Year-end payroll: It’s a doozy, especially when you’ve got so much on your plate with the holiday rush at the end of the year. The good news is that a little organization can make the process a whole lot easier and give you peace of mind before the first payroll of the next year rolls around.

How to Get Your Business Ready for End-of-Year Payroll

Simply follow this end-of-year checklist to mark off all the boxes and close your final payroll process faster so you can enjoy the holidays and prepare for the year ahead. 

Gather Your Payroll Tax Forms

Your team should be able to access their Form W-2 or 1099 (records of wages earned and taxes paid) by the end of January. The Social Security Administration (SSA) and the Internal Revenue Service (IRS) will also be looking for your wage and taxes information around the same time. 

Complete and submit the following payroll tax forms before the start of the year: 

• Form W-2:  Used to report wages and withholdings to the IRS. 
• Form W-3: Summarizes W-2 information and is submitted to the SSA with the W-2s. 
• 1099-NEC: Reports wages for independent contractors. You must report any non-employee wages over $600. 
• Form 1096: Used to submit information returns reporting nonemployee compensation to the IRS.
• Form 940: You’ll need this form to pay your Federal Unemployment Tax (FUTA) liability.
• Form 941: Quarterly form that reports collected employee payroll taxes like federal income, social security, and Medicare. 
• Form 944: If your annual payroll taxes are less than $1,000, you might be able to pay them yearly instead of quarterly. If so, you’ll use Form 944. 
• Form 1095-B: If you provide healthcare benefits, you’ll use this form to document it and submit it to the IRS.  ​​

Run Year-End Payroll Reports

Now is the perfect time to take a look at your year-end payroll reports and determine if you want to make any changes in the new calendar year. 

• Payroll summary report: When you run this report, set the date range from January 1 to December 31. You’ll get a nice summary that details tax withholdings, gross and net wages, deductions, and other general information. 
• Retirement contributions: Pulling up all employer and employee contributions to retirement accounts will give your team members a chance to alter how much they give to it next year. 
• Workers’ compensation report: Did you pay out any workers’ comp to your team this year? Your insurance provider can use the information in the report to reassess your premiums.
• Employee summary reports: Use it as a comprehensive look into wages, deductions, and tax withholdings for each employee or contractor. 
• PTO report: Run a PTO report to avoid staffing mishaps by reviewing all paid-out PTO and remaining hours per employee.

Verify Information Before the End of the Year

Ensure everything is accurate and up to date. Double-check your company name, tax IDs, and other tax details first, and then verify your team information is correct:

• Employee names
• Social Security Numbers
• Updated addresses
• Phone numbers

Fix any errors and let your payroll provider know that you made changes. 

Check Wages, Taxes, and Benefits

Verify that all wage, tax, and benefits numbers match what’s in your payroll information, including: 

• Annual PTO accrual
• Filing status (exempt or non-exempt)
• Year-to-date wages and taxes
• Pre-tax numbers
• Worker status (active, terminated, or on leave)

You can find most of this information on your team’s W-4 forms. 

Order W-2s 

If you don’t have a full-service payroll provider and run it manually, you’ll need to order paper W-2s (and 1099s for contractors) from the IRS. These can take 10 business days to arrive in the mail, so plan accordingly. 

Update Payroll Information

Your payroll information will need to be updated before your first run of the new year. Check for new tax rates in your area, adjust employee information, balance PTO, and tweak yearly deductions. It’s also important to update your payroll schedule and make it available to your team. 

File and Deliver W-2s or 1099s

You are legally required to provide employee W-2s to your team, and 1099s to any contractors by January 31. They use these documents to submit their own tax filings. 

These forms must also be submitted to the SSA by January 31. Depending on where you live, you may also need to file them with your state or county. The W-2s will need to be accompanied by W-3 forms. You can file for an extension, but that request must be submitted after January 1 and before the filing deadline. 

Submit Tax Forms 941, Form 940, & Form 944

You’ll need to pay your fourth quarter FUTA tax with Form 940, as well as federal income taxes and FICA with Form 941. And finally, you’ll need to submit Form 944, an annual return of all paid payroll taxes. These forms are all due on January 31. 

Verifying Backup Withholding and Non-Cash Payments

Ensure accuracy in reporting all forms of compensation by verifying required backup withholding and amounts for non-cash payments. This step is necessary to maintain compliance and accurate record-keeping for year-end payroll processing. It involves a thorough check of any non-cash benefits provided to employees and ensuring that backup withholding is correctly applied where necessary.

Scheduling Special Bonus Payrolls and Ensuring Payroll Supplies

As the year concludes, remember to schedule any special bonus payrolls. This includes verifying that the payroll system is set up to handle these additional payments efficiently. Also, ensure that you have adequate payroll supplies to complete the current year’s processes and smoothly transition into the new year. This preparation prevents last-minute hassles and ensures continuity in payroll management.

Updating Forms W-4 and W-5

Encourage your employees to review and, if necessary, update their Form W-4, especially if their personal or financial situation has changed. Additionally, obtain new Forms W-5 for Advance Earned Income Credit for eligible employees for the upcoming year. These updates are essential for accurate tax withholding and compliance with federal regulations.

Accounting for Manual Checks

Confirm that all manual checks issued during the year are accounted for and properly recorded in your payroll system. This step is vital to ensure that your payroll records are complete and accurate, reflecting all forms of employee compensation disbursed throughout the year.

Determining the New Year’s Deposit Schedule

Review and establish your deposit schedule for the upcoming year. This includes understanding any changes in tax deposit requirements and aligning them with your payroll cycles. An accurate deposit schedule aids in timely tax payments and helps avoid penalties for late submissions.

Tax Deadlines for Various Business Structures

Include a reminder about important tax deadlines specific to different business structures, such as partnerships, S-Corporations, and C-Corporations. For instance, partnerships and S-Corporations must file Form 1065 or 1120S by March 15, 2024, if they follow a calendar year. C-Corporations should file Form 1120 by April 15, 2024, for the same. These deadlines are important for businesses to plan their end-of-year payroll activities accordingly.

Conducting a Post-Year-End Evaluation

Finally, suggest conducting a post-year-end evaluation. This evaluation can include reviewing productive habits, identifying action items for the next year, and analyzing the payroll calendar for potential processing conflicts. This reflective process helps streamline payroll processes and prepare better for future payroll cycles.

The last payroll of the year is much easier with help from a full-service provider like Homebase. Our payroll software willWe’ll handle the tax calculations, distribute forms, and file your taxes for you so you can focus on making the most of your time off during the holiday season.