Preparing Payroll for Year-End: W-2 Information Verification
Each year, employers across the country realize that they need to adjust their payroll data after their final payroll run of the year. In a special three-part blog series, we explore the three most common adjustments that can be avoided with just a little planning. In the first issue of this series, we review how W-2 information verification can help to make your payroll year-end process easy and painless.
Errors on employees’ W-2 forms are one of the most common year-end challenges employers face. Typically, errors on W-2s include incorrect employee Social Security numbers, employee names, the wrong Employer Identification Number for taxing authorities, errors in earnings and taxable fringe benefits withholdings reporting. By reviewing basic information prior to the last payroll of the year, adjustments to W-2 forms may be eliminated completely.
It is very important to confirm the accuracy of employee W-2 data and update it prior to the final payroll processing for the year if necessary. Incorrect or mismatched employee names or Social Security numbers (SSN) can result in penalties imposed by the Internal Revenue Service (IRS) as well as some states. It is recommended that each of your employees verify that their SSN is recorded correctly in your payroll. SSNs can also be verified through the Social Security Number Verification Service online or through E-Verify on the U.S. Citizenship and Immigration Service’s website. If an employee does not have an SSN, information on how to apply for a Social Security number is available through the Social Security Administration’s website.
Federal, state and local employer identification numbers (EIN) should be checked for accuracy. Information regarding federal EINs and how to apply for one can be found in IRS Publication 1635. State EINs are generally issued by each state’s Department of Revenue. The American Payroll Association’s website contains useful links to state agencies, including the state’s Department of Revenue (usually listed under “Tax”). Individual districts, cities, counties, etc. may also issue EINs. Your city or county clerk’s office or local chamber of commerce may be able to assist you with information about obtaining a local EIN as contact information for local tax agencies varies widely.
Nine states, Alaska, Florida, Nevada, South Dakota, Texas, Washington, Wyoming, New Hampshire and Tennessee, do not have state income tax and do not issue state EINs. Note that an EIN is different from the number issued for corporate taxes, state sales tax and unemployment taxes. Tax identification numbers (TIN) should not be used for payroll purposes.
Ensure that all year-end adjustments are recorded in your payroll. If any manual checks have been written, including bonus checks, be sure to report those payments in your totals to your payroll provider.
Verify that proper withholdings for taxable fringe benefits have been recorded. Fringe benefits can be in the form of services, property, and cash or cash equivalent. The most common taxable fringe benefits include awards and prizes, bonuses and commissions, and the personal use of a company car. It is important to remember that all fringe benefits, unless specifically excluded by the IRS, are taxable. The IRS has issued a helpful Taxable Fringe Benefits Guide that explains paying and recording fringe benefits from a federal, state and local level.
Be sure to report wages in the year in which they are received. For example, payroll with a pay period end date of December 27, 2013, and a corresponding check date of December 31, 2013, is reported as 2013 W-2 earnings. On the other hand, payroll with a pay period end date of December 27, 2013, and a corresponding check date of January 3, 2014, is reported in 2014 W-2 earnings.
Reviewing your payroll and the data reported on employee W-2s will help to ensure that information reported to the IRS is up to date and accurate. For assistance with W-2 reporting, please contact your dedicated Payroll Specialist. Not a BenefitMall client? We can help! Contact us today to find out how we can make your payroll year-end easy and painless.
Don’t miss the rest of this special series! Be sure to follow our BenefitMall Business Blog for future posts dedicated to year-end bonuses and reporting third-party sick pay.