The end of the year can often sneak up on us faster than expected. While December might seem far away, addressing payroll matters early can help prevent last-minute stress. Proactive planning not only reduces financial risks and ensures compliance but also supports employee morale.

Holiday Bonuses

Holiday bonuses come in various forms such as cash, gift cards, or physical gifts. It's important to understand that these bonuses, including gift cards, are taxable and subject to IRS rules. Plan for tax withholding in advance, whether through flat-rate or regular payroll taxes. Decide early if bonuses will be processed separately or with regular payroll. While certain small non-cash gifts may be considered “de minimis” and not taxable, any cash gift must be included in wages or it won't be deductible in the business. Your accountant can help guide you.

Paid Time Off (PTO)

PTO encompasses vacation, sick, and personal days. Clarity in PTO policies is essential—know whether unused time rolls over or is forfeited. Review employee records to ensure PTO balances are accurate, as this is crucial for legal compliance. Notify employees of their remaining PTO to allow them to schedule time off. Additionally, verify that any payroll software accurately tracks PTO balances.

S Corp Health Insurance

For S Corporations, proper handling of health insurance reporting is vital. If you provide health insurance for more than 2% shareholders, you may need to include the total health insurance expense on the owner's W-2 form. This ensures compliance and accurate tax reporting so you can realize all available tax deductions. Contact your tax advisor for more information.

Year-End Payroll Reporting

Remember, W-2s must be issued by January 31st, and all payroll should be finalized before year-end. Make sure all employee information (current email, addresses etc) is accurate and up to date and any changes have been reported to your accounting team. Include taxable fringe benefits such as bonuses or personal use of company cars as well as annual owner health insurance expense (if applicable). Don't forget to also request W9s for any independent contractors that you've paid more than $600 in total this year. Contact your payroll provider to confirm submission deadlines and avoid late fees.

Taking these steps now helps ensure a smooth and compliant year-end. Accuracy and clear communication with employees are invaluable. Our office will be sending out the year-end checklist to clients who are enrolled in our maintenance plans. If you need assistance reviewing or updating your payroll setup before the year wraps up, don't hesitate to reach out for help.