Given the complexity of year-end payroll (especially when handled in-house or with an underwhelming provider), we’ve created a list of reminders to help you navigate any lingering tax- or compliance-related tasks for the fourth quarter of 2022 and early 2023.
If you have concerns about fringe benefits, expense reimbursements, or more common questions about deadlines and tax forms, we’re here to help you tackle these final “roundup” tasks to keep your payroll taxes in order and your organization legally compliant now and in the new year.
Major Payroll, Compliance, and Policy Tasks
As you prepare for legal compliance in 2023, it’s important to adapt to any impending changes to municipal, state, or federal requirements regarding minimum wage rates, employee classification, and related salary thresholds that determine nonexempt or exempt status. To avoid legal penalties and miscalculations in one or multiple pay periods, consult your existing payroll provider or another qualified professional to prepare for any shifts that apply to your organization. You’ll need to update all employee records and payroll information to account for any forthcoming changes (an employee shifting from nonexempt to exempt status, as just one example). In certain cases, you’ll need to remind employees to complete an employer-supplied Form W-4 to reflect any changes in their employee classification status.
In 2023, the 401(k) maximum will rise by $2,000 to $22,500. If you already have a payroll provider, notify them of any expected changes to employee or employer contributions in 2023. You should also communicate any anticipated updates to withholdings, pay rates, health insurance deductions or other relevant adjustments planned for 2023.
In December of each year, many employers opt to capitalize on tax-deductible year-end bonuses. It’s a win-win benefit for employers and employees, but remember that there are some important stipulations and timeline considerations to keep in mind. For instance, accrual-based businesses can claim bonuses for 2022 as long as bonus payments are made within 75 days of the end of 2022: by March 15, 2023. On the other hand, cash-basis businesses must provide pay bonuses in 2022 if they intend to claim it in 2022.
Bonus deduction guidelines can be simple for certain business structures, but the terms of tax deduction are a bit more complicated for C-corporations and S-corporations. With this in mind, be sure to talk with your payroll provider about best practices for filing if you intend to offer bonuses before the end of 2023.
With business structure in mind, be aware of any tax requirements that may be unique to your organization type. Local, state, federal, and industry-based business tax guidelines vary based on business structure and type, and can lead to confusion about self-employment taxes, estimated taxes, excise taxes, and much more. Something as simple as operating as a Sub-S corporation as opposed to a multi-member LLC can mean totally different requirements for health insurance calculations, for example.
Easy-to-Miss Payroll Considerations
As you prepare tax documents for year-end payroll, it’s easy to forget a host of supplemental or specialized payments and expenses that still need to be tallied.
- Nontaxable Expenses for Relocation – Any nontaxable relocation or moving expenses you paid your employee (and not any third-party) should be reported in Box 12 of the W-2 form.
- Paper or Voided Checks – If your organization used any paper/manual checks in the course of the year, or voided/reversed any paychecks, make sure these have all been accounted for within your payroll platform and tax forms.
- Retired or Former Employees – For any retired or former employees, you may need to calculate any uncalculated Medicare or Social Security taxes.
- Personal Use of Company Car – Any personal use of a company car must be included in an employee’s wages. For tax purposes, you should calculate a percentage of personal use or include total miles driven for personal use. It’s also possible to claim 100% of the car use in wages, in which case you would use the IRS annual lease value method.
- Cash and Non-Cash Gifts – These gifts should be added to an employee’s wages. De Minimis and “occasional” gifts are excluded from this, but other items like gift cards, gift certificates, or season tickets to entertainment events must be tabulated.
- Life Insurance Coverage (Group-Term) – Group-term life insurance exceeding $50,000 is subject to FICA taxes. Employers should ensure that this information is reported in Box 12 of each applicable W-2.
- Location- or Industry-Specific Fringe Benefits – Certain fringe benefits could be subject to FICA, FUTA, or federal income taxes. Consult your payroll provider or a qualified tax expert to learn about the special reporting requirements that are required for your industry, state, or municipality.
1099s, W-2s and PMFL
As your year-end payroll process winds down, don’t forget some necessary next steps with 1099s. You must report all payments to nonemployees that meet or exceed $600 in a calendar year. If your business relies heavily on contractors, remember that if 50% or more of your workforce falls under 1099 classification, you are required to collect and pay paid family medical leave (PFML) for the qualifying portion of your workforce. Paid family medical leave applies to new employees and W-2 employees, too. You must provide any required state paperwork to your employees. State requirements will determine whether the employee must pay the PMFL tax or if any contribution will be covered by you, the employer.
Comprehensive Payroll Support with Cello HR
Applying payroll policy updates for the new year while ensuring accurate payroll tax filing can feel like an overwhelming task. That’s why Cello HR offers an intuitive and integrated payroll platform that simplifies your entire payroll process. Our goal is to make your year-end payroll process hassle-free and your new year operations streamlined, legally compliant, and synthesized with all other facets of your HR and HCM practices (from talent acquisition to timekeeping and benefits administration).
Ready to enjoy in-depth reporting options and easy-to-use mobile features for your employees? Contact us today to let us know how we can support your organization as you move into the new year.