As organizations of all industry sectors and sizes prepare for 2021, the experts at SST are here to provide insight and guidance to help you efficiently navigate the year-end processes. Below, SST Payroll & Benefits Supervisor Malisia Vrana offers tips for managing your organization’s year-end payroll information.
Before processing your last payroll of 2020, SST recommends taking the following steps:
First, verify that the employee contact information (addresses, names and social security numbers) listed on the Form W-2 is up to date.
- Lost W-2 forms due to an incorrect address only causes frustration for the employee and additional work for the payroll department. Proactively verifying information can avoid this headache.
- Did anyone get married this year? Employee Forms W-2 and 1095-C must match what is printed on an employee’s social security card. For example, if an employee’s name is hyphenated on their social security card, but not on their Form W-2 or Form 1095-C, the IRS will return this as an error. Failure to verify this information as correct may result in penalties.
Next, verify that all non-cash and cash income has been recorded and taxed properly.
Common W-2 adjustments include:
- Bonuses and other annual incentive pay
- Third-party sick pay (STD or LTD)
- Non-cash payments
- Non-accountable business expense reimbursements or allowances
- Company-provided transportation or parking
- Group-term life insurance in excess of $50,000
- Personal use of a company vehicle
- Non-qualified moving expense reimbursements
- Employer-paid education not related to the employee’s job
- Employer-paid health insurance for subchapter S shareholders who own at least two percent of the company
Then, verify that you have properly recorded Families First Coronavirus Response Act (FFCRA) pay.
Employers who provided FFCRA leave to employees must abide by specific Form W-2 reporting rules. The IRS notified employers that they must separately report Qualified Sick and Family Leave Wages paid under the FFCRA on 2020 Forms W-2.
The three types of FFCRA sick or family leave must be separately reported (if applicable) in Box 14, or on a separate statement. The required information includes:
- The amount of Qualified Sick Leave (Emergency Paid Sick Leave Act) if the employee was caring for an individual subject to federal, state or local quarantine or isolation order:
- Caring for an individual that was advised by a healthcare provider to self-quarantine related to COVID-19 or is experiencing any other substantially similar condition specified by the Secretary of Health and Human Services, in consultation with the Secretaries of Labor and Treasury
- “Sick leave wages subject to the $200 per day limit”
- The amount of Qualified Sick Leave (Emergency Paid Sick Leave Act) if the employee is caring for his or her son or daughter whose school or place of care has been closed or whose child care provider is unavailable due to COVID-19
- “Emergency family leave wages subject to the $200 per day limit”
If you use separate statements to report FFCRA leave information to employees, you must deliver the separate statement to employees at the same time you send them their Form W-2 and in the same manner.
For more information on this specific requirement, see IRS Notice 2020-54 or Families First Coronavirus Response Act: Employee Paid Leave Rights from the U.S. Department of Labor.
Finally, verify that you are properly reporting deductions for State Forms W-2.
According to a recent presentation by ADP:
“At the state level, employers need to be aware of state conformity with the CARES Act, which was signed into law on March 27, 2020. Many states automatically adopt Internal Revenue Code (IRC) changes, but even those that do sometimes enact legislation to reject federal tax law changes; and other states that don’t automatically conform may enact laws to adopt IRC changes. One example in the CARES Act is the tax exclusion for employer student loan repayment benefits. Employers can contribute up to $5,250 in 2020 toward an employee’s student loans, and these payments would be excluded from the employee’s income for federal purposes. But unless the state automatically or otherwise adopted that provision, any such payments must be reported on the state W-2 as taxable income.”
For more information or personalized guidance on your organization’s year-end payroll activity, contact the experts at SST today.
Thanks to SST Payroll and Benefits Supervisor Malisia Vrana for providing the content for this post.