As we approach the third quarter of the year, now is a good time to review your payroll setup and wages for accuracy. I often find that whether the client is a seasoned payroll processor, or new to Costpoint and payroll in general, there can be errors in wages that are not obvious in day-to-day processing. There are numerous actions you can take to prepare for a smooth year end. For example, start by ordering forms early in the last quarter of the year. Many sources for W2s, 1099s, ACA forms, etc. will sell out in January. Also, be sure to register for access to the Social Security Administration for W2 upload since this process can be time consuming waiting on the access codes to be snail mailed.
In the third quarter, several tax reports should be reviewed. The Social Security/Medicare Recon Report will show you if you need to refund or collect any FICA tax before year end. Large differences on this report can also be a clue that there is a taxable wage issue. Reviewing your Local Tax Withholding Report for YTD information is also a good idea. There are often instances where the year to date withheld or employer accrued amount does not total the wages x the percentages set by the locality, due to partial withholdings when wage limits are reached.
The quarterly 941 forms showing a zero balance are a good indicator that your wages are on track. However, I have seen situations where 941s were filed to show nothing due or overpaid, but the wages in the system did not accurately reflect the numbers reported. This could be due to a variety of issues, but the most common being deduction taxability. Did you know that if you change the taxability of a deduction after payroll has been processed that your taxable wages are incorrect? Another common wage issue is 401k deferrals. Some states, such as Pennsylvania, do not tax 401k deferrals by federal rules and consider it part of state taxable wages instead.
In the fourth quarter, it is always recommended to review the recompute taxable wages report in payroll utilities. I do not advise executing the process of recomputing, but rather reviewing each issue listed on the report individually and recomputing in the payroll record if necessary. Sometimes, the wages being incorrect is done for a reason, such as a conversion from another system or a change in the company benefit or retirement plan.
You should also be reviewing the state ID numbers and employee social security numbers for accuracy. Has your company moved recently? Double checking the Configure Company Information screen in the system will ensure the correct address is listed on the W-2 forms.
After the Last Payroll for the Year
Once your last payroll of the year is processed, you are ready to create W-2s. The totals listed on the W-3 form, called the W-2 Summary Report in Costpoint, should be reconciled against the 941s.
Prior to processing the first payroll of the new year you should also update the 401k and FSA limits, ensuring this change is pushed out to all the employee records. You will also need to revise SUTA rates as you receive notices from the agencies and confirm you have the new year tax table loaded by Deltek.
Before mailing the W-2 forms to employees, make sure you consider the following:
- Alignment and legibility of the printed forms is appropriate.
- Any W-2 additions were done correctly and reflect on the form.
- All employees contributing to a qualified 401k plan have the check box selected in Box 13.
- Any items required to be listed in Box 12 and 14 are shown and accurate.
- There are no social security wages listed over the annual limit.
- Employees with multiple W-2s due to state or local taxes are combined into one mailing.
- The W-2 year in ESS (if applicable) has been updated so employees can see the electronic copies.
- Copies of the printed W-2s have been made for internal future reference.
How Redstone GCI can help
Have questions about steps you can take before the end of the year, how to process a W-2 addition or can’t get your printer margins to align correctly? The Costpoint team at Redstone Government Consulting, Inc. is here to help.