Fourth quarter is a busy time in the payroll world. There's so much to get done and if you're not careful, mistakes can easily happen when it comes time to run that very last payroll of the year. To ensure no missteps occur, you likely have your own processes and checklists in place. But have you accounted for everything? Before running that last payroll of the year, make sure your internal checklist includes all items — big and little — that'll help you ensure your final 2023 payroll is just as perfect as you planned.
1. Account for all adjustments
Review your reports from the previous year-end to account for unique adjustments that you need to repeat this year. Also make sure to check with your accounting and HR departments to determine whether any taxable payments were processed through accounts payable.
Common year-end adjustments include:
- Gift cards
- Personal use of a company-provided vehicle
- Group-term life insurance over $50,000
- Third-party sick pay
- Employer-paid education not related to a job
- Value of certain awards and prizes
- Nonaccountable business-expense reimbursements
- S-Corp accident/health premiums paid to shareholder employees of 2% or more
- Country club and health club dues
- Cash gifts to employees
- Allocated tips
- Imputed value of domestic partner benefit coverage
For more information regarding year-end adjustments, visit irs.gov/publications/p15b.
Also, if you haven’t done so throughout the year, report additional wage adjustments on the W-2s. For more information on taxable fringe benefits, review the Employer’s Tax Guide to Fringe Benefits (IRS Publication 15-B).
2. Confirm due dates
You may need to allow extra time for payroll runs that include bonuses, adjustments or larger than normal amounts. If you're using a third-party payroll provider, ask them when they need your payroll information in order to hit your target pay date. The "sooner the better" is usually a good best practice, but your payroll provider may have holidays you need to work around or hard cut-off dates and times you should keep in mind. Also, make note of postal delivery schedules to avoid unexpected delays during this busy time of year.
If applicable, you will also want to contact your third party sick-pay administrator to confirm when your final benefit amounts will be available so you or your payroll vendor can schedule your year-end processing. Also, determine who will handle the W-2s for these payments (you/your payroll provider or the third-party provider).
3. Review inactive employees
Check if you have any terminated employees with required adjustments and confirm that their information is entered correctly in your records and/or your payroll system. Remember, you may need to gross up adjustments to cover employee portions of Social Security and Medicare taxes. If you don't have a valid address or email for an inactive employee, make sure you have a good place to store their undelivered W-2 (you know they'll eventually come looking for it). Lastly, make sure to close any unused tax accounts that are no longer in use due to employees no longer being active in a given state. With the number of employees working remotely these days, this is an important item to double check each year.
4. Update your payroll system and other miscellaneous tasks
When you're preparing to run your last payroll of the year, you'll likely come across information that you should gather and update in your records or payroll system. Examples include:
- Voided or manual checks: Verify that you accounted for all voided and manual checks in the system.
- W-2s: Determine where you will save or store undeliverable W-2 forms and have a process in place to ensure they get saved.
- Employee information: Before issuing W-2s and 1099s, ensure all employee identifying information (i.e., employee records, names, Social Security numbers, and addresses) is correct. If you fail to do so, you may need to file a Corrected Wage and Tax Statement (Form W-2c).
- 1099s: Confirm all 1099 employees have an identification number, as this is required for you to file 1099s with the IRS.
- Determine if you have employees that were “active participants” in a qualified pension plan during the current tax year and that your system is accurate. If you do, the Social Security Administration (SSA) requires that they check box 13 on their form. Review the IRS instructions for more information.
While the above list is extensive, there will always be items unique to your business that you'll want to include in your checklist. Make sure to include those in your checklist. No two businesses are alike, so make sure you've tried to think of any unique needs in advance of running your last payroll of the year.
Editor's note: This article was originally published Nov. 19, 2018, and has been updated to reflect the most recent information for 2023 year-end.