As the year comes to a close, payroll managers face the crucial task of preparing for the upcoming year. With the right tools and strategies, managing deadlines, compliance updates, and final payroll tasks can be straightforward.
This guide simplifies the year-end payroll process, covering everything from verifying employee data to filing tax forms and adjusting for tax law changes. You'll have all the steps you need for a smooth transition into the new year.
Section 1. Preparing for Year-End Payroll
Section 2. Items to Complete After the Last Payroll of the Year
Section 3. Getting Payroll Ready for the New Year
Section 4. Your Year-End Payroll Checklist [Download Now to stay organized and compliant.]
Section 1: Preparing for Year-End Payroll
- Verify Business and Employee Information
Accuracy is crucial at year-end to avoid filing delays and penalties. Here’s what to verify:
- Employer Identification Number (EIN): Double-check your federal and state EINs.
- Company Name and Address: Ensure these details are up to date for tax filings.
- Employee Information: Request employees to update personal details (Social Security numbers, addresses, direct deposit) through your employee self-service portal.
Tip: Use the IRS’s SSN verification tool early to avoid filing delays.
- Review Compensation and Bonuses
Assess compensation strategies for the new year and plan for year-end bonuses:
- Plan for Raises: Consider upcoming changes to wage bases, such as the new Social Security wage base. For 2025, this will be $176,100, meaning FICA taxes will apply to a higher wage base than in the previous year.
- Allocate Bonuses: If you plan to offer year-end bonuses, decide whether to pay them in the current calendar year or the next.
- Cash-basis businesses can deduct bonuses in the year they are paid
- Accrual-basis businesses may deduct them if accrued before year-end
- Review Minimum Wage Rate Changes: Verify any upcoming state or local minimum wage changes that may impact your payroll for the new year.
- Review Salary Wage Base: Ensure the salary wage base is accurately reflected in your payroll system, particularly for exempt employees, to stay compliant with regulations.
- Communicate with Employees About Benefits
Benefits like vacation days and FSAs often expire at year-end. Make sure employees are aware of their options:
- PTO and Leave: Communicate carryover policies or expiration rules.
- FSAs: Inform employees about the “use it or lose it” rule for FSAs, including medical and dependent care plans.
- Ensure Compliance with Payroll Deductions
Verify that all payroll deductions and fringe benefits are properly accounted for:
- Deferred Compensation Plans: Ensure contribution amounts and group-term life insurance benefits are correct.
- Social Security and Medicare: Double-check wage bases and tax withholding accuracy.
Section 2: Items to Complete After the Last Payroll of the Year
- Review Final Payroll Information
Ensure the last payroll of the year is accurate before closing the books:
- Wages and Salaries: Confirm total wages for the year.
- Tax Deductions: Verify federal, state, and local tax withholdings.
- Employee Benefits: Ensure retirement contributions and health insurance deductions are correctly applied.
- Distribute and File Tax Forms
Now that the final payroll is complete, distribute tax forms:
- Form W-2: Provide W-2s to employees by January 31.
- Form 1099-NEC: Distribute Form 1099-NEC to any contractors who earned $600 or more.
- Final Tax Filings and Deposits
Complete and submit year-end payroll tax filings:
- File Form 941: Report your quarterly and annual payroll tax obligations.
- Submit Payroll Taxes: Ensure all taxes are paid by the January 31 deadline.
Tip: Ensure accuracy and timely distribution with Greenshades’ Year-End Forms Solutions. From automated W-2 and 1099 filings to real-time validation tools, Greenshades takes care of the heavy lifting, so you can focus on closing out the year smoothly. Find out more here.
Section 3: Getting Payroll Ready for the New Year
- Update Payroll Policies and Schedules
Set up your payroll policies and schedules for the new year:
- Adjust Schedules: Ensure pay dates don’t fall on holidays or weekends.
- Update Policies: Modify payroll policies as needed, and ensure they’re clearly communicated to employees.
- Implement New Tax Rates
Stay ahead of compliance by reviewing and applying any changes to tax rates:
- State and Local Taxes: Many states announce new tax rates or minimum wage changes. Implement these updates early in your payroll system.
Tip: Greenshades Payroll automatically updates to reflect the latest compliance changes, ensuring you stay up-to-date without the hassle.
- Start Fresh with Employee Records
Take this opportunity to update employee records:
- New W-4 Forms: Remind employees to submit updated W-4s if their tax situation has changed.
- Recheck Fringe Benefits: Ensure fringe benefits, such as health insurance and retirement plans, are compliant with the new year’s tax rules.
Section 4: Year-End Payroll Checklist
Before closing out the year, use this checklist to ensure nothing is overlooked:
By following this checklist, you can confidently close out the year and start the new one on the right foot.
Wrap Up the Year with Confidence
Year-end payroll doesn’t have to be stressful when you’re organized and proactive. Greenshades’ Payroll and HR solution make it easy to manage deadlines, ensure compliance, and handle tax filings—all while keeping your business running smoothly.