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The 12 Days of Year End To Do’s

November 28, 2011 Leave a comment

PayrollAs we roll into the final month of the year, the question lingering on everyone’s mind is whether or not Black Friday and Cyber Monday are counted within the Twelve Days of Christmas.

If you’re a payroll professional, you might be thinking less today about where the hottest deals on the web are, and more about what needs to be done within the next few weeks to prepare for year end. Early December is the perfect time to preview your W-2s to make sure they will print correctly come December 31, as you still have a payroll or two to update missing taxable fringe benefits.

Things To Look Out For

  • Check to make sure the Federal and state tax ID is correct. Also check the spelling of your employees’ names, as the names on the W-2 should match the names they use on their tax returns (ex – Mike’s legal name might be Michael).
  •  If your employees are covered by a defined benefit or defined contribution plan, then it is important that Box 13 (retirement plan) is checked. To perform this task in QuickBooks, go to:
    • Employee center > edit employee > change tab to Payroll and Compensation tab
  • If you are an S Corporation, check if  the owner has taken a reasonable wage for the services provided during 2011. The IRS has added plenty of new auditors, fully trained them on this one issue. If you don’t take reasonable compensation you could be raising a red flag on your corporate tax return saying “AUDIT ME.”

Also for S Corps, don’t forget to include the cost of the health insurance premiums for the owners in their W2s.

Create an Addition payroll item:

1. Lists menu> Payroll Item List >Right Click and select New payroll item

2. Select Custom Setup and click Next

3. Select Addition and click Next

4. In the Name used in paychecks and payroll reports window, enter the name of the new payroll Addition item (“S-Corp In”) > Next

5. For the Expense account, enter the account that normally holds the gross wages for S Corp owners (officer compensation* ) >Next

6. In the Tax tracking type window, select SCorp Pd Med Premium from the drop-down list > Next

7. Click next in the tax window (QuickBooks does a good job of selecting the appropriate taxes)

8. In the Calculate based on quantity window, select Neither > Next

9. In the Default rate and limit window, clear both fields (they should be blank) and click Finish

Create a Deduction payroll item:

1. From the Lists menu > Payroll Item List > Right Click and select New payroll item

2. In the Select setup method window, select Custom Setup > Next

3. Select Deduction > Next

4. In the Name used in paychecks and payroll reports window, enter the name of the new payroll Deduction item (“S-Corp Out”) > Next

5. Skip the Agency liability field, in the Liability account (employee-paid) Type S Corp Health Reclassified> click on the tab on your keyboard and add the new account as an expense account and make it a sub-account of Health Insurance Expense. > Next

6. In the Tax tracking type window, select None > Next

7. In the Taxes window, do not make any selections. > Next

8. In the Calculate based on quantity window, select Neither > Next

9. In the Gross vs. net window, select net pay > Next

10. In the Default rate and limit window, clear both fields (they should be blank) and click Finish

Now create a paycheck for each S corp owner that is covered by a company health insurance policy.

Use S-Corp payroll items you just set up: This adjustment can be made in a separate paycheck using unscheduled payroll or in the next regular payroll

1. Click into the Review Paycheck

2. In the Other Payroll Items field, select the Addition item created, S-Corp In, from the drop-down list, and then enter the premiums paid for the year in the Rate column

3. On the next line in the Other Payroll Items field, select the new Deduction item you created, S-Corp Out and enter the same amount entered for the Addition item in the Rate column. You will notice that this adjustment will have a calculation for federal and state income tax withholding taxes (that should be it, if there are other taxes withheld, then the payroll item was not setup properly) Change the federal and state income taxes withheld to zero and discuss adding that same amount as additional withholdings on the next regular paycheck. There should be no other taxes deducted.

4. Once the Check Amount is zero, Click OK

*If all your payroll is posted to payroll expenses and not broken into departments or classes of employees, call or e-mail us to discuss a support session to get this problem resolved for you.

Fringe benefits provided by the employer are includable in the W-2. Common fringe benefits include:

  • Taxable cost of group term life insurance over $50,000
  • Nontaxable sick pay
  • Employee personal use of a company vehicle
  • Employee discounts over certain limits
  • Meals
  • Bonuses
  • Awards

Fringe benefits do not include using company time to get great deals on gifts for your loved ones. Enjoy Cyber Monday!