Year-end issues present business challenges

Year-end business issues range from benefit and tax considerations to employee time-off issues. While your business is working to handle irregular schedules and absent employees, here are some tips to ease the transition, save you time and keep your business in compliance during 2006.

Employee copies of W-2 forms must be postmarked no later than Jan. 31. To avoid fines and delays, be sure to verify your employees’ Social Security numbers and proper names before printing and filing W-2s and year-end reports. All employees must have a Social Security number or a taxpayer identification number to work for pay.

When employees marry or divorce, they often will change their name with their employers, but fail to notify the Social Security Administration. Employers face fines and the inconvenience of reissuing documents that do not have proper names and Social Security numbers. A little work to verify the information can save you time and headaches later.

Verify and update employee addresses prior to printing W-2 forms. New addresses are especially important for terminated employees.

When employees leave your organization, it is a good idea to get a forwarding address. If a terminated employee’s W-2 was properly mailed by Jan. 31, but is returned to you and you do not know where to forward it, you must keep the employee’s copy for four years.

Taxable benefits that should be reflected in an employee’s W-2 earnings, such as taxable vehicle benefits, some tuition benefits, group life insurance of more than $50,000, and sick pay made to an employee by a third party, need to be put on the employee’s paycheck prior to Dec. 31 to ensure an accurate calculation of state, federal and payroll taxes.

Restaurants also need to make sure they have properly allocated tips and completed Form 8027.

Review your W-9 forms and send 1099s to all nonincorporated vendors who provided a service for your organization and were paid more than $600. It is recommended that W-9 forms be updated each year.

Be sure to update any time-off plans or vacation accrual schedules that renew at the start of the calendar year. Time-off tracking and usage reports should be made available internally or from your company’s payroll company. These reports are very helpful for companies that must accrue unused vacation as a liability on their tax reports.

While the deadlines vary by plan, an employee generally has 30 days after the close of their cafeteria plan year to submit claims incurred prior to the end of the plan year.

Employers with calendar-year flexible spending accounts, such as medical or dependent care accounts, should have sent notices to employees indicating their account balances and the deadline to incur eligible expenses well before the end of the plan year. After the close of the plan year, it also is advisable for an employer to again notify employees of the deadline to file eligible incurred expenses and the process the employee should follow to submit their claims for reimbursement.

Make sure you have updated federal and state tax tables prior to running any payrolls in 2006. The Internal Revenue Service recommends all employees complete a new W-4 and verify their exemptions each year, especially if they have married, divorced or had children in the past year. The Social Security taxable wage limit for 2006 has been raised to $94,200. 2006 tax tables can be obtained by contacting the IRS and the Missouri Department of Revenue.

Employers also should make sure they have updated their state unemployment tax rate. New rates were mailed to all employers Nov. 15. If you do not know what your unemployment rate is for 2006, you can contact the Missouri Division of Employment Security, Contribution Division.

Once you have collected and filed your quarterly reports, W-2s and 1099s, it is a good idea to put all of that information on a diskette or CD and store the CD at an off-site location.

Assistance complying with year-end reporting and tax issues can be obtained from your CPA or from a professional payroll company.

Payroll companies should provide employers with all of their W2s, quarterly reports, record storage and professional assistance to allow business owners to focus on more fun things during the holiday season.

Jeff Hunter is president of The Payroll Co.

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