Year-End
Payroll Guide

November

If you made changes to your account due to COVID-19, it’s important that all the below information is accurate and up-to-date to help avoid any filing disruptions or delivery delays.

Verify the following information for the company:

  • Tax IDs
  • Legal name
  • Legal address*
  • Federal, state, and local (if applicable) tax identification numbers
  • State unemployment rates

*To update your company’s Legal Address, go to the Company tab, select Company Details and click Edit next to Company Legal.

On the Company tab, review each page to verify that information is accurate. If you find an error, make your changes on the Company Info and Company Tax pages.

AlertIf you made changes to your account due to COVID-19, it’s important that all the below information is accurate and up-to-date to help avoid any filing disruptions or delivery delays.

Make sure that everything is up to date and correct for each of your employees and contractors. Did anyone move, get married, divorced, or have children?

For employees, double-check:

  • Employee name (is it spelled correctly?)
  • Social Security Number (SSN)
  • Employee address (is it accurate?)
  • Lived-in jurisdiction
  • Worked-in jurisdiction
  • Paid time off information
  • Status (active, terminated, LOA)
  • Filing status (exempt or non-exempt)
  • Number of exemptions
  • Year-to-date wages
  • Year-to-date taxes
  • Pre-tax year-to-date amounts (such as 401k and Medical 125)

Helpful Hint: When an incorrect SSN is filed, the Social Security Administration (SSA) charges a fee to correct the wages posted incorrectly to the wrong individual. To help avoid this issue, the SSA provides a free verification tool on their website.

You can verify that your employees’ names and SSNs match Social Security’s records using the free verification service that the SSA provides on their website.

Reminder! SSNs will now be truncated on copies of the Form W-2, including copies that are provided to employees to report third party sick pay and group-term life insurance. It is important that your employees’ SSNs are accurate and up-to-date in RABco HCM platform, as employees will not have visibility to their SSNs once W-2s are printed and distributed.


For contractors, double-check:

  • Name
  • Taxpayer’s Identification number (TIN)
  • Address
  • State work locations and, if applicable, local work locations
  • Earnings totals for each jurisdiction

If you have to change non-payroll data, such as an address, make the changes on the Employee Info page, on the appropriate Employee’s Tax page, or on the contractor’s 1099 Info page.

Helpful reports for employee verification:

  1. Starting Point: Reports tab > All Reports
  2. Search for Employee SummaryW-2 Preview and Wage and Tax Register.

Review the information in the reports. You can also print them or export the data to Excel. If any information is not accurate, make the needed corrections.

Important: If you make corrections to wages, taxes, or jurisdictions, you must run an Off-Cycle Payroll to process the corrections.

Veterans Day is observed on Wednesday, November 11 and some banks may be closed. If your check date falls on this date, please adjust it to avoid delaying your employees’ direct deposits.

 

Thanksgiving Day is Thursday, November 26. If your check date falls on this date, please adjust it to avoid delaying your employees’ direct deposits and delivery of your payroll package.

Before the last scheduled payroll of the quarter, make sure you update any employee totals that you want to include in the quarter balances. You can update totals for any of the following items:

  • Manual checks
  • Voided checks
  • Third party sick payments
  • Group term life insurance
  • Dependent care benefits
  • Moving expenses
  • 401(k) and cafeteria plans
  • Retirement plans
  • Paid time off
  • Taxable fringe benefits
  • Any other necessary adjustments to employee wage and tax amounts

In the fourth quarter, before December 31, you must update missing totals for your employees and run any bonus payrolls. If you have to run an Off-Cycle Payroll (to process manual checks, voided checks, or third party sick payments) after the last day of the quarter, government agencies may charge you with penalties and interest based on their deposit and filing deadlines for taxes. Tax Filing Clients: Amendment fees may apply.

Federal legislation requires the reporting of both taxable and non-taxable sick payments made to employees from a third party. Taxes withheld on those payments must also be reported. Sick pay should be included on either the employees’ W-2s or on a separate form provided by the third party. If third party sick pay is not reported by the third party, it must be included on your employees’ W-2s.

It is important that you obtain this information from the appropriate third party provider as soon as possible. These entries must be processed on or before your last payroll of the year to ensure that your Form 941 and W-2 reports are accurate.

Most carriers provide third party sick pay statements throughout the year. This reporting method allows employers to review and submit third party sick pay adjustments throughout the year, rather than only at year end. Please use those statements to report the information no later than December 31, 2020.

Helpful tips when reporting:

  • Be sure to review your employee’s third party sick pay YTD (year-to-date) amounts on file to check for any previous dollars entered. Then verify the amounts are truly YTD amounts. This will help ensure the proper third party sick pay amounts are entered.
  • If you realize you need to report additional items after you have already processed your last payroll for the year, you will need to run an Off-Cycle Payroll and date it: 12/31/YY (“YY” being the current tax year).
  • You will need to process an Off-Cycle Payroll to include the third party sick pay reporting, otherwise it will remain in pending items.

A fringe benefit is a form of compensation for the performance of services. For example, you provide an employee with a fringe benefit when you allow the employee to use a business vehicle to commute to and from work.

Any fringe benefit your company provides is taxable and must be included in the employee’s pay unless the law specifically excludes it. The benefit is subject to taxes and must be reported on the employee’s W-2.

Helpful Hint: Services like company cars and gym memberships are taxable. 

All Vermont employers that are required to withhold income tax must report the total cost of employer-sponsored health care coverage.

The total cost paid by the employer and employee should be reported on the State Copy of the W-2 form in Box 12.

Unlike the federal mandate, employers with 250 or less employees are also required to report the total cost of employer-sponsored health care coverage. All other employers can review the Internal Revenue Service’s website to determine if you’re subject to reporting cost of healthcare coverage

The Affordable Care Act (ACA) requires certain employers to report health coverage information to their employees and the IRS annually.

Note: Please check with your respective states for individual reporting requirements.

Good news! There is no Federal Unemployment Tax Act (FUTA) credit reduction for 2020.

Household employees are those who work in and around your private residence, such as housekeepers, nannies, and gardeners. Because tax filing due dates are inconsistent with typical quarter-end cutoff dates, there are limitations to what RABco can and cannot do to help you file.

Please contact you payroll specialist for more details.

Although you can process a bonus payroll at any time during the year, many are processed at the end of the year.

There are two types of bonus earnings available in the payroll application: Bonus and Supplemental Bonus. It’s important to use the appropriate earning because each one is taxed differently.

  • Bonus earning: the bonus payroll is taxed at the regular rate, the same as a normal payroll.
  • Supplemental Bonus earning: the bonus payroll is taxed at the supplemental wage rates for federal and state income tax. For 2020, the federal rate is a flat 22% up to $1 million and 37% for amounts exceeding $1 million.

To be sure that your W-2 amounts are correct, process your bonus payrolls before the end of the year.

If you want to surprise your employees with the bonus, consider processing an Off-Cycle Payroll after you run your regular payroll. That way, the bonus amount won’t be included in the year-to-date total.

If your federal tax liabilities for the bonus payroll are over $100,000.00, the taxes must be deposited the business day after the check date.

The Internal Revenue Service (IRS) released a new federal Form W-4, which went into effect on January 1, 2020. New employees, who began on or after 1/1/20, and existing employees, who wish to adjust their withholding, must use the new Form W-4.

You can download the new Form W-4 from the IRS website. 

Important Note: Employees, who submitted a Form W-4 prior to 2020 and are not updating their withholding, do not have to submit a new form.

Pulling your payroll liability report on a monthly basis and comparing it to your proof of tax deposits can help you keep track of any taxes you may owe at the end of the year.

The Internal Revenue Service (IRS) is introducing a new form for contractors in 2020 called the Form 1099-NEC, which should be used to report non-employee compensation. These amounts were previously reported in Box 7 of the Form 1099-MISC.

What you need to know

  • You will no longer report non-employee compensation on the 1099-MISC. You must use the new Form 1099-NEC to report this information.
  • The new Form 1099-NEC will be included in your year-end package.
  • The earning name in  has been updated from 1099 Misc to 1099 Compensation to accommodate this change.
  • The IRS has rearranged the box numbers for reporting certain incomes on the Form 1099-MISC. Please keep this in mind as you fill out this form.

You can access the new Form 1099-NEC on the IRS website.

To help protect employees from identity theft, the Internal Revenue Service (IRS) has announced it will truncate Social Security Numbers (SSNs) on copies of the Form W-2.

This includes copies that are provided to employees to report third party sick pay and group-term life insurance. SSNs, however, should not be truncated on the employer filing copies of the Form W-2.

The first five digits of truncated SSNs will be replaced with either an asterisk (*) or an X. For example, a truncated SSN would appear as either ***-**-1234 or XXX-XX-1234.

Important! Since SSNs will be truncated on copies of Form W-2s, it is important that your employees’ SSNs are accurate and up-to-date in your RABco HCM platform, as employees will not have visibility to their full SSNs once W-2s are printed and distributed.

You can verify that your employees’ names and SSNs match the Social Security Administration’s records using the free verification service that the SSA provides on their website.

December

AlertIf you made changes to your account due to COVID-19, it’s important that all the below information is accurate and up-to-date to help avoid any filing disruptions or delivery delays.

Make sure that everything is up to date and correct for each of your employees and contractors. Did anyone move, get married, divorced, or have children?

For employees, double-check:

  • Employee name (is it spelled correctly?)
  • Social Security Number (SSN)
  • Employee address (is it accurate?)
  • Lived-in jurisdiction
  • Worked-in jurisdiction
  • Paid time off information
  • Status (active, terminated, LOA)
  • Filing status (exempt or non-exempt)
  • Number of exemptions
  • Year-to-date wages
  • Year-to-date taxes
  • Pre-tax year-to-date amounts (such as 401k and Medical 125)

You and RABco can no longer see full SSNs in the RABco HCM platform; however, you are able to unmask SSNs on certain reports using the Show Social Security Number field. You can verify that your employees’ names and SSNs match Social Security’s records using the free verification service that the SSA provides on their website.

Reminder! SSNs will now be truncated on copies of the Form W-2, including copies that are provided to employees to report third party sick pay and group-term life insurance. It is important that your employees’ SSNs are accurate and up-to-date in the RABco HCM platform, as employees will not have visibility to their full SSNs once W-2s are printed and distributed.


For contractors, double-check:

  • Name
  • Taxpayer’s Identification Number (TIN)
  • Address
  • State work locations and, if applicable, local work locations
  • Earnings totals for each jurisdiction

If you have to change non-payroll data, such as an address, make the changes on the Employee Info page, on the appropriate Employee’s Tax page, or on the contractor’s 1099 Info page.

Review the information in the reports. You can also print them or export the data to Excel.

If any information is not accurate, make the needed corrections.

Before the last scheduled payroll of the quarter, make sure you update any employee totals that you want to include in the quarter balances. You can update totals for any of the following items:

  • Manual checks
  • Voided checks
  • Third party sick payments
  • Group term life insurance
  • Dependent care benefits
  • Moving expenses
  • 401(k) and cafeteria plans
  • Retirement plans
  • Paid time off
  • Taxable fringe benefits
  • Any other necessary adjustments to employee wage and tax amounts

In the fourth quarter, before December 31, you must update missing totals for your employees and run any bonus payrolls. If you have to run an Off-Cycle Payroll (to process manual checks, voided checks, or third party sick payments) after the last day of the quarter, government agencies may charge you with penalties and interest based on their deposit and filing deadlines for taxes.

AlertIf your business was impacted by COVID-19 and you need to record any Families First Coronavirus Response Act (FFCRA) or Coronavirus Aid, Relief, and Economic Security (CARES) Act earnings, you must do so before December 31, 2020.

AlertIf your payroll processing was disrupted by COVID-19, and you issued manual checks and/or voided checks, please check that your payroll information is up-to-date in the RABco HCM platform before December 31, 2020. This will help ensure accurate and timely tax filings.

This may include manual checks and voided checks.

A fringe benefit is a form of compensation for the performance of services. For example, you provide an employee with a fringe benefit when you allow the employee to use a business vehicle to commute to and from work.

Any fringe benefit your company provides is taxable and must be included in the employee’s pay unless the law specifically excludes it. The benefit is subject to taxes and must be reported on the employee’s W-2. 

Christmas Day is Friday, December 25 and New Year’s Day is Friday, January 1. If your check dates fall on either of these dates, please adjust them to avoid delaying your employees’ direct deposits and delivery of your payroll package.

Heads up! There will be no payroll deliveries on Friday, 12/25. Payrolls processed on Thursday, 12/24 will be delivered Monday, 12/28. There will be no payroll deliveries on Friday, 1/1. Payrolls processed on Thursday, 12/31 will be delivered Monday, 1/4.

 

A number of states have changed their labor laws. Updated compliance posters are expected to be delivered early next year. You can see what’s new in your state here.

Employers who provide Group Term Life Insurance to their employees must calculate and report the cost of coverage over $50,000, as required by the Internal Revenue Service (IRS). This cost is fully taxable and must be reported as additional income for any employee who receives this benefit. The amount will be displayed on your applicable employees’ W-2s in Box 12 (Code C).

Before you report costs in the payroll platform, you must first calculate the taxable portion of coverage that exceeds $50,000. To determine this amount, please review Publication 15-B, The Employer’s Tax Guide to Fringe Benefits (Page 13), as prepared by the IRS, or speak with your company’s accountant.

Note: Any uncollected Social Security and Medicare will be calculated for the employee and display on the W-2 in Box 12 with codes M and N respectively.

Note: Any uncollected Social Security and Medicare will be calculated for the employee and display on the W-2 in Box 12 with codes M and N respectively.

You can find additional information about Group-Term Life Insurance by visiting the Internal Revenue Service’s (IRS) website. You can also refer to Publication 15-B, The Employer’s Tax Guide to Fringe Benefits (Page 13), as prepared by the IRS.

Before December 31, 2020

AlertIf you made changes to your account due to COVID-19, it’s important that all the below information is accurate and up-to-date to help avoid any filing disruptions or delivery delays.

Verify the following information for the company:

  • Tax IDs
  • Legal name
  • Legal address*
  • Federal, state, and local (if applicable) tax identification numbers
  • State unemployment rates

*To update your company’s Legal Address, go to the Company tab, select Company Details and click Edit next to Company Legal.

On the Company tab, review each page to verify that information is accurate. If you find an error, make your changes on the Company Info and Company Tax pages.

AlertIf you made changes to your account due to COVID-19, it’s important that all the below information is accurate and up-to-date to help avoid any filing disruptions or delivery delays.

W-2s will be shipped to the delivery address associated with your account, which may be different from your business’s legal address or payroll delivery address.

Please note: W-2s cannot be delivered to a P.O. box.

Some jurisdictions require that you provide an EITC notification to each of your employees with their annual tax forms. If your business is located in one of these jurisdictions, click the link to access and print the applicable notification.

Additional information on the Earned Income Tax Credit can be found on your jurisdiction’s website.

*Maryland requires employers to provide the notification to employees by December 31.

Although you can process a bonus payroll at any time during the year, many are processed at the end of the year.

There are two types of bonus earnings available in the payroll application: Bonus and Supplemental Bonus. It’s important to use the appropriate earning because each one is taxed differently.

  • Bonus earning: the bonus payroll is taxed at the regular rate, the same as a normal payroll.
  • Supplemental Bonus earning: the bonus payroll is taxed at the supplemental wage rates for federal and state income tax. For 2020, the federal rate is a flat 22% up to $1 million and 37% for amounts exceeding $1 million.

To be sure that your W-2 amounts are correct, process your bonus payrolls before the end of the year.

If you want to surprise your employees with the bonus, consider processing an Off-Cycle Payroll after you run your regular payroll. That way, the bonus amount won’t be included in the year-to-date total.

If your federal tax liabilities for the bonus payroll are over $100,000.00, the taxes must be deposited the business day after the check date.

 

Run your last scheduled payrolls for the year, including bonus payrolls and Off-Cycle Payrolls necessary to account for any outstanding manual checks, voided checks, third party sick payments, or adjustments.

The last day you can submit final 2020 payrolls with a check date in December is 12/31. Payrolls submitted after 12/31 may incur penalty and interest charges.

If you have to run another payroll before the end of the year, you will have to review your company, employee, and contractor totals again.

Important: If an employee receives payment in the next year for days worked in the current year, earnings and deductions are reflected in the new year. Payroll taxes are based upon the date wages are paid, not the date wages are earned.

Please review the W-2 Preview report to verify the following information – spelling of employees’ names, social security numbers, addresses, and wages.

You can view your tax forms by logging into the RABco HCM platform and searching for  Tax Documents.

Please note: 4Q tax forms will be available once they are filed.

If you have a retirement plan through an administrator other than RABco and any of your employees are set up with a retirement plan catch-up deduction, both the regular and catch-up deductions will automatically come out of the first payroll of 2021 unless you request a change. Be sure to report any changes with your first payroll of 2021.

January & February

The first payroll of the year is the perfect time to review and update your employee deductions, such as:

  • Medical
  • Dental
  • Life Insurance
  • Retirement deductions such as 401(k)*
  • Other voluntary deductions

*You should plan to change retirement deductions based on the new limits for 2021. Limits generally change from year to year. Make sure you become familiar with the new limits and update your employee’s deductions, if necessary. 

Your state may have updated its W-4 form. Make sure that you’re using the correct form by checking the Internal Revenue Service (IRS) website here: https://www.irs.gov/tax-professionals/government-sites

If you have a retirement plan through an administrator other than RABco and any of your employees are set up with a retirement plan catch-up deductions, both the regular and catch-up deductions will automatically come out of the first payroll of 2021 unless you request a change. Be sure to report any changes with your first payroll of 2021.

The Affordable Care Act (ACA) requires certain employers to report health coverage information to their employees and the IRS annually.

Note: Please check with your respective states for individual reporting requirements.

If any changes apply to your business, be sure to update the information in the system.

JAN. 1, 2021 MINIMUM WAGE INCREASES:

Timing: This chart covers January 1, 2021 minimum wage increases for all applicable states and some larger U.S. cities. Some states increase their minimum wage rates mid-year or on a different cycle. The information below applies to January 1, 2021 increases only (Note: New York increases their minimum wage on December 31).

Pending Updates: Several jurisdictions adjust their minimum wage rates annually for inflation, some of which haven’t yet announced whether and to what extent the minimum wage will increase for January 2021. This is not an exhaustive list. There may be additional jurisdictions that have scheduled increases for January 1. Check your state and local laws to confirm compliance.

Multiple Rates: If an employee is subject to more than one minimum wage requirement (such as federal, state, and local), you should generally comply with the rate most generous to the employee. Additionally, if your business is located in one state, but you have employees (such as remote workers) working in another jurisdiction, the minimum wage in the location where the employee performs work generally applies.

Local minimum wage increases:

Several cities are also increasing their minimum wage effective January 1, 2021. Some of these include:

JurisdictionMinimum wage rate January 1, 2021
Flagstaff, AZ$15
Belmont, CA$15.90
Burlingame, CA$15
Cupertino, CATBD
Daly City, CA$15
El Cerrito, CA$15.61
Half Moon Bay, CA$15
Hayward, CA$14 (25 or fewer employees)
$15 (26 or more employees)
Los Altos, CA$15.65
Menlo Park, CA$15.25
Mountain View, CATBD
Novato, CA$14 (1-25 employees)
$15 (26-99 employees)
Oakland, CATBD
Palo Alto, CA$15.65
Petaluma, CA$15.20
Redwood City, CATBD
Richmond, CA

$15.21 (general)

Note: Under city law, employers that contribute at least a certain amount towards an employee medical benefits plan may be able to take a limited credit toward the minimum wage. Remember, employers must also comply with the state minimum wage. If the state minimum wage is higher than the applicable city rate with the credit, employers must pay at least the state minimum wage.

San Carlos, CA$15.24
San Diego, CA$14
San Jose, CA$15.45
San Mateo, CA$15.62
Santa Clara, CA$15.65
Santa Rosa, CA$15.20
Sonoma, CA$14 (25 employees or less)
$15 (26 employees or more)
South San Francisco, CA$15.24
Sunnyvale, CATBD
Denver, CO$14.77
Portland, ME$12.15
Albuquerque, NM$10.50
$9.50 (if not covered by state minimum wage and employer provides healthcare and/or childcare benefits of at least $2,500 per employee per year)
Las Cruces, NM$10.50
SeaTac, WA $16.57
Seattle, WA$16.69 
$15 (if employer has 1-500 employees and provides $1.69/hour med. benefits/tips)

Rev: 11/2020

If any changes apply to your business, be sure to update the information in the system.

Georgia Employers: The Georgia Department of Labor (GDOL) announced that they are no longer mailing their Annual UI Tax Rate Notices to employers. You will need to log into the GDOL Employer Portal https://dol.georgia.gov/ to retrieve your rate change notice.

*Note: Please check back soon for updated 2021 information.

You and employees (with Employee Access®) will be able to view your W-2s and 1099s on or around January 4, 2021. Please review online or via Employee Self Service prior to receiving the package with the physical forms.

IMPORTANT: The deadline for submitting W-2s to the Social Security Administration (SSA) and Form 1099-MISC and 1099-NEC to the IRS is January 31, 2021.

Reminder! SSNs will now be truncated on copies of the Form W-2, including copies that are provided to employees to report third party sick pay and group-term life insurance. It is important that your employees’ SSNs are accurate and up-to-date before January 15, 2021, as employees will not have visibility to their full SSNs once W-2s are printed and distributed.

Helpful Hint: Make sure you distribute W-2s and/or 1099s to your employees/contractors by January 31, 2021.

Martin Luther King, Jr. Day is Monday, January 18. If your check date falls on this date, please adjust it to avoid delaying your employees’ direct deposits.

 

Forms must be postmarked for delivery to employees prior to January 31, 2021.

  • Ready to ship
  • Out for delivery
  • Delivery delayed
  • Delivered

End of January 2021

File the annual tax forms (Forms 944, 940, 943, state income and unemployment tax returns, W-2, W-3, 8027) applicable to your business.

Not sure where to send your information? Visit the State Government Websites section of the IRS site for details on electronic filing or to locate a physical address(es).

RABco does not file your 1099-MISCs or 1099-NECs. If you have 1099-MISCs or 1099-NECs, you are responsible for filing them and a 1096 with the appropriate agencies by their required due date. Form 1096 will include totals for both the 1099-MISC and 1099-NEC.

Form 1099-MISC is the miscellaneous income form that employers must file for non-employees who are paid compensation of $600.00 or more (including rents, royalties, prizes, awards, etc.) during the year.

Form 1099-NEC is the new form introduced by the IRS in 2020 to report non-employee compensation. These amounts were previously reported in Box 7 of the Form 1099-MISC. It is important to fill this out for each of your contractors with non-employee compensation.

You will receive the following forms in your year end package:

  • 1099-MISC:
    • 1099-M Copy A – Copy of the 1099-M that you send to the IRS for each contractor who receives a 1099-MISC.
    • 1099-M Copy B – Copy of the 1099-MISC that you give directly to your contractor. The contractor includes the 1099-MISC information on personal federal, state and, if applicable, local income tax returns.
    • 1099-M Copy C – Copy of the 1099-MISC that you send to the applicable state and, if applicable, local taxing agency for each contractor who receives a 1099-MISC.
  • 1099-NEC:
    • 1099-NEC Copy A – Copy of the 1099-NEC that you send to the IRS for each contractor who receives a 1099-NEC.
    • 1099-NEC Copy B – Copy of the 1099-NEC that you give directly to your contractor. The contractor includes the 1099-NEC information on personal federal, state and, if applicable, local income tax returns.
    • 1099-NEC Copy C – Copy of the 1099-NEC that you send to the applicable state and, if applicable, local taxing agency for each contractor who receives a 1099-NEC.
  • Federal 1096: The 1099 Transmittal Form, which is a summary of the information contained in the 1099-MISC and 1099-NEC forms. You send one copy to the IRS along with a copy of each of your 1099-MISC and 1099-NEC forms.

Please note: 1099-MISCs and 1099-NECs must be in your contractor(s) hands by January 31, 2021. Filing of these forms, plus the W3 and 1096 are also due 1/31/21.

January 31, 2021

January 31, 2021 is the deadline to distribute W-2s to your employees or 1099s to your contractors.

Check your envelope size. The price to mail a 1 oz, first-class letter (standard size) is 55 cents. If it weighs more than 1 oz, additional postage will be required.

 

Some jurisdictions require that you provide an EITC notification to each of your employees with their annual tax forms. If your business is located in one of these jurisdictions, click the link to access and print the applicable notification.

Additional information on the Earned Income Tax Credit can be found on your jurisdiction’s website.