The end of the year is upon us, which means it's time to process the last payrolls of the year. Many fringe benefits offered to employees are taxable and need to be reported on a regular paycheck in order to withhold taxes. Make sure to consider the items below before reporting your final payroll of the year.
Employee Addresses & Social Security Numbers: Ask your payroll specialist for an unmasked employee profile listing, have your employees confirm their information is listed correctly on the report, and notify your payroll specialist of any changes right away. These changes can be made after your last payroll processes, but need to be reported before 12/31/17. Changing social security numbers after the W-2s have been prepared requires an amended return be filed. Most payroll companies charge an hourly or per return rate for amended returns.
Bonuses: Many companies give their employees bonuses at the end of the year, often in cash or gift certificates. Those bonuses, including gift certificates, are taxable wages and need to be reported through payroll. If you don't want your employees to pay taxes on the bonuses, you can ask your payroll specialist to gross the amounts up so the company covers the taxes. If you prefer your employees pay the taxes, ask your payroll specialist to add a bonus with a matching advance to the employees' final checks of the year. The employees will pay the taxes for the bonus out of their regular paycheck.
Manual Checks: While you're reviewing your records for unreported bonuses, be on the lookout for any checks written to employees that weren't reported to your payroll specialist. Unless the checks were for expense reimbursements, they need to be reported through payroll.
S-Corp Shareholder Wages: S-Corp shareholders who perform work for the company must be paid a reasonable wage for the work performed before they can be paid any distributions. If you have any working owners who have received distributions but no wages, now is the time to report some or all of those distributions through payroll. As with the bonuses in the previous section, you can ask your payroll specialist to gross up the amount received, which means the company will cover the associated taxes. Consult your tax accountant if you are unsure what constitutes as reasonable wages.
S-Corp Shareholder Health Insurance: S-Corps who provide health insurance to owners with 2% or more ownership must report the amount of health insurance premiums paid by the company on the owner's W-2. This non-cash fringe benefit is technically taxable for federal income tax withholding, however the owner can claim a matching deduction on their Form 1040 for self-employed health insurance, resulting in a null effect on their taxes. Ask your payroll specialist to record the insurance benefit by itself on a separate check. This will ensure the owner doesn't have additional federal income tax withheld from their regular paycheck.
Personal Use of Company Car (PUCC): If your employees drive a company car and more than 15% of the driving is non-work related, that personal use of the car is a taxable non-cash fringe benefit. Consult with your tax accountant to determine the value of the personal use and report that amount to your payroll specialist. PUCC will need to be reported on your employee's final paycheck of the year so the taxes can be withheld from their regular paycheck.
Group Term Life: Life insurance is considered a group term plan if the coverage includes death benefits and is provided to 10 or more full-time employees during the year (or all full-time employees if the company employees less than 10 people full time). Benefits valued at $50,000 or less are tax exempt. Any value in excess of $50,000, less premiums paid by the employee, is fully taxable and needs to be reported on the employee's final paycheck of the year.
Moving Expenses: Unlike reimbursement of travel expenses, moving expense reimbursements must be reported on your employee's W-2. Consult your tax accountant to determine if the moving expenses are qualified or non-qualified. Non-qualified moving expenses will need to be reported on your employee's final paycheck to allow taxes to be withheld. Qualified moving expenses are tax exempt, so they can be reported on a separate check.
If you're not sure whether you need to report your employees' fringe benefits through payroll, consult your tax accountant, payroll specialist, or Publication 15-B from the IRS for more information.