Closing the Year with Compliance and Confidence

For business owners, the end of the year can be challenging. Balancing the usual end-of-year business demands with the additional responsibilities of payroll management requires careful planning and attention to detail. It’s a time when staying updated with the latest tax regulations and payroll requirements becomes crucial. Missing out on these updates can lead to compliance issues, resulting in penalties and added stress.

Following is a checklist of items to accomplish over the next few months:

2025 Payroll Changes 

  • Social Security wage base: The wage base for 2025 is $176,100, with a 6.2% match from both employee and employer. The maximum deduction will be $10,918.20.
  • Medicare tax: No limit to wages subject to the 1.45% Medicare Tax. Wages above $200,000 will incur an additional 0.9% tax. This remains unchanged from 2024.
  • Dependent Care Limits: The maximum exclusion is $5,000 for individuals or married couples filing jointly.
  • Health Flexible Spending Arrangements (FSA): The employee salary reduction contribution limit is $3,300.
  • Health Savings Accounts (HSAs): Maximum contributions are $4,300 for individuals and $8,550 for families. Individuals 55 and older can make an additional $1,000 catch-up contribution.
  • IRA contribution limits: $16,500 for Simple IRAs, with a $3,500 catch-up contribution for those 50 or older.
  • 401(k), 403(b) and 457 contribution limits: The employee deferral limit is $23,500, with a $7,500 catch-up contribution for those 50 or older.

Before Dec. 31 

  • Verify company information: Ensure all company details, including tax IDs and email addresses, are up-to-date.
  • Verify W-2 delivery addresses: Make sure the addresses for sending out W-2 forms are correct.
  • Process bonus payrolls: Handle any end-of-year bonuses separately for clarity. Make sure you have communicated the data concerning year-end bonuses to the payroll provider, and that it has been recorded properly to ensure it is reported in the current period.
  • Run the last payroll for the year: A significant step to close the books on the current year.
  • Review Social Security records: Ensure any name changes or address changes have been made.
  • Order forms & envelopes for W-2/1099 processing: Stock up on necessary supplies to avoid last-minute rushes.

Communicate Year-end Payroll Add-Backs to Payroll Provider

  • S-corp owners’ health, dental and accident insurance premiums for addition to W-2
  • Calculated value of personal use of company car
  • Commodity wages for farmers
  • Third-party sick pay

Before Your First Payroll in Jan.  

  • Adjust PTO accrual balances: Align with your company policy and update as necessary.
  • Update employee information: Reflect pay rates and deductions, as well as changes in names and addresses, effective Jan. 1.
  • Communicate changes in benefits: Communicate changes in benefits to your payroll provider as far in advance as possible before the first payroll.
  • Obtain new W-4 forms (if necessary): Ensure compliance with the latest tax withholding requirements.
  • Review ACA requirements: Stay informed about any changes or updates.
  • Review state minimum wage changes: Adjust payroll systems to reflect any state-specific minimum wage increases.
  • Review state unemployment insurance changes: Update your records to reflect any rate changes or new regulations.
  • Review payroll software to ensure it is updated: If you do payroll internally, ensure your payroll software is updated with the latest wage and withholding requirements.

Jan.  

  • Receive & review year-end Forms W-2 and 1099: Check for accuracy if an outside provider prepares these. If done in-house, ensure they are ready for distribution. If you have questions regarding who should get a W-2, click to learn more.
  • Reconcile W-3 with quarterly 941s or annual 944: A critical step for accurate tax reporting.

Before Jan. 31 

  • File 1099s with the IRS: Timely filing is crucial to avoid penalties.
  • File W-2s with the Social Security Administration: Ensure all employee information is reported accurately.
  • Distribute W-2s and 1099s to employees & contractors: This is a legal requirement and must be done timely. Encourage employees to carefully review their W-2s for accuracy and inform you of any necessary changes immediately.
  • File Form 940: Report your annual Federal Unemployment Tax Act tax.
  • File Form 941 or 944: These are your quarterly or annual payroll tax returns.
  • E-filing of W-2 and 1099s: If you send out more than 10 W-2 or 1099 forms, you are required to file them electronically.

Remember: If a deadline falls on a weekend, the returns or forms are due the next business day. 

Completing these tasks may feel overwhelming, but they are important for a smooth transition into the new year. Consider setting reminders for each task and delegating where possible. Your attention to these details keeps your business running smoothly.

It shows your employees and contractors that you value their contributions and are committed to accuracy and timeliness in all aspects of your business operations. If you would like to discuss payroll outsourcing, contact an Adams Brown advisor.