The end of 2020 is coming quickly, and employers should have begun their preparations by now. Even amidst the chaos of the pandemic, workplaces will still be responsible for taxes, ACA reporting, and the usual payroll management tasks. MP’s HR services will go over HR and payroll tips to prep for ACA filing, year end tax tips, and general year end financial tips.
7 Key End of Year HR and Payroll Tips: Prepping for Taxes
Employers should do a few things to prepare for their own tax filings and for their workers.
- Consider offering electronic W–2s: Payroll management companies like MP offer electronic options. This helps avoid confusion or mailing errors and lets workers access their W-2 information all year, wherever and whenever they need to.
- Ask workers to verify their W–2 information. Per the Consolidated Appropriations Act of 2016, be prepared to report W-2 and 1099 data to the Social Security Administration and IRS by January 31st. Here is sample language employers can use to remind workers to verify their W-2 information:
As we wind down 2020, we would like to remind you to check your personal information for W-2’s. Please review your most recent pay stub and verify the following information is correct:
- Spelling of your name
- Social security number
- Home address
- Benefit deductions
- State tax withholdings
If you find any of this information is incorrect, please contact [Payroll Contact]. W-2’s will [be mailed to your home or other indicated address] or [will be available electronically] by February 1, 2021.
- Audit employee information: You may incur fees for filing W-2 forms with incorrect information and you may also incur fees for the work to correct those mistakes. To be on the safe side, audit employee records.
- Fringe benefit adjustments: Identify and schedule payroll adjustments like group term life, auto allowances, and other fringe benefits. Some of these may require tax withholdings and must be entered before the end of the year. Use this list to help identify fringe benefits:
- Group life insurance in excess of $50,000
- Personal usage of a company automobile
- “S” Corp-health insurance premiums paid for more than 2% shareholders
- Awards, prizes, gifts, stock options
- Employer HSA, HRA, or other medical savings contributions
- Third-party sick day
- W-4 forms: Send a reminder to employees about submitting new W-4 forms for 2021. Employees who are currently claiming exempt from withholding must submit a new W-4 form by February 15, 2021 to maintain that status. Employers are required to begin withholding federal tax for employees who fail to provide a new W-4 by February 15, 2021. Any employees who have experienced a life event may need to submit a new W-4 form because of potential changes in tax liability.
- Third–party sick pay: Determine if you have third-party sick pay information that must be reported on 2020 taxes.
- Be ready for 2021 limit changes: The wage base limits will change in 2021 per the Social Security Administration.
- Social security: 6.2% up to $142,800
- Medicare: 1.45% with no wage base limit
- Additional Medicare tax: 0.9% for all wages paid in excess of $200,000. Please note: this tax is applied to employees only.
- Maximum contribution for 401(k), 403(b), 457: $19,500 with $6,500 maximum catch-up (no change from 2020)
- Maximum contribution for simple IRA: $13,500 with $3,000 maximum catch-up (no change from 2020) Please Note: The above limits are as of October. Please consult with your tax advisor to determine if any of the above limits have been revised.
End of Year HR and Payroll Tips: Compensation
Prepare for the end of 2020 and the beginning of 2021 when it comes to paying your workers.
- Bonuses, commissions, and additional payments: This may not be a year when your organization can afford bonuses. However, some workers may have it bonuses or commissions written into their contracts. It’s also worth noting that in a difficult year, even a small bonus can go a long way towards improving employee engagement. Check to ensure you’ve covered all your bases.
- Minimum Wage Changes: Verify that you are in compliance with local, state, and federal wage laws. Keep in mind that workers who have become permanently remote and work in a different state or city from the office might trigger different minimum wage laws. Consider consulting with MP’s HR services team for more help on complicated questions like this one. For quick reference, these are the updated minimum wages by state:
*California Listed rate is for employers with 26 or more employees. Employers in California with 25 or less employees will have a minimum wage of $11.00 per hour.
*New York listed rate is for most employers in New York State. The minimum wage for New York City will be $15.00 for all businesses. The minimum wage for Long Island and Westchester Counties will be $13.00.
|District of Columbia||$15.00||TBD|
*Oregon listed rate is the standard state wage of $12.00 per hour. The minimum wage in the Portland Metro Area is $13.25 per hour and the minimum wage in Nonurban counties is $11.50 per hour.
*Minnesota listed rate is for large employers. Small employers will have a minimum wage of $8.15 per hour. The 90-day training wage and youth wage will also be $8.15 per hour.
End of Year HR and Payroll Tips: ACA Reporting
ACA reporting and health insurance: The Affordable Care requires employers to report the cost of the employer-provided health care coverage on W-2 Forms. Reporting is mandatory for employers with 50 or more full-time and full time equivalent (FTE) employees in the previous calendar year. The amount reported should include both the portion paid by the employer and the portion paid by the employee. (Note that MP’s payroll services can help record and pull this information easily, accurately, and quickly.) This information will be reported on the 1094-C and 1095-C IRS forms. Employers with less than 50 full-time or full-time equivalent employees in 2020 who offered self-insured medical plans are required to report using the 1094-B and 1095-B Forms.
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