Employment tax year-end planning essentials
2015 payroll year-end checklist
It is time to consider all the tasks necessary to successfully close 2015 and enter 2016.
Similar to last year, there are numerous changes to consider, including those pertaining to the taxation and reporting of fringe benefits and the requirements for filing state Forms W-2 and unemployment insurance returns electronically.
Ernst & Young LLP’s payroll year-end checklist explores these matters and more while providing you with information resources to support you in your year-end planning and compliance activities.
- Ernst & Young LLP’s sample 2015 payroll year-end checklist
- Table 1: 2016 federal holidays
- Filing electronically for 2015
- Table 2: Federal electronic filing due dates for 2015
- Table 3: Special wage payments from A to Z — sample list
- Table 4: State Form W-2 filing method requirements
- Table 5: State unemployment insurance filing method requirements
- Year-end employment tax reporting compliance
Here’s ten of EY’s top 30 2015 year-end checklist items
- Order Forms W-2 for 2015. If purchasing Forms W-2 from a forms supplier, order and inspect the incoming stock. For software packages used in preparing Forms W-2, request the dated approval notice that the software provider obtained from the Social Security Administration (SSA). (Suggested deadline: 15 December 2015)
- 2015 Forms W-4 claiming exemption. Run a report of all employees claiming exemption from federal income tax withholding on Form W-4. If no 2016 Form W-4 is filed, withhold at single and zero exemptions beginning on February 17, 2016. (Many employers send notifications to employees when they are required to file a new Form W-4. Such notices should be sent to employees no later than February 1, 2016). Check state and local Form W-4 requirements, and repeat the same steps for state and local income taxing authorities where applicable. (Suggested deadline: 1 February 2015)
- Payroll system tax configuration review. Verify taxability configuration tables for all jurisdictions for 2015 and 2016, giving special focus to these items:
. Marriage equality. One significant change affecting many employees, and that may be retroactive, is the state and local taxability of same-gender spousal benefits. In the second of two landmark decisions on same-gender marriage, the U.S. Supreme Court ruled on June 26, 2015, that the Fourteenth Amendment requires all states to license marriage between two people of the same gender and recognize same-gender marriages lawfully licensed and performed in another state. (Obergefell v. US, No. 14–556, June 26, 2015.)
Read about the impact on state and local taxability of same-gender spousal and partner benefits here.
. Transit benefits. Last year, Congress passed legislation that gives parity to the monthly tax-free limit for transit passes and parking. The provision expired after December 31, 2015, but could be retroactively reinstated.
Read more about this expiring provision and the implications of a retroactive reinstatement here.
. Other fringe benefits. Note that a few states are not “coupled” with the federal Internal Revenue Code for specific fringe benefits. For instance, a number of states do not mirror the IRS monthly tax-free limit for transit benefits of $130 per month in 2014 and 2015.
Suggested deadline: November 2015 through January 15, 2016
Accounts payable review. Review accounts payable and general ledger records for unreported taxable items. See Table 3 for a sample list of compensatory items that might have been paid through accounts payable.
Suggested deadline: November–December 31, 2015
General ledger reconciliation and review. Perform general ledger reconciliations before releasing 2015 annual information statements and returns. See Table 3 for a sample list of compensatory items that might be found in a general ledger review.
Suggested deadline: November–December 2015
Payroll bank reconciliation. Perform payroll bank reconciliation through December 31, 2015, including identifying outstanding checks for 2015. Ask for an early cutoff statement if necessary.
Suggested deadline: November–December 2015
Gross-up and tax advances. Perform all necessary gross-up calculations and impute all taxable amounts for 2015. Make tax advances when necessary (and when allowed by law) to remedy any withholding shortages resulting from imputed income. Remember that tax advances for 2015 must be repaid by employees no later than April 1, 2016.
Suggested deadline: December 31, 2015; April 1, 2016
Incentive Stock Option (ISO) and Employee Stock Purchase Plan (ESPP) reporting. The exercise of an ISO in 2015 is required to be reported on Form 3921 and the transfer of shares under an ESPP in 2015 on Form 3922. Both forms are furnished to the employee by February 1, 2016, and filed with the IRS by February 29, 2016 (March 31, 2016, if filed electronically).
Suggested deadline: February 1, 2016–March 31, 2016
- Form W-2 reporting of employer-provided group health benefits. Employers that filed 250 or more Forms W-2 in 2014 are required to report the aggregate cost of employer-provided group health benefits on the 2015 Form W-2, box 12, code DD.
Verify that the necessary information for each employee is available for Form W-2 reporting purposes.
For further details, see the IRS website here.
Suggested deadline: January 15, 2016
- Affordable Care Act information reporting. Mandatory effective for tax year 2015, applicable large employers (ALE) are required to file Form 1095-C and transmittal Form 1094-C with the IRS. If you have 250 or more information returns during the calendar year, you must file them electronically.
An applicable ALE is also required to give each full-time employee a copy of the Form 1095-C that is filed with the IRS. By February 1, 2015, statements must be furnished to employees on paper by mail or hand-delivered, unless the recipient affirmatively consents to receive the statement in an electronic format.
Employers that are not ALEs but that sponsor self-insured group health plans must report information about employees (and their spouses and dependents) who enroll in the coverage even though they are not subject to the employer shared responsibility provisions of the ACA. Self-insured plan sponsors use Form 1095-B and transmittal Form 1094-B to meet these ACA information reporting requirements.
ALE members that file 250 or more information returns must file them electronically through the ACA Information Returns (AIR) program.
The IRS offers guidance about these ACA reporting requirements here.
For guidelines on electronic filing of ACA returns, refer to Publication 5165, Guide for Electronically Filing Affordable Care Act (ACA) Information Returns.
Read the complete top 30 tasks for year-end 2015. Download "EY’s 2015 payroll year-end checklist" as a printable document.