Employment tax year-end planning essentials

2018 payroll year-end checklist

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It is time to consider all the tasks necessary to successfully close 2018 and open 2019.

As a result of the 2015 change in the federal Form W-2 filing due date to January 31, you will find that most states adopted the earlier filing due date for the 2018 tax year. Be certain to carefully consider the potential for an increase in Forms W-2c since the due date for furnishing Forms W-2 to employees is the same due date for filing with the Social Security Administration (SSA) and many taxing authorities.

Ernst & Young LLP’s payroll year-end checklist explores these matters and more while providing you with resources to support you in your year-end planning and compliance activities.

What’s included

Ernst & Young LLP’s sample 2018 payroll year-end checklist

Table 1: 2019 federal holidays

Table 2: Federal electronic filing due dates for 2018

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

 

Following is first 10 of our top 30 items for the 2018 payroll year-end checklist.

Payroll year-end tasks for 2018

Suggested deadline

1

Order Forms W-2 for 2018. 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 SSA.

November 15, 2018

2

Form W-4 verification. Ask that employees review their name, address, Social Security Number and Form W-4 and confirm that their federal, state and local income tax withholding elections are correct for 2018.

December 1, 2018

3

2018 Forms W-4 claiming exemption. Run a report of all employees claiming exemption from federal income tax withholding on Form W-4. If no 2019 Form W-4 is filed, withhold based on the last Form W-4 the employee provided where exemption from withholding was not claimed. If there is no prior Form W-4 where exemption was not claimed, withhold at single and zero exemptions beginning on February 16, 2019. (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 January 31, 2019.) Check state and local Form W-4 requirements, and repeat the same steps for state and local income taxing authorities where applicable.

For more about the federal and state Form W-4 requirements, read our special report.

January 31, 2019;
February 16, 2019

4

Payroll system tax configuration review. Verify taxability configuration tables for all jurisdictions for 2018 and 2019.

  • Paid family leave benefits. A number of states have in recent years enacted laws requiring that employers provide paid family leave insurance to pay for time off to care for an employee’s family members. Federal law has not kept pace with this changing state landscape, leaving the issue of how to tax and report these benefits unclear. Employers will want to confirm their federal taxation and reporting of these benefits. To assist you, read our special report on paid family leave insurance here.

November 2017 -
January 2018

 

  • Wellness benefits. Confirm that you are giving the proper tax treatment to benefits provided under wellness plans. For our analysis of recent IRS guidance, go here.

 

 

  • Third-party sick pay. Your insurance provider is required to send you an annual statement of payments made and taxes withheld from disability pay in 2018 no later than January 15, 2019. You are likely required to file Forms W-2 with the SSA and provide copies to employees.

    For more information on third-party sick pay, read our special report special report here.

 

 

  • Marriage equality. All states now recognize same-gender marriages as a result of the U.S. Supreme Court decision on June 26, 2015. (Obergefell v. US, No. 14–556, June 26, 2015.) Some employers have yet to adequately adjust their state tax treatment of same-gender partner benefits to reflect these state changes.

    This year-end, confirm that you are properly taxing benefits you provide for employees who have a same-gender spouse, civil union partner or a registered domestic partner.

    Read about the taxability of same-gender spouse and partner benefits here.

 

 

  • Moving expenses. Under the Tax Cuts and Jobs Act (TCJA), reimbursements for moving expenses made to employees or paid directly to third parties on and after January 1, 2018, and through December 31, 2025, are included in wages subject to federal income tax (FIT), federal income tax withholding (FITW), Social Security/Medicare (FICA) and federal unemployment insurance (FUTA). An exception to this provision applies to members of the Armed Forces on active duty moving pursuant to a military order and incident to a permanent change of station. (TCJA §11048.)

    In IR-2018-190 and Notice 2018-75, the IRS announced that moving expenses incurred prior to 2018 but reimbursed or paid in 2018 are excluded from wages subject to FIT, FITW, FICA and FUTA if they were excluded from taxable wages prior to the changes made under the TCJA. This rule also applies to payments made to a third party in 2018 for moving services provided prior to 2018.

    The IRS says for employees to qualify for this exclusion from taxable wages in 2018, they must not have deducted the expenses on their 2017 federal personal income tax return.

    For moving expenses incurred prior to January 1, 2018, IRC §132(g) allows an exclusion from wages for FIT, FITW, FICA and FUTA purposes under IRC §132(a)(6) for moving expenses reimbursed or paid directly by the employer to the extent those moving expenses were deductible under IRC §217. Under IRC §217, the exclusion applies to the cost of moving household goods and personal effects from the former residence to the new residence, the first 30 days of storage for a domestic move, and lodging and mileage expenses incurred during the period of travel from the former residence to the new place of residence. Special rules applied to foreign moves. Additionally, nontaxable moving expense reimbursements paid directly to employees are reported on Form W-2 in box 12, code P. (See IRS Publication 521 and Form 3903.)

January 15, 2019

 

  • Other fringe benefits. Note that a few states are not “coupled” with the federal Internal Revenue Code for specific fringe benefits. For instance, some states did not adopt the change in the tax treatment of moving expense reimbursements that took effect January 1, 2018, and some states do not mirror the IRS monthly tax-free limit for transit benefits of $260 per month in 2018.
  • For state details on the state treatment of fringe benefits for income tax and unemployment insurance, ask us about our TaxAbility™ research library.

    See more about our TaxAbility™ payroll tax configuration analytics here.

 

5

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.

November–December 31, 2018

6

General ledger reconciliation and review. Perform general ledger reconciliations before releasing 2018 annual information statements and returns. See Table 3 for a sample list of compensatory items that might be found in a general ledger review.

November–December 2018

7

Payroll bank reconciliation. Perform payroll bank reconciliations through December 31, 2018, including identifying outstanding checks for 2018. Ask for an early cutoff statement if necessary.

November–December 2018

8

Gross-up and tax advances. Perform all necessary gross-up calculations and impute all taxable amounts for 2018. Make tax advances when necessary (and when allowed by law) to remedy any withholding shortages resulting from imputed income. Remember that tax advances for 2018 must be repaid by employees no later than April 1, 2019.

Alert! In 2017, the IRS modified the instructions in Form 941-X to clarify that prior-year adjustments to federal income tax withholding and the Additional Medicare Tax are not allowed merely because these taxes were paid by the employer in connection with a gross-up. Businesses will need to carefully review their 2018 gross-up calculations prior to December 31, 2018, to avoid federal income tax and Additional Medicare Tax overpayments they cannot recover after the close of the year.

Read more about implications of gross-up errors detected after the close of the calendar year here.

December 31, 2018; April 1, 2019

9

Check your timing for posting taxable fringes to the payroll system. To prevent late-deposit penalties and other adverse consequences, review the items on your year-end adjustment list to determine if they should have been posted to taxable wages on a periodic or other more frequent basis. Identify ways to mitigate exposures and adjust your procedures for the future accordingly.

Read more about the timing for recognizing fringe benefits as paid for tax payment purposes in our special report.

December 31, 2018

10

2018 Form W-2 distribution. Determine what method will be used to distribute employee copies of the 2018 Forms W-2. If special mailing rates will be used, be certain to file all necessary documents with the U.S. Postal Service. (See T.D. 9114, 69 FR 7567, 2-18-00 for information on providing Forms W-2 to employees electronically.)

December 31, 2018

 


EY - Payroll year-end checklist for 2018 Read the complete top 30 tasks for year-end 2018. Download "EY’s 2018 payroll year-end checklist" as a printable document.