6 Year End Details & Bonus Reminders You Must Know!
Despite everything we tried we could not stop the end of year from happening. So… here are the Year-End chores. It is very important you read and consider each section. Closing out 2017 correctly and going into 2018 on the right foot will make your life a lot easier. Our goal is to provide absolutely spot on tax returns for you, make sure you understand your responsibilities and any changes for 2018. We are trying to make your life simpler and headache free.
If You Intend to Pay End-Of-Year Bonuses
FEDERAL AND STATE WITHHOLDING ON BONUS AMOUNTS:
Per the IRS 2016 (Circular E – Employer’s Tax Guide) Publication 15 located on Page 18-19 at https://www.irs.gov/pub/irs-pdf/p15.pdf
Bonuses are treated as supplemental wages and, as such, fall under specific government guidelines that are required to be taxed for Personal Income Tax (in addition to the mandatory Social Security, Medicare, and any State Disability or Local Taxes that always apply).
There are a couple of ways to tax a Supplemental Wage and we will need to know how you want the payroll team to handle the BONUS you are giving to an employee.
- The Bonus Check and the Regular Wage is placed in one check to the employee and will be taxed at the rate of the combined gross total.
- The Bonus Check is issued separately than regular pay check and will be withheld at a fixed percentage currently in effect for 2017 which is 25% for Federal and 10.23% for California. Other states can vary – your payroll specialist can provide the actual state amount. This will in most cases be the highest taxed which means less money in the hands of the employee.
- The Bonus Check can be paid as a separate check and taxed as a separate payment to be taxed on itself. It will give the employee two separate checks (if you have asked for it to be paid on a scheduled pay date) and taxed separately which puts more money in the hands of the employee.
* Please make note on the document you send in with your bonus request which method you wish to use to calculate the required taxes otherwise it will be processed and taxed as Step 2 above.
Other Items to keep in mind when issuing Bonuses to Employees:
LIMITS ON DIRECT DEPOSITS: If the total company net pay for direct deposits exceeds $500,000 OR the net pay to any one individual exceeds $100,000, it will require a wire be sent directly to our ACH processor rather than a debit to your payroll account as is the normal process. The alternative to sending a wire is to issue system generated checks rather than direct deposits.
SCHEDULING: It is always best to discuss your intent to do a bonus run and how it fits in with your normally scheduled payroll date with your payroll specialist in advance. Because there are special rules requiring expedited payment of 941 taxes if the liability exceeds $100,000 during one liability period, the payroll team can advise you if special arrangements (such as a wire to insure timely payment of tax liabilities) will be required.
All adjustments for 2017 (that have not been previously included in your payroll) should be sent in before your last payroll of the year.
Adjustments may include:
- Manual/Voided Checks
- Third Party Sick Pay
- Group Term Life
- Auto Allowances/Personal Use of Company Car
- S-Corp Contributions to a health plan (effects 2% or greater shareholders)
Adjustments that must be made after your last payroll run will necessitate an additional payroll being done as well as the charges associated with it. Any adjustments done after year end will incur additional charges $125.00 Short Window Processing fee and may also involve penalties from the IRS and/or State agencies for late tax payments.
Other Important Information:
- California State once again this year has been subject to the FUTA Credit Reduction. A state is a credit reduction state if it has taken loans from the federal government to meet its state unemployment benefits liabilities and has not repaid the loans within the allowable time frame. A reduction in the usual credit against the full FUTA tax rate means that employers paying wages subject to UI tax in those states will owe a greater amount of tax.
At the year ends filing for Form 940 (FUTA) there will be an additional 2.1% liability due for CA Employers for each employee’s first $7,000.00 for a maximum of an additional $147.00 per employee due in January. This amount will need to be collected in January for the filing of Form 940 for 2017. There could be additional fees that IRS can choose to not accept the waiver request but at this time we are gearing that the waiver will be accepted to keep the limit to the 2.1% amount per $7,000.00 per Employee.
- Review employee lists for missing or incorrect identification data including: Name as on the Social Security Card, Social Security Number, and Address. You can request an Employee Data Report from your payroll specialist. PPX clients have the ability to review and edit this information in their system.
- The IRS may impose a penalty for each FORM W-2 with a missing or incorrect social security number or employee name. Please visit socialsecurity.gov/employer/ssns.htm for more information about the importance of and how to verify your employee’s social security number.
Final Payroll Processing:
The deadlines for FINAL payrolls processed for the calendar year 2016 to avoid an additional Short Window fee of $125.00 will be:
Client Reconciled Banking: Wednesday, December 27, 2017 by noon.
HR Ledger Reconciled Banking: Tuesday, December 26, 2017 by noon.
When you submit a payroll after December 27, 2017 to be processed, it is for the 1st pay date of 2018 (Even for work performed in December).
Holiday Schedule for Christmas and New Year:
We will be closed on Monday, December 25th and Monday, January 1st.
During the week that Holidays fall or we are closed, your payroll will need to be submitted earlier than usual. We do require you to have your payroll submitted to us by noon two business days before your pay date (3 business days for OBC Clients) for the ACH transmitting. If you choose to submit later than 12 pm, two business days for your scheduled payroll to be processed as a timely payroll, then we ask that you let us know so we can assist you with additional options for your company. These additional options may include additional processing fees.
With all these regulations, laws, rules and parameters & details it is easy to lose sight of the meaning of the holiday season. Take a moment, a deep breath, and be thankful. Not for all these little issues but for the fact that you have gotten to a place which requires them.
We wish you, your families, your employees and their families’ peace, joy and prosperity in the New Year.
Questions or concerns? HR Ledger can help.
Please call Malcolm or Scott today at 800-451-1136.