end of year payroll checklist for small business owners

Ah, the end of the year is upon us. As colorful fall leaves fill busy sidewalks on Main Street, the chill in the air reminds us that not only are the holidays here, but year-end payroll responsibilities are too. Avoid being overwhelmed by simplifying your business responsibilities and lining them up single file, and completing the list sequentially. Then efficiently move into the new year with ease.

What is so important about the year on a paycheck?

The taxable income of your employees is affected by the date on their last paycheck of the year. A year-end bonus may alter an employee’s tax rate. And some years, an extra pay period may appear to be an extra paycheck. Some employees may want to adjust their Form W-4 to withhold more from their “extra paycheck.”

End-of-year payroll checklist

Although this isn’t an exhaustive list, here are some top end-of-the-year payroll priorities to complete in order to transition your employees smoothly into the next year.

  1. Update payroll software with current information on all your employees. Verify your staff’s names, addresses, and social security numbers are correct. The easiest way to verify social security numbers is with the government’s social security verification system. Confirm that all wage and benefit information on all your present and previous employees is correct and up to date.
  2. Determine what type of bonuses you will award at the end of each year. It’s popular to award bonuses during the Christmas season, and it’s a great incentive for employees. Remember, bonuses are subject to the same taxes as normal wages, so be sure to withhold the taxes required.
  3. Close out your books by distributing year-end paychecks to your employees. Detail all overtime and holiday pay up to December 31, 2018. Deal with all flexible spending accounts that don’t permit grace periods, and inform staff if unused amounts will be lost at the end of the year or not.
  4. Have each employee verify their withholding allowances. Send the 2018 Form W-4 to your staff members. Your employees should complete the W-4 form so you can withhold the correct federal income tax from their pay. It’s wise for each member of your staff to complete a new form each year, particularly when their personal or financial situation changes.
  5. Verify year-end payroll, federal, and state deposit deadlines. Assess the year-end holiday processing schedule since it can get tricky.
  6. Confirm you have the most recent Forms 941, 940, 944, and 945. Go to the IRS website to verify you are up to date on all of these forms.
  7. Inform your employees of 2019’s paydays and holidays. Include social security taxable wage base, 401(k) pretax limit, and state unemployment wages if they apply. Detail specific dates you plan to be closed for holidays for the upcoming year. Deal with end of the year vacation time earned and verify what can or can’t be rolled over to the upcoming year.
  8. Employees who receive tips should report them on Form 4070. Commonly, this includes employees of food and beverage operations, as well as hair dressers, and cab drivers who receive regular tips. To satisfy the law, employees should calculate the amount of their tips and turn the totals in by the 10th of the month following any month in which tips are a minimum of $20.
  9. Check your rates for federal, state, and local taxes. Realize tax rates are updated annually. Check Federal Income Tax, Federal Unemployment Tax, State Income Tax, State Unemployment Tax, Local Income Tax, and Social Security and Medicare Taxes.

This is not an exhaustive year-end small business payroll checklist. For a customized look at exactly what you need to do as part of your specific end-of-the-year payroll priorities, consult the I.R.S. publication: Employer’s Tax Guide for 2018. Or, simply download the tax guide on our website.

Avoid the hassle of payroll with affordable payroll management

Shockley Bookkeeping and Taxes provides bookkeeping, payroll, and tax services for small businesses in Broken Arrow and the surrounding areas. Get help with your end of the year payroll, contact the trusted, reliable professionals at Shockley Bookkeeping today.

Payroll made simple

At Shockley Bookkeeping, we track and analyze your business finances with QuickBooks’ industry-standard software so you can focus on what you do best and grow your business. Call us at (918) 615-8380 for a free quote and consultation. Or, start with our blog where you can learn more about simplifying your payroll.