Year-End Payroll Guide

Dec 9, 2021Accounting, Business, Business Tax

Year-end is the time to finish out one year while planning for the next. As the end of 2021 approaches, we want to remind you of various payroll and Form 1099 related changes, as well as other items to consider when processing your year-end forms.

ALL YOU NEED TO KNOW ABOUT MANAGING PAYROLL & WHAT’S DIFFERENT THIS YEAR

Form 1099 Reporting
Form 1099 forms are due to recipients by January 31, 2022. The forms are also due to the IRS by January 31, 2022, in most cases. If you would like your Smith Schafer professional to prepare Form 1099 for you, please forward the information to our office by January 15, 2022. Information should include a completed W-9 Form for each payee (for a blank W-9 Form, click here), the type of payment issued to the payee (i.e., rent, interest, dividends, miscellaneous services), and the total amount of payments for the year (click here for a blank worksheet to assist you in gathering the required information). 

Note: The IRS can access failure to file penalties. Penalties may be up to $550 per form if failures are deemed to be an intentional disregard to file.

Read our blog post – WHAT’S NEW FOR 1099 REPORTING

Form W-2 Reporting
The following is a list of fringe benefits required by the IRS to be included in employees’ W-2s:

  • Health and dental insurance premiums paid for S-corporation shareholders
  • Life insurance premiums paid for S-corporation shareholders
  • Long-term care insurance premiums paid for S-corporation shareholders
  • Disability insurance (STD & LTD) premiums paid for S-corporation shareholders
  • Health insurance premiums paid for employees (see below for additional information)
  • Group term life insurance above $50,000
  • Personal use of company-owned vehicles (click here for a worksheet to assist in calculating the amount to add to an employees’ W-2)
  • Certain transportation, commuting, and parking benefits

Qualified Sick & Family Leave Wages
Wages paid to employees as qualified sick leave or family leave wages are reported normally on the employees W-2 as taxable wages. Employers are required to report in box 14 the amounts paid under each program. If space is not available in box 14, the information may also be included on a separate statement attached to the W-2. 

Employer Social Security Numbers
The IRS allows the truncation of employee social security numbers on the employee copy of the W-2. Do not truncate the employee’s SSN on the copies filed with the social security administration or other state and local agencies. The truncation is optional for employers, for those choosing to do so, the SSN should be formatted as follows: xxx-xx-1234.

Minnesota Revenue
Minnesota requires electronic filing of Form W-2 and Form 1099 (with MN withholding) if you have more than 10 forms. Submit forms using your Minnesota e-Services account.

Cafeteria Plan
The amount that an employee can contribute to a flexible spending account (FSA) of a cafeteria plan for health expenditures is limited to $2,750 in 2021 and $2,850 in 2022.

Dependent Care
The maximum contribution amount an employee can make is $5,000 per year. Employers offering this benefit as part of their cafeteria plans need to be aware that additional reporting is required on the employee W-2.

Health Insurance Premiums
Employers who issue 250 or more W-2 Forms are required to disclose the cost of employer-sponsored health coverage. Amounts are reported in box 12 with code DD. Employers with fewer than 250 employees are exempt from this disclosure requirement.

ACA Reporting
Employers that are applicable large employers (at least 50 full-time equivalent employees) are required to provide employees with forms 1095-C on or before March 2, 2022. The due date for filing 1094-C/1095-C by paper filing with the IRS is February 28, 2022, and for electronic filing with the IRS is March 31, 2022. 

Health Savings Account
Health savings accounts (HSA) may only be used in conjunction with a high deductible health insurance plan. The total amount an employee or employer can contribute to an HSA account is limited to $3,600 for single coverage and $7,200 for family coverage in 2021 and $3,650 and $7,300, respectively, for 2022. Taxpayers age 55+ can make an additional catch-up contribution of $1,000 for both 2021 and 2022. For plans to qualify as high deductible plans in 2021 and 2022, they must have minimum deductibles of $1,400 for single coverage and $2,800 for family coverage.

For 2021, the maximum out-of-pocket costs for single coverage of $7,000 and family coverage $14,000. The maximum out-of-pocket costs for 2022 increase to $7,050 for single coverage and $14,100 for family coverage. In some cases, the HSA contributions amounts should be reported on the W-2 with a code W.

Federal Unemployment Tax (FUTA)
The standard FUTA rate is 6.0%; generally, employers receive a credit of 5.4% when they file their Form 940. This results in a net FUTA rate for most states of 0.6%. However, some states are subject to a FUTA credit reduction if they have not repaid loans from the federal unemployment trust fund. For 2021, Minnesota is not a credit reduction state and is eligible for the full credit of 5.4%. For a complete list of credit reduction states, visit the IRS website and search FUTA Credit Reduction.

FICA Tax
The 2021 social security wage base is $142,800 but will increase to $147,000 for 2022. The employee and employer social security tax rate is unchanged at 6.2%. The Medicare tax rate is also unchanged at 1.45%. Employers are required to withhold the additional Medicare tax on employee wages in excess of $200,000 at a rate of .9%. This is an employee tax only and not matched by the employer.

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