Year-End Payroll Guide

Dec 15, 2022Accounting, Business, Business Tax

Year-end is rapidly approaching and we’d like to take this opportunity to provide resources and checklists to make gathering information efficient so we all can prepare complete and accurate 1099 and W-2 forms for 2022.  Included are various reminders about certain benefits that should be included in annual W-2s to employees.  

We’d also like to remind anyone utilizing a full-service third-party payroll provider (i.e. QuickBooks, ADP, Paychex etc.) that these providers require the taxable fringe benefits to be added prior to processing of the last payroll check of the year. 

Managing year-end Payroll & 1099 Reporting for 2022

Form 1099 Reporting
Form 1099 forms are due to recipients by January 31, 2023. The forms are also due to the IRS by January 31, 2023, 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.

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 

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 $2,850 in 2022 and $3,050 in 2023.

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. These amounts should include employer paid and the employee contribution. 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, 2023. The due date for filing 1094-C/1095-C by paper filing with the IRS is February 28, 2023, and for electronic filing with the IRS is March 31, 2023. 

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 $3,650 for single coverage and $7,300 for family coverage in 2022 and $3,850 and $7,750, respectively, for 2023. Taxpayers age 55+ can make an additional catch-up contribution of $1,000 for both 2022 and 2023. For plans to qualify as high deductible plans in 2022 and 2023, they must have minimum deductibles of $1,500 for single coverage and $3,000 for family coverage. 

For 2022, the maximum out-of-pocket costs for single coverage of $7,050 and family coverage $14,100. The maximum out-of-pocket costs for 2023 increase to $7,500 for single coverage and $15,000 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 2022, 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 2022 social security wage base is $147,000 but will increase to $160,200 for 2023. 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.

DOWNLOAD THE YEAR-END PAYROLL CHECKLIST

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