The end of the calendar year is an important time to schedule and complete the payroll tasks needed for accurate tax reporting — both for your organization and your employees. The schedule for these steps stretches from 4th quarter of one calendar year into the 1st quarter of the next.
Accurate and timely year-end processing ensures compliance with governmental regulations and reduces headaches and the risk of penalties for your organization. In addition to wrapping up payroll matters for 2024, completing the work at this time of year also helps in determining compensation and benefits levels for 2025 and supporting other areas of business financial planning.
Timing is Crucial
Payroll year end occurs in two phases:
- Tasks completed before the final payroll of the 2024 calendar year
- Those to do between the final payroll of 2024 and the first payroll of 2025
As there are a number of steps required in each phase, even experienced payroll and benefits specialists can inadvertently overlook important to do’s in these critical time periods. Some state-to-state variations exist in year-end tax processing; however, most organizations are required to complete a number of common steps during each time period. The summary below will help verify your organization is on schedule this year end. In addition, be sure to check your local and state regulations for any additional requirements in your region. Before Year End 2024
Update Information
Update employee indicative data and organizational information as needed. This includes name/address/tax ID and tax status.
Prepare for ACA Annual Reporting
Gather information for Affordable Care Act (ACA) reporting, The specific requirements are based on number of FTEs and type of company health insurance provided in your organization (self-insured or fully insured through a commercial provider). Process Year-End W-2 Adjustments
Make year-end adjustments before processing the last payroll of the year. Unreported benefits, including bonuses, personal use of a company car and other non-cash benefits are examples of adjustments included in this category. Identify Excess Retirement Plan Contributions
The IRS has limits on contributions to 401(k), 403(b), or SIMPLE retirement plans. Review employee contributions to identify possible tax reporting requirements. Order Payroll Documents
Employee W-2s, an organizational W-3, 1099s for contractors and new labor compliance posters for 2025 are on this checklist. Other To Do’s
- Determine employee bonuses earned.
- Calculate and withhold taxes for bonuses paid.
- Based on your organization’s accounting method and legal structure, the time and methodology for deducting bonuses will vary. If you are unsure, contact your payroll or tax professional.
- Notify employees about benefits to expire at the end of 2024. Roll forward or clear the annual paid-time-off bank based on organizational policy.
- Resolve any specialized payroll situations, such as payroll disputes or employees with voided paychecks. These should be handled before year end.
Data Verification and Close
- Finalize the annual payroll and tax numbers after the last pay period in 2024.
- Review all pay periods for the year to ensure that amounts are logged accurately, including wage totals, benefit deductions and payments, and miscellaneous deductions, such as child support.
- Verify that payroll tax amounts match quarterly payroll returns.
- Check that year-end payroll information is recorded in the accounting system.
- Provide required information to the accounting firm preparing your tax returns.
January 2025
Handle Payroll Tax Forms by January 31
- Distribute W-2 and 1099 forms.
- File W-2s, W-3 and 1099s with the Social Security Administration.
- Submit forms 940 (FUTA) and 941 (quarterly return) or 944 (annual return), whichever is relevant to your company’s size. You may also have to file a 1095-B or 1095-C for ACA based on the average number of employees and the way your organization provides health insurance.
A Strong Year End Delivers a Robust Start to 2025
Working with an experienced payroll provider such as QTS can help your organization to most effectively plan and complete steps for year-end payroll and reporting. A professional payroll team will support your company in meeting requirements and avoiding penalties, and begin 2025 with a strong foundation.