The ongoing effects of the COVID-19 pandemic, along with hiring struggles, and continued economic uncertainty have made 2021 a challenging year for many companies. As year end rolls around and you begin planning for 2022, it’s important to make sure you’re aware of applicable laws and regulations.
Taxes and Payroll Compliance
When completing taxes and payroll for 2021, be sure to reference the checklist below to remain in compliance and reduce the risk of mistakes during the year end:
Verify Employee Information
- Validate employee addresses. Incorrect information could delay receipt of W-2 forms for some workers and create waste for your business with the printing and mailing.
- Check your records for employees who left the company during the year to make sure their status was correctly updated.
Double Check W-2s
- Verify all Social Security numbers or federal employer identification numbers (FEIN). Missing or incorrect numbers could result in a penalty by the IRS of up to $20 for each return of W-2.
- Include any taxable cash or non-cash benefits — e.g., use of a company car — on W-2.
- Tip for 2022: If your business doesn’t already do so, consider establishing a secure online portal for employees to obtain their check stubs and W-2s. This may help minimize labor and paper waste, and increase security of sensitive information.
Prepare Year-End Documents Required for Tax Filings
- CARES Act retention credit — This tax credit was created to support employers who paid their staff throughout the pandemic. For qualified wages paid from March 13, 2020 through December 31, 2020, up to 50% of $10,000 in wages, annually, paid by companies affected by COVID-19. For qualified wages paid from January 1, 2021 through December 31, 2021, up to 70% of $10,0000 in wages, per quarter, paid by companies affected by COVID-19.
- FFCRA tax credit provisions — A dollar-for-dollar tax credit is available to refund employers for qualifying wages covering sick and family leave time paid to employees affected by COVID-19.
- FICA & FUTA forms — Make a note of filing deadlines.
- IRS Payroll Tax Holiday — If your company chose to defer Social Security Payroll Taxes according to the President’s Executive Order, these payments are due December 31, 2021.
- Affordable Care Act (ACA) requirements — Companies affected by ACA must prepare and distribute 1095-C forms to applicable employees.
- Independent Contractor Payments — In addition to preparing employee tax forms, make sure that qualifying independent contractors receive their correct statements for tax purposes. Beginning in 2020, you must now report these amounts using form 1099-NEC.
Open enrollment will be here before you know it. Ensure you’re prepared to refresh your benefits packages and complete the following:
Review Coverage Plans and Health Insurance Policies
- Group Health Plan Renewal — Many group health insurance policies renew on Dec. 1 or Jan. 1. Review coverage plans and pricing to determine if changes are needed.
- ACA Requirements — Review the provisions of the Affordable Care Act for ongoing compliance, including:
- Employer Shared Responsibility (ESR) provision under which companies employing an average of 50 or more full-time employees, including full-time equivalents, during the prior year must offer affordable and adequate medical coverage to full-time employees and their dependents or risk a potential assessment.
- IRS 2021 Employer Health Plan Affordability Threshold change — For an employer’s offer of coverage to be affordable, the employee’s required contribution for the lowest-cost, self-only coverage that meets minimum value cannot exceed for plan years beginning in 2021.
- Open Enrollment — Prepare communications with employees and schedule informational meetings.
- FSA Plans — If you plan to establish a flexible spending account, allowing employees to set aside pre-tax money for medical or dependent care expenses, your business needs to set up the plan and employees need to enroll before the new year.
- FFCRA paid sick and family leave wages related to COVID-19 — Gather information on employees who took advantage of FFCRA paid leave during 2020 to file for the year-end tax credit.
- Review healthcare plan filing requirements & deadlines
Gather Payroll Records
Gather payroll records if your workers’ compensation policy mirrors the calendar year. An auditor may want to review payroll records in accordance with its policy period.
The new year is a great time to review employee compensation to make sure you are competitive with the 2022 hiring market.
Confirm Year-End Discretionary Bonuses
If your business awards year-end discretionary bonuses, work with your payroll provider to issue the checks, either as a separate line item or in separate checks (additional bonus taxation may apply).
Review Wage and Hour Updates
If your applicable state or local minimum wage rate is increasing as of Jan. 1 or on a different date in 2022, ensure the updated rate is reflected for applicable employees’ pay as of the effective date. Also, review the DOL guidance on COVID-19 and the FLSA in the following areas to help ensure your compliance:
- Telework — non-exempt employees are to be compensated for all hours worked, including those worked away from the primary worksite. Companies must pay for all hours actually worked and provide employees with time-tracking procedures when they are out of the office.
- Exempt Employees — as declared by a federal, state, or local authority these employees may temporarily perform non-exempt employee duties during the COVID-19 public health emergency and retain their exempt status as long as they continue to be paid on a salary basis and at a minimum of $684 per week.
- Hazard Pay — the FLSA does not require hazard pay, but when given to employees it must be included in employee’s regular rate of pay and used to calculate overtime.
In addition, review your obligations under applicable state and/or local laws with respect to wage and hour matters.
Review Updates to Wage Base Limits
Resetting wage base limits should also be a part of your year-end compliance checklist. For the upcoming year, companies should be budgeting for the taxes they may not be paying now if employees have already met the wage base limits for 2020. Wage base limits start over every Jan. 1, including federal and state unemployment tax, Medicare, Social Security, and state employment taxes. One announced increase is the rise in individual wages up to $142,800 subject to the 6.2% Social Security tax, also referred to as the Old Age, Survivors, and Disability Insurance (OASDI) tax.
Staffing and Training
2021 brought with it a number of hiring challenges, so ensure employees are trained appropriately and that you are complying with any mandated training moving into the new year.
Create or Update Your 2022Calendar
Start looking ahead to next year. Consider developing a calendar of required training for managers and employees, e.g., sexual harassment prevention training, hiring practices, workplace safety, and effective management. You may also want to schedule time to update managers and staff on COVID-19 protocols and compliance to ensure continued compliance with OSHA, CDC and local guidance.
Review Employee Time Off
If you have a self-service portal, remind employees to review their vacation, holiday, sick, and paid-time-off banks, especially if you have a “use-it-or-lose-it” policy (where permitted) or caps on carry-over amounts. If your business tracks this for employees, you may wish to notify them about their balances.
Review Your BCP Policies
Check your company’s severe weather, natural disaster, and health emergency policies, and have a business continuity plan in place in case weather, a natural disaster or health emergency impacts your business operations at year-end and through the first quarter of 2021.
Update Your Employee Handbook
An annual review of your employee handbook should be included in your year-end checklist. All new policy updates should be included in the handbook and communicated to employees. Due to significant shifts in the work environment in 2020, it’s a good idea to pay close attention to remote work policies, as well as adding in COVID-19 updates, such as mask-wearing and social distancing policies while in the workplace.
Start 2022 Compliance On The Right Path
Preparing now can help your business run more smoothly at holiday time and beyond. And remember: Paychex has a wealth of resources to assist you — including assistance with legislative and regulatory compliance, payroll, human resources, and time and attendance management.