Guidance and Knowledge for Value Investors
Year end payroll reports include Forms W-2, W-3, 940, 1099, and 1096. All of these are year-end reports filed by the company to the Internal Revenue Service and the Social Security Administration for the purpose of identifying those individuals or small businesses that received some form of compensation throughout the calendar year.
Similar to the bookkeeping cycle, the payroll cycle has many frequent activities, fewer incremental requirements and one important end of the year report. This lesson explains these respective cycles and how they tie together for the final year end report.
Accrued payroll is a current liability comprised of four sections. The first is the amount of payroll earned by staff and not yet processed or paid. The second is the dollar value of personal time off accumulated for each employee aggregated into one number. The third consists of payroll taxes owed to the respective governmental authorities and the final section comprises the accumulated benefits payable such as health insurance, retirement contributions, and amounts owed to third parties as deductions from the gross payroll.
For us accountants January brings the greatest payroll function of the year; printing the year end payroll reports. These include the W-2’s, W-3 and Form 940. They all must tie to the combined total of the quarterly 941 reports and the deposits made to the Internal Revenue Service.
Federal Unemployment Tax Act or FUTA for short is a part of the Internal Revenue Code and is an employer tax on wages paid to employees. It is used to fund unemployment benefits. The tax is paid on the first $7,000 of wages paid to every employee. It is reported via Form 940 https://businessecon.org/resources/. The Form must be filed and all taxes paid by January 31, 2021.
I dread January of every year. I have to spend so much time preparing the year-end payroll reports prior to the January 31 deadline. Not only must your quarterly’s and monthly’s tie together, but it has to match the general ledger at year-end.