Preparing for Year-end Payroll Reporting

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With 2016 year-end approaching, it's important not to miss any of the necessary tax activities that should be completed before generating end-of-the-year payroll-related forms:

Install the latest QuickBooks Payroll Update

It is critical to make sure you have the latest payroll updates to not only finalize end-of-the-year taxes, but also prepare end-of-the-year tax forms. To insure you're on the latest update:

  1. In QuickBooks Desktop, go to Employees menu, choose Get Payroll Updates.
  2. Check whether you have the latest payroll update version. The tax table (payroll update) version number is located at the top of the window. You can verify this is the latest payroll update version at Intuit QuickBooks Desktop Payroll News & Updates.
  3. If after updating you're not on the current payroll update, click Download Entire Payroll Update, and click the Update button to the right.

Check Your Payroll Set-up & Tracking

You must confirm that all of your payroll items are setup correctly, that the rates are accurate and that their tax tracking is correct. One easy way to do this is to make use of the built in QuickBooks Payroll Checkup Tool.

Payroll Checkup is a diagnostic tool within QuickBooks that helps you verify your current setup by scanning your payroll data for missing information and discrepancies. You must have a current payroll subscription to make use of this feature.

To access the Payroll Checkup Tool:

  1. Go to the Employees menu
  2. Choose Payroll Service Activities
  3. Select Run Payroll Checkup

Payroll Check helps you verify:

  • Your employee records by looking for missing information and possible errors
  • Your setup of payroll items for compensation, benefits and taxes
  • Wage and tax amounts by reviewing each flat-rate tax and comparing an employee's actual tax amount with an amount calculated from the employee's wage base for the tax.

After you run the Payroll Checkup to review wage and tax amounts, print the results. For each employee with discrepancies, QuickBooks suggests a solution.

Follow the instructions in the solution to resolve the discrepancies. Depending upon the findings you may or may not need to perform additional steps set forth below.

Verify Active Employee Data

End of the year is a good time to review employee information that can affect W-2 forms and, possibly, paychecks issued in the next tax year. Be sure to check employee names, addresses and social security numbers along with their retirement plan eligibility.

To review employee data in QuickBooks Desktop:

  1. Go to the Employee Center and click on the Employees tab.
  2. Click the drop-down list below the Employees tab.
  3. Double-click on the employee name to review the names, addresses and social security numbers for any errors or missing information.
  4. Click the Payroll Info tab. Note: If the Employee is covered by a qualified pension plan, the checkbox is selected in the employee record. The same checkbox will be selected on the W-2 form. You also can select or click to clear the checkbox directly on the W-2 form.
  5. Make any changes necessary and save the changes by clicking OK.

Verify Terminated Employee Data

Regardless of the current employee status, any employee who received a paycheck during the year will receive a W-2 form for that year.

Confirm essential information for all terminated employees, including the names, address and social security numbers, along with any retirement plan related eligibility or plan termination issues.

You must confirm that all terminated employees were released correctly in QuickBooks. To verify that terminated (released) employees are correct:

  1. Go to the Employee Center and click on the Employees tab.
  2. Change the View to All Employees.
  3. Click the name of the released employee.
  4. Click the Transactions sub-tab.
  5. Double-click the termination (typically the last) paycheck and click Paycheck Detail. Ensure all vacation and sick time has been paid out.
  6. Close out of the paycheck. Do not save any changes. If you need to pay out vacation or sick time, create a new check for this amount and deliver to the employee.
  7. Double-click the name of the released employee to access the Edit Employee window.
  8. In QuickBooks Desktop 2014: Click the Employment Info tab. In QuickBooks Desktop 2015 and higher: Click the Termination sub-tab.
  9. Verify that all information is current and that the Release date is correct.
  10. Click OK to close the Edit Employee window

Double-check Your Payroll Data

The Payroll Summary report shows the total wages, taxes withheld and deductions from net pay, additions to net pay, and employer-paid taxes and contributions for each employee on your payroll.

This report can help you double check that the payroll data in your QuickBooks file accurately reflects what your employees earned.

Mistakes can happen. For example, if you made an error writing a check, ripped it up and re-created it, the check may have been accidentally recorded twice in QuickBooks. Or, you may have given an employee a cash bonus and forgot to record it at the time. This report is an excellent way to verify employee earnings.

To create the Payroll Summary report:

  1. Go to the Reports menu
  2. Choose Employees & Payroll
  3. Select Payroll Summary.
  4. By default, this report covers “This Calendar Quarter-to-date,” change the Dates to This Calendar Year.

In the Payroll Summary, gross pay includes commissions and additions such as bonuses or tips. Adjusted gross pay is gross pay minus any pre-tax deductions, such as an employee contribution to a 401(k) plan. Net pay is the amount paid to the employee after taxes, and after any adjustments for after-tax deductions or additions.

Check Your Payroll Liability Balances

The Payroll Liability Balances report lists the payroll liabilities your company owes to various agencies, such as the federal government, your state government, insurance plan administrators and labor unions.

To create the Payroll Liability Balances report:

  1. Go to the Reports menu
  2. Choose Employees & Payroll
  3. Select Payroll Liability Balances.
  4. By default, this report covers “This Calendar Year-to-date,” change the Dates to This Calendar Year.

Use this report to double-check your outstanding unpaid liabilities for the year. If your company paid a liability incurred within the date range of the report, the report includes that payment, reducing your liability, even if the payment occurred after the ending date of the report.

Some small liability amounts may be present due to rounding errors. Because QuickBooks calculates payroll tax amounts by employee, but many tax forms are filled out and paid in the aggregate. The amount recorded in QuickBooks can be off by several cents.

If you notice small liabilities in the Payroll Liability Balance report, but know you paid the right amount to the governmental agency, enter adjustments to zero out these small balances.

If you experience problems associated with a specific payroll liability, you possibly could have a situation in which liability payments were made improperly. If you're using one of the Accountant versions of QuickBooks, consider using the Client Data Review (CDR) Payroll Cleanup tool to Find Incorrectly Paid Payroll Liabilities.

Prepare for State Taxes

The Employee State Taxes Detail report lists wage information and state taxes withheld for each employee. The report can help you prepare your state payroll taxes, often paid quarterly. To create the Employee State Taxes Detail report:

  1. Go to the Reports menu
  2. Choose Employees & Payroll
  3. Select Employee State Taxes Detail.
  4. By default, this report covers “Last Calendar Quarter,” change the Dates to This Calendar Year.

By default, the report shows most state-related payroll items for each employee. You may find the report more beneficial if you restrict it to a single payroll item or, by customizing and filtering it for just the taxes you need to see.

For example, to see each employee's withholding for state unemployment insurance, choose that payroll item from the Payroll Item drop down list at the top of the report. Each time you choose a different payroll item, the report changes to show employee totals for that item.  

Preview and Compare W-2/W-3 Information  

In addition to reviewing the preceding reports, you also should preview your W-2 and W-3 forms to make sure they're accurate prior their due date.

As soon as the forms become available via the payroll and/or QuickBooks product updates, make certain to compare the information reported on the individual W-2 forms with the information on the preceding three reports on an employee-by-employee basis, and reconcile the information reported on the W-3 form with the information from the proceeding three reports on a report total basis.