Plan Your Year-End Payroll Obligations Now

As the close of 2023 approaches, businesses need to begin the crucial task of finalizing their payroll processes now. Year-end payroll is not merely about closing the books; it is a comprehensive undertaking that requires attention to detail, adherence to legal requirements, and coordination among various parties. This complex annual process is a multi-faceted procedure encompassing several elements, from tax calculations to compliance with ever-evolving regulations. In recent years, the shift to remote work stemming from the COVID-19 pandemic has increased the need to understand the interplay between the employer’s taxing state and employee’s taxing state and how arcane provisions, such as the dreaded convenience of the employer rule, impact compliance.

For this reason, constant communication between payroll departments and employees is of utmost import. Year-end payroll processing is an opportunity for businesses to ensure accurate reporting of employee data with respect to tax calculations and benefits management. Similarly, employees are encouraged to review their recent pay stubs to double check their annual withholding information. All of this is to avoid having to amend payroll filings and correct tax remittances in the future.

Now is also the time to revisit worker classification rules. Generally, employers are required to withhold and remit certain taxes, such as federal and state income, Social Security, Medicare and unemployment taxes, on behalf of employees but not for independent contractors. The gig economy has many individuals working multiple jobs, and often preferring to be treated as independent contractors rather than have their paychecks reduced for these taxes. However, in the event of a misclassification of a worker, a business can be held liable for these unpaid taxes in addition to being assessed significant noncompliance penalties.

Again, now is the time to focus on these issues and address any uncertainties. Keeping up-to-date employee records and tracking employee locations can help prevent discovering errors and discrepancies after the year-end payroll reports are finalized. Reconciling wages, bonuses and the requisite taxes requires cooperation and a partnership between employers and employees. Addressing this now can help provide for a smooth transition into 2024.

If you have questions regarding your year-end payroll obligations and want to ensure your tax responsibilities are being met, please contact
Alan Goldenberg, Principal and Leader of the State and Local Taxation and Tax Controversy groups, or your Anchin Relationship Partner.