Someone recently wrote in asking a question about payroll related documentation and it made us realize that verification of payroll information is essential as part of the year-end process. But just because it is year-end related doesn't mean that it can't take place after the start of the new year as you are preparing for year-end payroll tax related filings.
Payroll Program is Up-to-date
Insure you have the latest QuickBooks Payroll Update installed within your file. 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. At the time of publication of this article the latest Intuit QuickBooks Desktop Payroll Update is 21802, released on December 28, 2017.
To insure you're on the latest update:
- In QuickBooks Desktop, go to Employees menu, choose Get Payroll Updates.
- 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.
- 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
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:
- Go to the Employees menu
- Choose My Payroll Service
- Select Run Payroll Checkup
Payroll Checkup helps 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.
Payroll Checkup
Review Available Payroll Reports
All too often QuickBooks users find just 2 or 3 payroll reports from which they gain comfort. But end-of-the-year is the perfect time to acquaint yourself will the wealth of payroll reports that are available. Some people will find the Report Center beneficial because of the ability to preview and 'obtain more information' about specific reports.
Year-end payroll_01
We believe it is a good time to become familiar with many of the payroll related reports you might not even know existed within QuickBooks. For example, when is the last time you ran the Payroll Summary by Tax Tracking Type which runs within Excel? Of your Summarized Payroll Data in Excel? This illustration shows you the vast majority of payroll reports available to you.
variety of payroll reports in QuickBooks
Confirm All 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. Remember they should match the current W-4 form on file.
One report you may want to use during your confirmation of employee Detail is the Employee Withholding report, as shown below. This report can assist you in insuring that all your information matches the current W-4 form.
Employee Withholding Report
To review employee data in QuickBooks Desktop:
- Go to the Employee Center and click on the Employees tab.
- Click the drop-down list below the Employees tab.
- Double-click on the employee name to review the names, addresses and social security numbers for any errors or missing information.
- 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.
- Make any changes necessary and save the changes by clicking OK.
- Confirm employee name, social security number and current address.
Year-end payroll_02a
While you are reviewing your employees don't limit yourself to just those that are 'active' you must take into consideration employees who have left your employment during the past year as well, regardless of the cause of termination.
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:
- Go to the Employee Center and click on the Employees tab.
- Change the View to All Employees.
- Click the name of the released employee.
- Select the Employment Info tab
- Click the Transactions sub-tab.
- Verify that all information is current and that the Release date is correct.
- Click OK to close the Edit Employee window
Terminated Employee
Review Your Payroll Data
There are several good reports that help with this process, one is the Payroll Detail Review report which may assist you if you find issues with a specific payroll period, or specific employee's payroll.
Payroll Detail Review report
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:
- Go to the Reports menu
- Choose Employees & Payroll
- Select Payroll Summary.
- By default, this report covers “This Calendar Quarter-to-date,” change the Dates to the Calendar Year you are reviewing.
Payroll Summary report
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:
- Go to the Reports menu
- Choose Employees & Payroll
- Select Payroll Liability Balances.
- By default, this report covers “This Calendar Year-to-date,” change the dates to the Calendar Year you are reviewing.
Payroll_liability_report
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.
Adjust_payroll_liabilities
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.
QB_CDR_Payroll_tools
Verify State Tax Details
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:
- Go to the Reports menu
- Choose Employees & Payroll
- Select Employee State Taxes Detail.
- By default, this report covers “Last Calendar Quarter,” change the dates to the Calendar Year of your review.
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.
Payroll State Taxes Detail report
To review 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.
W-2_form_2017
Compare the information reported on the individual W-2 forms with the information on the preceding reports on an employee-by-employee basis, and reconcile the information reported on the W-3 form with the information from the proceeding reports on a report total basis.
Your quarterly 941 reports should total to your end of the year reporting of payroll information. So be sure to compare the totals of all 4 quarterly 941 reports with the information on your W-3 form.
Review your Unemployment Reporting Requirements
Even though we are going to look at Federal Unemployment in this example, you could take the same approach for State Unemployment. Believe it or not the Employee State Taxes Detail report lists wage information and federal unemployment taxes for each employee. The report can help you review and/or prepare your annual Form 940 Federal Unemployment state tax return. To create the report:
- Go to the Reports menu
- Choose Employees & Payroll
- Select Employee State Taxes Detail.
- By default, this report covers “Last Calendar Quarter,” change the dates to the Calendar Year of your review.
- Change the Payroll Item using the payroll item drop down at the top of the report to Federal Unemployment.
FUTA_report_from_state_tax_report
Compare and reconcile the information reported on the report with that for your annual Form 940 form.
FUTA 940 Form
While you are reviewing your FUTA 940 and also your State Unemployment, you may want to go ahead an insure you have updated your State (SUI) rate if necessary. Your state agency may or may not assign a new state unemployment (SUI) rate for the 2018 tax year. If you get a rate notice from the state, you’ll need to update your SUI rate in your payroll account before your first payroll.
Editor's Note:
This article is a compilation of some past articles, updated to the present year (although QuickBooks Sample File illustrations actually reflect 'future dates'.) The idea for this article began with a submission by Beverly Lang who regularly contributes articles to Insightful Accountant. While Beverly's submission was 'shorter', it covered much of the same content in outline fashion. I chose to expand upon her outline, including past content, updated content and new content so as to provide a more comprehensive guide to the year-end process.
Thanks Beverly for your many contributions, past, present, and pending publication. I want to also thank Laura Madeira who contributed much of the original content upon which our prior articles on this topic were based.
Murph