You called your payroll provider on December 20th with your year-end bonuses and thought all was good. A month later your accountant contacts you and says your payroll doesn’t tie; your year-end bonuses weren’t included in the year they should have been.
Recently one of my clients had this problem. I was doing their year-end tie out and found their employee pension liability was overpaid by a significant amount.
After checking my client’s payroll reports and speaking with the client, we determined the payroll company included the bonus in the first payroll of the new year.
It is fixable but can be complicated and can result in a delay with filing not only of your business and personal returns but also your employees’ personal returns.
If this has happened to you, please contact your payroll provider immediately and explain the situation. They may need to amend your 4th quarter and year-end (w-2s) filings for federal and state. This can sometimes take 6-8 weeks, delaying the ability for everyone involved to file their tax returns on time.
Engage your accountant to help, as necessary, if your payroll provider is resistant to correcting the error.
It’s better to have this fixed correctly the first time and not have to go through it again later down the road AFTER income tax returns have been filed.
How we handled It:
In a conference call with my client, we spoke with their payroll representative together.
During this discussion, I was able to explain the error to the payroll representative, explain what needed to be done to correct it and that this was an error on their part, not our mutual clients.
Though we had to get a supervisor’s approval, all corrections were done at no cost to the client.
The best practice, in this case, is to be proactive at the time you issue the bonuses.
Follow up shortly after calling in or processing the bonus payroll. Make sure bonuses and pension contributions are recorded in the correct year.
I suggest running physical payroll reports and not calling the payroll company. Run a payroll report for the bonus payroll by employee. Run another payroll report for the entire year by employee. Make sure the bonuses and any pension contributions are reported properly and in the correct tax year.
Again, engage your accountant to help if you don’t know how to monitor this or if you don’t know how to make sure your payroll was processed properly.
Failure to ensure proper reporting of payroll can result in:
Improper profit and loss reporting of the business, Improper wage, tax withholding, tax liability, pension contribution reporting and sometimes unhappy employees, delayed from filing their own tax returns OR having to amend an already filed tax return.
About Rochelle Gager, CPA – Manager, Dental CPAs
With over thirty years of experience in accounting, insurance, and property management, Rochelle Gager brings her expertise in bookkeeping, tax strategy, and tax preparation to Naden/Lean. Before joining the firm, Rochelle served in several senior-level roles where she managed all aspects of business operations including business development, client relationship management, and budget allocation. As a Client Service Manager (CSM) and Certified Public Accountant for Naden/Lean’s Dental CPA division, Rochelle provides ongoing accounting services as well as federal and state tax preparation for individuals, partnerships, limited liability companies, and small corporations. She is dedicated to helping clients achieve business success by assisting them in establishing practical tax and financial processes.
Rochelle is a member the AICPA, MACPA, and MSATP. She holds a Bachelors of Arts degree in Fine Arts from East Stroudsburg University and a Bachelors of Science degree in Accounting from Stevenson University. In her spare time, Rochelle enjoys reading, cooking, rowing, and spending time with her family.