As this year wraps up, The Square Payroll Team recommends that you read through this article for end-of-year (EOY) payroll information.
Review Employee Information
Confirm your employees’ name, Social Security number, and address. This information will be printed on their Form W-2. We will attempt to mail each employee their W-2 to the address provided. If the delivery attempt is unsuccessful, you are responsible for providing Form W-2 to your employee.
Add All Former Employees to Square Payroll
Double-check that all employees paid this year, including those who no longer work for you, have been added to Square Payroll. You are responsible for providing Form W-2 to all employees that worked for you in the previous year.
Send Your Final Payroll
Payroll taxes are due based on the pay date – not the days employees worked. Any paychecks with a pay date in January 2017, regardless of the actual pay period, will be included in 2017 for tax purposes (and annual W-2s). If you’d like wages to be included in 2016 W-2s, make sure the pay date is in 2016 before sending.
You’ll be able to send Off-Cycle Payments for 2016 until 8 PM PT on January 8, 2017 (1/8/2017).
Do Not File Form W-2
If you do not want us to file Form W-2s for your employees, please let us know ASAP.
California FUTA Tax Collection
California employers owe an additional 1.8% in FUTA tax for the tax year 2016. We will be debiting this additional tax amount from you at the beginning of 2017. This is due to California failing to re-pay the federal loan used to pay Unemployment Insurance benefits. You can read more about it on the CA EDD website as well as on the IRS website.
California FUTA FAQs
Why did the FUTA tax rate get adjusted for California employers?
California is a “credit reduction state” which means that it took loans from the federal government to pay state unemployment benefits. However, the state was unable to repay those loans within the required time frame. For this reason, the credit that employers would normally receive against the full FUTA tax rate of 6% has been reduced by 1.8%. This results in additional cost of up to $126.00 per employee.
How does the credit reduction impact my 2016 tax payments and filings?
Square Payroll will calculate, debit and pay this tax on your behalf. You will get an email confirming the additional amount we will debit from your linked bank account, along with the date the transaction will take place. Your annual Form 940 will reflect the credit reduction and the FUTA tax paid for tax year 2016. Form 940 and the associated tax payment will be remitted to the IRS by January 31, 2017.
Why are we being told about this after the year has passed?
States are required to repay their outstanding federal loans by November 10, 2016. Shortly after that date, the U.S. Department of Labor releases a list of states and their associated credit reductions. Because of the timing of this release, and the fact that the tax applies to the entire year, we calculate and debit this tax in January.
What was the FUTA tax rate for 2016 before and after the credit reduction adjustment?
The 2016 FUTA tax rate was 6.0% and is calculated on the first $7,000 of wages paid to each employee. Employers typically receive a 5.4% credit for paying state unemployment taxes which brings the net FUTA tax rate down to 0.6% (which is what Square Payroll has been calculating and paying throughout the year). Because this 5.4% credit was reduced by 1.8% for California employers, the net FUTA tax rate is now 2.4%. In a formula, it looks like this: 6.0% − (5.4% − 1.8%) = 2.4%.
S-Corp Health Insurance Reporting
Health and accident insurance premiums paid on behalf of a greater than 2-percent S corporation shareholder-employee are reported as wages on the shareholder-employee’s Form W-2 and subject to income tax withholding.