2022 Year-End Payroll Tax Guide

Before the last scheduled payroll of the quarter/year, make sure you update any employee totals that you want to include in the quarter balances. You can update missing totals for any of the following items:

• Voided checks
• Third party sick payments
• Group term life insurance
• Dependent care benefits
• Moving expenses
• 401(k) and cafeteria plans
• Retirement plans
• Paid time off
• Taxable fringe benefits
• Any other necessary adjustments to employee wage and tax amounts

In the fourth quarter, on or before Wednesday, December 28, you must update missing totals for your employees and run any bonus payrolls. If you have to run a special payroll (to process bonuses, manual checks, voided checks, or third-party sick payments) after December 28, you may be required to wire transfer funds and government agencies may charge you with penalties and interest based on their deposit and filing deadlines.

Tax Filing Clients: CAVU amendment fees may apply.

Bonus checks can be processed with your regular payroll; however, they must be processed separately if you would like a separate journal entry, or if you would like them to be issued for a different date outside of your normal payroll check date. 

 Please specify how the bonus checks are to be taxed and what other adjustments need to be withheld. If you have any questions about how your bonus checks should be taxed, please contact your accountant prior to reporting the checks to us. If you need to process your bonus checks separately, please schedule a reporting time with your payroll guide at least 3 business days prior to the bonus check date. If you are a full tax service client, we will collect and pay your tax liability on your behalf for any bonuses. Please initiate bonus payrolls as early as possible to ensure timely deposits. We are asking that all bonus payrolls be sent in at least 3 days prior to the check date. If your tax liability exceeds $100,000, it is automatically due to the IRS the next business day after your check date. This will require you to wire transfer funds to us the day of processing. 

Important: If an employee receives payment in the next year for days worked in the current year, earnings and deductions are reflected in the new year. Payroll taxes are based upon the date wages are paid, not the date wages are earned.

Funding Restrictions: In addition to federal regulations, CAVU also applies certain restrictions to large bonus payrolls that may require a wire transfer prior to the check date. If these restrictions apply to your bonus payroll, CAVU will supply you with the necessary wire instructions by the next business day after the bonus payroll has been processed.

Year-end W-2s and 1099s will be billed during the month of December and will ship directly to the employer beginning 1-09-2023.   

If an employer has at least 50 full-time employees, including full-time equivalent employees, on average during the prior year (2021), the employer is an ALE (Applicable Large Employer) for the current calendar year (2022). ALEs must report certain health insurance information to the IRS via forms 1094-C and 1095-C. 

Deadline to distribute 1095-C forms to full time employees who worked in 2022: March 2, 2023

If CAVU is currently handling your company’s ACA Reporting, we will reach out with specific details after W-2s have been distributed mid to late January. At that time, some of the following key information will be needed for reporting :

• Covered period of your company’s health plan(s)
• Monthly cost to the employee for your ‘Employee Only’ coverage option, per plan (could be different month to month if plans change mid-year)
• Listing of Full Time Employees to indicate whether they ‘Took Coverage’ or ‘Waived Coverage’

For those that do not know if they are an ALE or if you are interested in CAVU assisting with your ACA Reporting, please reach out to your Payroll Guide and they can put you in touch with someone here to assist.

By law, insurance companies have until January 15th to notify you of any disability insurance benefits paid to your employees during 2022. Should you receive notification of such payment after reporting your last payroll for the year, please contact us immediately. Since third party sick pay affects all fourth quarter and year-end returns, including W-2 forms, the processing of your returns will be delayed if sick pay is reported after the cutoff date for year-end information (Wednesday, December 28^th 2022). 

The value of personal use of company cars or any other taxable cash or non-cash benefit must be included on Form W-2. Please report these benefits before your last payroll for the year. Reporting taxable benefits with cash wages allows the appropriate withholding taxes to be deducted from the employee’s check. If these amounts are processed without wages, you may be required to pay the employee’s portion of Social Security and Medicare taxes. 

If you pay any part of an employee’s income tax or FICA withholding, the amount paid must be reported as additional taxable wages for the employee (referred to as “grossing up”). Additional employment taxes, both employee and employer portions, are required to be withheld on this added income. Specific information about several types of benefits is provided below: 

Group-Term Life Insurance 

 Please report the value of group-term life insurance in excess of $50,000 before your last payroll of the year. The value is based on an IRS published table that assigns a value for each $1,000 of excess coverage per month based on the employee’s age. If you do not know how to determine the value of the coverage, please contact your accountant. 

Dependent Care Assistance 

 In Box 10 (Dependent Care Benefits) on Form W-2, employers are required to show the total amount of dependent care benefits paid or incurred for the employee, including any amount in excess of the $10,500 exclusion. If you provided dependent care services to employees under an employer-sponsored program before your last payroll for the year, please report the benefits paid or furnished. 

Educational Assistance Program 

 The exclusion for employer-provided educational assistance under a qualified Section 127 plan for 2022 is: 

• Non-job related undergraduate and graduate courses are exempt up to $5,250.
• All job-related education assistance reimbursements are exempt from withholding and employer taxes if they qualify as a working condition fringe benefit. 

If you have not already reported these reimbursements with your payroll, please report them before your last payroll of the year. 

 Health and Accident Insurance Premiums Paid by an S Corporation 

 When an S corporation pays health and accident insurance premiums on behalf of 2% 

Shareholder/employees, the IRS rules specify two tax treatments. 

 Situation 1 – Non-Discriminatory Plan 

If the premiums are paid under a plan for employees and dependents in general or for a class of employees and dependents, the following will occur: 

- The premiums are treated as exempt for FICA and FUTA. 

- The premiums are included in the shareholder/employee’s federal gross income. 

- The premiums are reported on Form W-2 in Box 1 (Wages, Tips, Other Compensation). 

  Situation 2 – Discriminatory Plan 

If the premiums are not paid under such a plan, the following will occur: 

- The premiums are treated like normal compensation and as such are subject to FICA and FUTA. 

- The premiums are included in the shareholder/employee’s gross income. 

- The premiums are reported on Form W-2 in the following boxes: 

o Box 1, Wages, Tips, Other Compensation. 

o Box 3, Social Security wages. 

o Box 5, Medicare Wages and Tips. 

If you paid these premiums for any shareholder/employee, please report the amounts and type of plan to us before your last payroll of the year.