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Employment Tax – 10 Tips For A More Successful Year-End

Year-end payroll processing is here. There are a few things you can do to help make the process as smooth as possible. We recently shared these top tips from our year-end tax specialists during a Tax Insights webinar:

  1. Applied for Identification Numbers (IDs)
    Employers should ensure that a valid state ID has been obtained and is provided when remitting tax deposits and filings.  A valid ID aids federal, state, and local tax agencies with the reconciliation of your payroll tax information and may also prevent discrepancy notices and penalties.
  2. Federal Form 941 (Reject/Errors)
    Figures on the Federal Form 941 must be in balance to prevent the possibility of discrepancy notices and penalties. Common causes of discrepancies include negative figures for Federal Income Tax (FIT), Federal Insurance Contributions Act Tax (FICA), Medicare, Positive Earned Income Credit (EIC), Negative 3rd Party Sick Pay (3PSP) and Medicare wages less than Social Security Wages.
  3. Amendments for Prior Quarter Periods
    Amendments for prior quarter periods of the filing year should be completed, before reconciling the annual payroll tax year, to ensure the annual return is in balance and to help prevent the possibility of discrepancy notice and penalties.
  4. Federal Form 941 and W-2 Discrepancies
    The totals reported to the Internal Revenue Service on the Federal Form 941 should be in balance with the figures reported to the Social Security Administration on employee W2 Forms to prevent the possibility of discrepancy notices and penalties.
  5. Puerto Rico Sequence Numbers
    For employers filing in Puerto Rico, a sequence number for each employee must be provided to aid the agency with posting tax filings and may prevent the issuance of discrepancy notices and penalties.
  6. Political Subdivision Codes (PSD) for Pennsylvania [Locals]
    Provide Political Subdivision Codes and correct employee addresses for employees within mandated counties to ensure they are reported accurately on employee W2 forms. For additional information on this legislation, please read Pennsylvania Act 32.
  7. Agency Discrepancy Notices
    Timely resolution of agency notices for prior periods within the payroll tax year may prevent the discrepancies with the annual tax filing and the issuance of additional discrepancy notices and penalties.
  8. e-File Error Conditions
    All State Income Tax (withholding) e-filing rejects should be resolved with the agency prior to filing a state annual reconciliation to ensure liabilities reported for the quarter and the annual reconciliation are in balance to prevent the issuance of discrepancy notices and penalties.
  9. Credit Reduction
    Certain states have outstanding Federal Unemployment Trust Act (FUTA) Fund loans and will have their FUTA credit amount reduced for 2012 as a way for the Federal Government to recover some of the outstanding loan amounts.  This results in higher taxes for employers in those states.  Employers must ensure they take credit reduction states into account when remitting their FUTA deposits to avoid the possibility of agency notices and penalties.  For up-to-date information on Credit Reduction states, visit
  10. Social Security Accuracy
    To aid with the successful posting of W2 filings and employment wage reporting, all employees must have a valid Social Security number and name format.  Invalid information may result in rejected filings and the possibility of associated penalties.

Learn more about employment tax services from ADP that work with your existing payroll system.

This material is for informational purposes only and is not intended to provide tax, accounting or legal advice.


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