Overview
Please review Payroll Compliance Checklists to ensure you are compliant with federal and state requirements. By following these steps and providing the necessary information, you can ensure compliance with all required payroll regulations.
Payroll Compliance Checklist
Please download the checklist that applies to you
Instructions
As you walk through the checklist, you may click on the checkbox to mark an item as complete. Below, we will highlight each line item in more detail.
Please note: As a Sole Proprietor business owner, I am not set up on payroll.
Your income isn’t subject to payroll taxes, and you are not considered an employee of your business. Therefore, you’re not required to set yourself up on payroll.
The EIN entered in Gusto is the same EIN as on my CP575.
When you transition from a Sole Proprietorship to an S Corporation, you are required to apply for a new EIN. As a result, you may have two EINs. For payroll setup, it's crucial to use the EIN associated with the S Corporation. This EIN can be found on S corporation approval documents, like the CP575.
State registration is complete, and all tax information has been submitted.
When enrolling in payroll, state registration is required for tax withholding and unemployment tax purposes. If you run payroll before you've completed state registration and entered the info for payroll, you may receive agency notices or penalties as a result of late tax payments or filings. If you’re registering in a state where there is no income tax withheld, you can use the state-specific “new employer rate” in Gusto's article until you receive your company-assigned rate from the agency.
All employees and contractors have been added to payroll.
Please ensure that all employees and contractors have been added and associated forms (Form 940, Form 941, 1099-NEC) are properly filed.
Wages are being deducted from my business bank account and pay is deposited into my personal bank account.
It's crucial to separate the accounts where your pay as an employee is deposited from the business account where your salary is deducted. Even though you are both the employee and owner, you need to avoid double-counting this income in your business account to ensure accurate bookkeeping.
New hire forms have been filed for all employees.
You are required to file a New Hire report in your state for every new hire. These reports are utilized by federal and state agencies to identify individuals who may require seizing part of their wages, such as overdue taxes or child support. Subsequently, the court or relevant government agencies will send you information detailing the amount to deduct from your employee's pay to settle their outstanding debt.
Health insurance has been added to wages.
For S-Corp or LLC companies, the IRS requires that health insurance premiums paid by the company to employees with a greater than 2% ownership be reported as wages (not pre-tax benefits), and the cost is included on their W2s. For more information, review Notice 2008-1 from the IRS as well as Wage Compensation for S Corporation Officers.
In accordance with my Accountability Plan, home office-related expenses are set up as reimbursements.
Please review our article on reimbursable expenses under an Accountable Plan and how to create one. For more information, refer to Payroll Setup: Creating an Accountable Plan.
1099-NEC forms are being filed for all contractors.
This form is used to report non employee compensation, such as contractors, and is required to be sent to your contractors for annual taxes.
Form 941 or Form 944 are being filed for all employees.
Form 944: Employers are required to file Form 944 if their annual tax liability is less than $1,000 for Social Security, Medicare, and withheld federal income tax. These employers will file Form 944 annually instead of every quarter and usually are smaller employers.
Form 941: If an employer's tax liability and federal income tax withholding are more than $1,000 per year, they must use Form 941 and file it quarterly.
Payroll onboarding is complete, and I am able to run payroll.
As an S-Corp, while you are still the owner, you are first and foremost an employee of the business and are required to set yourself up on payroll to pay yourself a reasonable salary.
As a Sole Prop, you want to ensure that your payroll onboarding is complete and you are able to run payroll so that your team (W2 employees or 1099 contractors) is paid.
Annual owner’s distributions do not exceed annual net profit.
Owner’s distributions may otherwise be subject to capital gains taxes, resulting in a higher annual tax liability.
I am reviewing and updating (if applicable) Form W4 each year.
Income sources can change over time, and it’s important that your withholdings are up-to-date so the government receives the appropriate amount of income taxes on an ongoing basis. This minimizes the risk of receiving large tax bills at year-end or notices assessing penalties and interest for late tax payments.