December 9, 2022

Guide to Gusto’s Year-End Payroll Checklist

Contents

If your business uses Gusto, filing tax forms at year-end is super simple. Gusto will handle the government filings and make the tax forms available to your business’ employees and contractors. 

In spite of the simplicity, it’s still possible to file incorrect tax forms if the information in Gusto isn’t correct, so you should review Gusto at year-end to ensure your business tax filings are accurate.

Gusto makes the year-end review easy by providing a year-end payroll checklist integrated into their software. This article will walk you through the checklist. You can use it as a companion guide to expand on each section of the Gusto checklist.

Gusto’s end of year payroll checklist

In mid-November, Gusto will send an email about completing the end-of-year payroll checklist. You’ll probably also get a notification in your dashboard when logging in to Gusto. 

Don’t ignore this checklist.

Taking a few minutes to complete the checklist will help Gusto file accurate tax forms for you, your business, and your employees. You’ll avoid costly errors, wasted time, and frustrated employees.

How to find the year-end payroll checklist in Gusto

Gusto’s checklist can be found by following these steps:

  1. Log in to Gusto.
  2. Click on “Taxes & Compliance” > “Overview.”
  3. The checklist will be on the top of the screen.

Found it? Good. Let’s get started with the year-end payroll review.

Confirm employee information in Gusto

Employees will receive tax forms and pay taxes to various tax jurisdictions based on their information Gusto. So it’s important to confirm that this information is correct.

Here’s the information that you should review for each employee

  • Employee Names
  • Home Addresses
  • Social Security Numbers
  • Work Addresses
  • Identify 2% Shareholders

Review employee benefits in Gusto

Employee benefits have tax consequences. Failing to properly report employee benefits could result in underreporting or overreporting employee income. It’s important to review employee benefits to avoid penalties for your business and employees.

Here are the benefits you should review.

Retirement benefits

Does your business offer retirement benefits to its employees? 

Retirement benefits include contributions that your business makes on behalf of employees. Some plans allow employees to contribute amounts directly from payroll deductions.

Here are some retirement plans that you might offer to your employees:

401(k)

  • Traditional 401(k)
  • Roth 401(k)
  • Solo 401(k)

IRA

  • SEP IRA
  • Simple IRA

It’s possible that you made contributions to these plans but didn’t record the contributions in Gusto. If this is the case, run a payroll correction in Gusto so that the contributions and retirement plan coverage are reflected on the employee’s tax forms.

It’s also possible that amounts were withheld from employee paychecks for a Traditional or Roth 401(k) plan. Confirm that your business actually remitted the withholdings to the employee’s retirement plan.

Failing to properly report retirement plan contributions might result in your employees paying too much tax or too little tax.

You also want to ensure that your business gets the deduction for any contributions withheld from employee paychecks. This is a deductible wage expense for your business.

Health benefits

Does your business offer health insurance to employees? 

If so, the coverage needs to be reported through Gusto.

Your business might pay for part of the premiums and your employees might pay for the other part. Both the employee and employer contributions must be reflected in the employee’s W-2.

Employee contributions to health insurance coverage are made pre-tax. This means that contributions must be deducted from gross pay to calculate an employee’s taxable compensation.

Failing to properly report health insurance coverage might result in your employees paying too much tax.

You might also offer other health benefits such as Health Savings Account (HSAs) contributions. These need to be reported in Gusto

Fringe benefits

Fringe benefits are payments, monetary or non-monetary, that your business makes to employees as compensation for services. Fringe benefits are taxable and must be included in the employee’s income.

Examples of fringe benefits include:

  • Personal use of business assets (vehicles, office equipment, office space, etc.)
  • Stipends for gym memberships
  • Gift cards

Reimbursements are not included in fringe benefits. Reimbursements are business expenses that your employees incurred out-of-pocket. Fringe benefits are compensation, whether monetary or not, to employees for their personal benefit.

The IRS maintains a list of tax-exempt fringe benefits. Exempt benefits are excluded from the employee’s pay and would not need to be reported through Gusto, unless they are covered by another tax law (e.g. Health Savings Accounts).

Failing to report fringe benefits would result in your employee underreporting their taxable income. Both your business and the employee would be at risk of penalties and interest on the unpaid taxes. 

When in doubt, check in with your tax advisor to confirm which benefits are taxable and which are not.

Review off-cycle pay runs in Gusto

Off-cycle pay runs are compensatory payments from your business to employees made outside the normal pay schedule. Gusto allows off-cycle pay runs, but sometimes off-cycle pay runs are made outside of Gusto.

For example, if you paid a terminated employee with a paper check on their last day (which wasn’t a pay date), this would be an off-cycle pay run. You made the payment outside of Gusto and it was not made on a regular pay date.

You’d need to record the off-cycle pay run in Gusto to avoid underreporting the employee’s income when tax forms are filed at year-end. 

Gusto might need to “gross-up” any off-cycle payments made outside of Gusto. This would entail imputing income tax withholdings and employer taxes attributable to the off-cycle amount paid to the employee. Your business would be liable for the additional grossed-up amount. 

Examples of off-cycle pay runs

Sometimes off-cycle pay runs include items that might not immediately appear to be compensation. Here are examples of potential off-cycle pay runs:

  • Checks written for terminated employees.
  • Spot bonuses paid with a check.
  • Retirement plan contributions paid directly to an employee’s account (if contributed by the employee).
  • Health Savings Account contributions paid directly to an employee’s account.
  • Gifts and prizes awarded to employees.
  • Use of company vehicles for personal reasons.
  • Cash advances to employees to the extent the advances weren’t repaid.

If an off-cycle pay run is already in Gusto, you don’t need to take any action. However, you should review Gusto to confirm that all off-cycle pay runs are recorded in Gusto. Submit a payroll correction for any missing pay runs.

Verify contractor information in Gusto

Contractors are individuals who perform services for your business but aren’t considered employees. 

Your business must issue Form 1099-NEC to contractors at year-end. This form reports income paid to the contractor to both the IRS and the contractor.

Fortunately, Gusto makes filing Form 1099-NEC to your contractors simple.

As a first step, add the contractor to Gusto. Gusto will invite the contractor to enter their information. You’ll then pay the contractor through Gusto. At year-end, Gusto files the 1099-NEC with all payments made through Gusto included.

If you didn’t pay your contractors through Gusto, or made some payments outside of Gusto, you’ll need to enter these payments to Gusto so that Gusto files an accurate Form 1099-NEC.

It’s also possible to file a Form 1099-NEC outside of Gusto. In this case, you’d obtain a W-9 from the contractor, sum up the total payments made to the contractor (excluding certain payments made through PayPal), and file the 1099-NEC with the IRS. 

However, I strongly recommend using Gusto as opposed to filing the 1099s-NEC on your own. It’s much simpler and faster.

How to file tax forms at year-end through Gusto

With respect to payroll, there are at least three major tax filings that your business might need to make at year-end. These filings are:

  • Form W-2 → Employees
  • Form 1099-NEC → Contractors
  • Form 941 & 940 → Payroll Taxes

Gusto makes these filings for you, but the completeness & accuracy of information that’s in Gusto is your responsibility. 

Reviewing the information in Gusto will help prevent errors that cost your business, employees, and contractors time and money.

Timeline of year-end payroll in Gusto

Here’s a rough timeline of what your year-end payroll review should look like.

Mid-November

  • Gusto’s year-end checklist becomes available.
  • Complete this checklist as soon as possible.

Early December

  • Drafts of W-2s and 1099s are available for review.
  • Spot check these for any obvious errors.

Late December

  • Complete the checklist before year-end.
  • Run bonus payrolls before year-end.

Early January

  • Last chance to submit off-cycle payroll dated for the prior year.

Mid-January

  • Gusto files payroll tax forms for your business, employees, and contractors.
  • W-2s and 1099s are available to employees and contractors.

Worried about year-end payroll in Gusto?

Get in touch using the button below to work with a certified Gusto advisor. We’ll help you file your payroll tax forms through Gusto so that you can sail into tax season with confidence.

This content is for informational purposes only and does not constitute legal, business, or tax advice. You should consult your own attorney, business advisor, or tax advisor regarding matters mentioned in this post. We take no responsibility for actions taken based on the information provided.

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