For churches who do payroll manually or who use payroll software, now is a great time to look ahead to avoid potential headaches (and embarrassing situations) when it comes time to present final payroll tax documents to church employees.

At Computer Helper Publishing, we suggest that after running the final payroll of October (but BEFORE running any payrolls in November), that you manually calculate or, preferably, print informational copies of W-2s for all employees. It’s also a great idea to check numbers as they would appear on the Form W-3. If your software is still displaying the previous year in the heading, that’s OK. You are looking at this for information only, and it will be from the current year. Software companies typically update to the 2014 forms in a late-year release.

 

When looking at the W-2s:

  • Does each W-2 contain the social security number and address for the employee?
  • Look at the amount in box 1: is this approximately 10/12 (0.833) of the annual amount budgeted for the employee?
  • If the criteria for Federal and State wages are the same, does the amount in box 1 agree with the amount in box 16? If the criteria are different, are the amounts different?
  • If you have employees who participate in a dependent care program, is there an amount in box 10?
  • Do amounts that are required to be stated separately show up in box 12 with the appropriate code?
  • Is box 13 marked for those employees participating in a retirement plan?
  • If box 14 is used, does it provide the information expected?

Make a list of any items that need to be investigated or corrected.

  

Gather the 941s for 1st, 2nd, and 3rd quarters.

Add together the amount on line 2 for each of the three quarters plus an additional 1/3 to compensate for October, and then do the same for lines 3, 5a, 5c, and 9. (If any amended 941’s (Form 941x) have been filed then substitute the corrected numbers when totaling the 941s.) Compare these totals with the W-3. Here is what should match:

Total of the 3 quarters of form 941 plus 1/3, line

Should equal

Form W-3, box

2

1

3

2

5a

3

5c

5

The wages from box 3 of the W-2 multiplied by 6.2% should be within a dollar of the amount in box 4 of the W-2. If any employee’s box 5 wages are in excess of $200,000 there is a two-step process for the next calculation. If no one has wages in excess of $200,000, then the wages of box 5 of the W-2 multiplied by 1.45% should be within a dollar of the amount in box 6 of the W-2. If employees have wages in excess of $200,000, make the previous calculation, determine the amount of wages in excess of $200,000 and multiply that by .9% and add it to the previous calculation. Compare this total with the amount in box 6, it should be within $1. There should only be wages on line 5d of the 941 if an employee is subject to Additional Medicare Tax (wages over $200,000). If the employee is a minister, then boxes 3, 4, 5, and 6 should be blank.

Gather your state and/or local returns for the first three quarters and compare these with boxes 17 and/or 19 on your W-3. If there are discrepancies, work to resolve those before December payrolls.

A little extra effort and preparation now can certainly save time, embarrassment, and headaches later.