Payroll Records Retention

July 9, 2014

What records do you need to keep? How long do you need to keep them? Thomas Reuters Checkpoint recently published information on proper retention periods. Here is a summary of what their Payroll Guide Newsletter advises retaining and for how long.

Note that with respect to tax returns, we recommend keeping any and all returns permanently.

  1. Keep income, Social Security, and Medicare tax records for at least four years after the due date of employee personal income tax returns for the year the employees receive the related wages. This includes the following:
    a. Each employee’s name, address, occupation, social security number, hire date, and termination date.
    b. The total amount and date of each payment of compensation and any amount withheld for taxes or otherwise. This must include reported tips and the fair market value of non-cash payments.
    c. The amount of compensation subject to federal income, Social Security, and Medicare taxes, and the corresponding amount withheld for each tax.
    d. The pay period covered by each compensation payment.
    e. If applicable, reasons why the total compensation and taxable amount for each tax rate are different.
    f. Statements reported by employees on tips received.
    g. Information regarding wage continuation payments that you or any third party made to employees under an accident or health plan.
    h. Fringe benefits provided to each employee.
    i. Any adjustments or settlements of taxes.
    j. Copies of returns filed, including Forms 941, 943, 944, 945, 941-X, and W-3, with corresponding schedules and Copy A of Forms W-2, plus any W-2s sent to employees and returned as undeliverable.
    Note: The general guidelines specify keeping these returns for at least four years. However, this is the minimum time recommended. As stated above, we recommend keeping any and all tax returns permanently.
    k. The amounts and dates of tax deposits.
  2. Keep any claim you filed for refund, credit, or abatement of withheld income and employment taxes for at least four years after the date of filing the claim.
  3. Keep information returns and any statements you gave to employees regarding tip allocation for at least three years after the due date of the return. 
  4. Keep any records indicating benefit plans that are excluded from income in the event you need to verify the determination of whether the plan meets the requirements. 
  5.  Keep federal unemployment tax records for the latter of at least four years after the due date of Form 940, or the date you paid the required FUTA tax with respect to the following:
    a. The amount of compensation paid during the calendar year.
    b. The amount of compensation subject to FUTA tax.
    c. State unemployment contributions made, which include separate totals for employer amounts and amounts withheld from employee wages. (Only a few states require employee contribution.)
    d. All information shown on Form 940 and any applicable schedules.
    e. If applicable, the reason why total compensation and taxable amounts are different.

The Federal Department of Labor and each state wage-hour and unemployment department has requirements of its own on payroll record retention. Please be aware of this for each state where you pay wages and file payroll reports.

For additional information or questions, please contact any member of our Schenck payroll services team.

Tags: Payroll