Year End is a Busy Time for Finance

The month of January is always a busy time for local government finance personnel. There is the closing of the fiscal period for accounting purposes and then there are numerous reports to be completed, some of which only occur once a year. The importance of these requirements cannot be overemphasized. This blog will not touch every requirement but will focus on those areas of compliance that I feel are the most important and impact the majority of our readers. The intent is to make you aware of the deadlines and to provide links to resources that will assist you with meeting these legal compliance tasks.

The "Open Period"

The open period is a finite number of days where claims for services that were received in the prior fiscal period must be paid and recorded against the prior year’s budget.

For cities and towns, the open period refers to the first 20 days of the year (January 1–20). RCW 35.33.151 and RCW 35A.33.150 both state, in part:

…the accounts for budgetary control for each fiscal year shall be kept open for twenty days after the close of such fiscal year for the purpose of paying and recording claims for indebtedness incurred during such fiscal year.

For counties, the auditor determines if and for how long the open period will be. RCW 36.40.200 states that, at the auditor’s discretion, the records “may” be held open from 30-60 days. The statute reads, in part:

…PROVIDED, That the appropriation accounts may remain open for a period of thirty days, and may, at the auditor’s discretion, remain open for a period not to exceed sixty days thereafter for the payment of claims incurred against such appropriations prior to the close of the fiscal year.

If you are unclear about the open period for your county, be sure to discuss with your county auditor.

Special purpose districts that use the county as their Treasurer should clarify whether the county’s open period (if applicable) is being applied to their year-end financial transactions.

Cash vs. GAAP

The statutes referenced above primarily impact cash-basis entities, which have a reporting requirement for the transactions associated with the open period in Schedule 06 – Summary of Bank Reconciliation and Schedule 07 – Disbursement Activity of the annual financial report.

GAAP reporting entities, by virtue of their basis of accounting (modified and/or full accrual), should already be meeting these statutory requirements.

Federal Reporting Activities and Deadlines

Reconciling Wages and Taxes

The 941 Employer’s Quarterly Federal Tax Return form for the 4th quarter of 2018 is due by January 31, 2019. You may be asking why I would mention this quarterly report within the context of year-end reporting requirements. The reason is to stress the importance of reconciling your payroll data. It's essential to reconcile reported wages and taxes for each of the 4 quarters of 2018 prior to filing the W-3 transmittal of the 2018 wage and tax statements.

With regards to reconciling Forms W-2, W-3, 941, 941-SS, 944, CT-1, and Schedule H (Form 1040), the IRS publication for General Instructions for W-2 and W-3 forms states:

Reconcile the amounts shown in boxes 2, 3, 5, and 7 from all 2018 Forms W-3 with their respective amounts from the 2018 yearly totals from the quarterly Forms 941 or 941-SS or annual Forms 943, 944, CT-1 (box 2 only), and Schedule H (Form 1040). When there are discrepancies between amounts reported on Forms W-2 and W-3 filed with the SSA and on Forms 941, 941-SS, 943, 944, CT-1, or Schedule H (Form 1040) filed with the IRS, you will be contacted to resolve the discrepancies.

Taking this extra step to reconcile the 941 quarterly reports to the totals on the W-3 transmittal will eliminate any potential audit issues with the IRS later.

Filing Annual Wage and Tax Statements

Form W-2 (Wage and Tax Statements) and Form W-3 (Transmittal of Wage and Tax Statement) are both required by all local government entities who pay remuneration for services performed by an employee and are due by January 31, 2019. The IRS provides general instructions on the preparation of the 2018 W-2's and W-3, including information on completion and filing, tips on the most common errors, and a section on completing W-2c and W-3c, should you discover an error after the initial filing.

For many of you, W-2's are automatically generated via payroll software systems, requiring only that you verify the data, distribute the W-2's to employees, and file them with the Social Security Administration (SSA). However, there are some that do not have a separate payroll software program and cannot generate W-2's because they are either too small or receive financial services through a county. If this describes your entity, the SSA has an e-filing program that can save you time, effort, and money.

Backed by the IRS, the SSA’s Business Services Online (BSO) is a great tool for those who prepare and file 50 or fewer W-2 forms at a time. The BSO system guides you through the process of creating W-2’s, allows you to save data as you go, print forms when they are ready, and will submit the completed W-2 and W-3 forms to SSA when you are confident of the data (file no later than January 31, of course). The BSO system additionally generates Form W-3 based on the W-2 forms completed.

Filing Annual Miscellaneous Income

1099 – MISC (Miscellaneous Income) must be prepared and distributed for each vendor to whom you paid at least $600 during the year. There are some exceptions, the most common being:

• Payments to a corporation, including LLC’s (refer to 1099-MISC Instructions)
• Payments for merchandise, telegrams, telephone, freight, storage, and similar items
• Business travel allowances paid to employees (may be reportable on Form W-2)

For a complete explanation of requirements and exceptions see the 2018 General Instructions for Certain Information Returns (Forms 1097, 1098, 1099, 3921, 3922, 5498, and W-2G).

The 1099-MISC form is not popular to receive or prepare, so it’s important to be aware of the requirements to assure accuracy of reporting and filing the form with both the vendor and the IRS. The distribution of Form 1099-MISC to all payees that meet these requirements is January 31.

1099-MISC forms must be remitted to the IRS with Form 1096 Annual Summary and Transmittal of 1099 forms. The reporting deadlines vary with some classifications of compensation. For all payments reported in “Box 7 nonemployee compensation”, the deadline for mailing to the vendor remains January 31, and the deadline for remitting to the IRS is also January 31. (IRS Filing Notice for Forms 1099-MISC with NEC for Tax Year 2018.)

The instructions for filing Form 1099-MISC for compensation types other than Box 7 along with the required 1096 Transmittal form provides the following additional filing deadlines: Form 1099-MISC for all compensation forms other than nonemployee compensation must be filed on or before February 28, 2019 if you file on paper, or by April 1, 2019 if you file electronically. (The electronic filing deadline is normally March 31, which falls on a Sunday this year, so the due date is the next business day on Monday, April 1.)

These year-end compliance issues are what I consider to be the most critical. You will have other quarterly and annual reports to complete for various agencies such as Department of Labor & Industries, Employment Security, and the filing of the Annual Financial report (I will address the changes in financial reporting in a later blog post during February), but for now the January 31 deadline is coming up quickly.

Questions? Comments?

If you have any questions about your reporting requirements or other finance issues, please do not hesitate to email me at tnelson@mrsc.org, use our Ask MRSC form, or call us at (206) 625-1300 or (800) 933-6772. Happy New Year and welcome to 2019!