You can take these preliminary steps to balance the Payroll Year-end Reports: 941 Report, Employee Tax Summary, and Pay Code Transaction Report. Balancing the Payroll Year-end Reports is not required but it will make it easier for you to complete the Payroll Year-end Checklist. It will also help with taxes, printing W-2s, and closing year end. And when you do complete the Payroll Year-end Checklist, pre-balancing these reports will limit the search range to the last pay period.

Important! The 941 Report calculates taxes differently from the Employee Tax Summary and Pay Code Transaction Report. The report totals will differ by a couple of pennies. When you balance these reports, it's acceptable for the report totals to be a couple of pennies off.

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When should I pre-balance Payroll Year-end Reports?

Complete this step before you run the last payroll in the calendar year. This step is not mandatory. However, it will make it easier to finishing the Payroll Year-end Checklist.

How much time will I need?

That depends. If the Payroll Each Pay Period checklist has been completed for each pay period, then balancing these reports should be straightforward. If the Payroll Each Pay Period checklist has not been completed each pay period, you may need to allow additional time for troubleshooting.

First, print 941 Report, Employee Tax Summary, and Pay Code Transaction Report

When you set up the report, change the report date range to select Quarterly or Calendar Year. You want to print the report for the calendar year (01/01/YYYY to 12/31/YYYY).

Print the Annual 941 Report

Print the Employee Tax Summary

Print the Pay Code Transaction Report

Second, verify the Social Security and Medicare amounts on the Pay Code Transaction Report

The Pay Code Transaction Report will tell you the amount that is recorded as the Social Security or Medicare amount. You can use this report to find out how much should be recorded as the employee or employer contribution to Social Security or Medicare.  

If the Social Security or Medicare amounts do not match, it means an incorrect amount is recorded and it needs to be corrected before the reports will balance. Start by checking the Social Security amounts and then check the Medicare amounts.

Check the Social Security amounts

Check the Medicare amounts

Does the Social Security Employee total match the Social Security Employer total?

• Yes, the Social Security amounts match. That's great news, you're ready for the next step.

• No, the Social Security amounts DO NOT match. You need to review the employee settings to find the incorrect Social Security entry. Start your search by finding the employee with the incorrect Social Security amount and then find the date when the incorrect Social Security amount was recorded. Then, correct the entry, recalculate the employee's benefits, and then rerun the Pay Code Transaction Report, Employee Tax Summary Report, and 941 Report for the calendar year.

Does the Medicare Employee total match the Medicare Employer total?

• Yes, the Medicare amounts match. That's great news, you're ready for the next step.

• No, the Medicare amounts DO NOT match. You need to review the employee settings to find the incorrect Medicare entry. Start your search by finding the employee with the incorrect Medicare amount and then find the date when the incorrect Medicare amount was recorded. Then, correct the entry, recalculate the employee's benefits, and then rerun the Pay Code Transaction Report, Employee Tax Summary Report, and 941 Report for the calendar year.

Third, verify the Federal Social Security and Medicare amounts match

The Employee Tax Summary Report will show you what the Social Security and Medicare totals should be.

• Compare Social Security wages

• Compare Medicare wages

Compare the Social Security wages on the 941 Report and Employee Tax Summary Report

941 Report, Taxable Social Security wages

Next, use the Pay Code Transaction Report to total the Social Security Amount paid by the employees and employer.

Social Security Employee Amount + Social Security Employer Amount = Taxable Social Security Wages

Federal Social Security Amounts

Compare the Federal Medicare wages on the 941 Report and Employee Tax Summary Report

Write down or make a note of the total from Line 5c Taxable Medicare Wages & Tips on the 941 Report.

Next, use the Pay Code Transaction Report to total the Medicare Amount paid by the employees and employer.

Medicare Employee Amount + Medicare Employer Amount = Taxable Medicare Wages

Federal Medicare Amounts

Troubleshooting

What if the 941 Report does not match the Pay Code Transaction Report?

What if the employee is exempt from Federal and State withholdings and their pay code is inactive?

What about employees who have exceeded or will exceed the maximum contribution limit?

Which report shows terminated employees?

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