What Employee Tax Records Are Businesses Required to Keep and for How Long?
If you own a business and have employees, do you know what records you are required to keep for tax purposes? The list, while lengthy, is not overly cumbersome—but at the same time it's very important in the event that you are audited by the IRS. Read on to learn all you need to know when it comes to employee tax records.
Employee tax records you need to keep
For tax purposes the IRS lists on their website exactly what you need to keep on file. Here is a look at each item and what it entails.
- Employee identification numbers: You must have on record the identification number of all employees, which will either be their social security number or their employee identification number that was issued to them by the IRS.
- Other identification information: The names, addresses, and occupations of all your employees need to be kept on file.
- All wages paid: The total amount and dates for all wages paid out to your employees. The list includes wages, pension payments, annuities, contract payments, etc.
- Amount of tips: If your business is one where your employees will be earning tips, you must additionally keep on file the amount of tips paid out to each individual.
- Employment dates: You must keep on file the dates that individuals were employed.
- W-4 forms: You need to have each employee, before they begin work for you, fill out a W-4 tax withholding form and then keep it on file.
- W-2 and 1099 forms: You will need to keep a copy of all W-2 and 1099 forms that you issue. If any of these forms are returned to you as undeliverable, you must also keep those on file.
- Absence records: You must keep on file any time periods when you had an employee that was out of work due to an illness or injury, and any wages that you paid out to them during that time period.
- Benefits paid: You will need to have records on file of any benefits paid out to employees, including fringe benefits.
- Federal and state payroll tax information: Accurate records of all payroll tax paid to both the federal and the state government must be kept on file. It does not hurt to keep proof of deposit in the form of a returned check or other receipt. You will also need to keep copies of IRS payroll forms 940 and 941.
How long you must keep employee tax records?
How long should you keep employee tax records? The exact time frame is up for debate. According to the IRS website, all records need to be kept for a minimum of four years. Typically, the statute of limitations on an IRS audit is 3 years from the date the tax return was filed, but there are instances where this can be extended. Most experts in the area will advise their clients to keep the records for an even longer period of time, usually up to six years.
More articles from AllBusiness.com:
