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3 Things for Your Year-End Checklist

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October 22, 2020 | Jennifer Namazi

3 Things for Your Year-End Checklist

Are you ready for year end? We are in the home stretch of 2020, the year that redefined “normal.” In that context, it’s hard to imagine that all of our year-end processes will flow without need for adjustment. Here are some tips for planning a smooth end to an otherwise turbulent year.

Remember Who Counts as an Employee

With furloughs, layoffs, and other changes in employee status, it’s easy to confuse who counts as an “employee” for purposes of income reporting and tax withholding requirements on equity plan transactions.

The answer to that in the U.S. is pretty simple – anyone who had employment related income during the calendar year gets a Form W-2 for that year, regardless of current employment status. Income from stock plan shares that were issued as part of the employee’s working relationship with the company fall into this category.

Tip: Ensure former and furloughed employees, along with those on a leave of absence are all included in any income reporting/tax withholding for stock plan transactions.

Verify Addresses for 1099 Recipients

2020 has been a year of mobility. Many people are working from areas outside their primary office location and even away from their main residence. This means special attention should be given to ensuring the company has a preferred mailing address for tax correspondence, which may be different than the address on file.  

The IRS reporting of stock plan income and tax withholdings for employees (including former employees) is generally handled by Payroll. This includes the mailing of the Form W-2. While Payroll may be responsible for the distribution of tax documents, they may need collaborative assistance from HR to ensure the correct addresses are on file.

When it comes to non-employees, the process for reporting stock plan related income to the IRS differs from employees – reporting is done via a Form 1099, usually prepared outside of the Payroll department.

As a result, the process used for maintaining employee addresses may not apply. The question arises, who is responsible for maintaining non-employee addresses and ensuring 1099s are mailed to the correct place? In many companies, the stock administration function serves as the reporter of information to accounting, who then mails a 1099.

Tip: Conduct outreach to non-employee stock plan participants to verify their current mailing address and request that they notify of any further address changes.

Evaluate Year End Audit Steps and Make Changes

The SEC has said that they are full steam ahead with enforcement actions, regardless of the pandemic. In fact, the SEC has expressed specific concern about the potential for COVID-19 related frauds or trading violations. The Commission reiterated these views this month at The SEC Speaks virtual conference (detail described in a McGuireWoods article), which reminds us that the scrutiny on financial statements, insider filings, and insider trading are operating in full force.

The Commission cited issuer financial statements as a key area of focus for their enforcement division, and this should signal to companies the ever-present need to ensure accuracy in disclosures. It seems highly unlikely that disclosure fails due to remote work breakdowns will receive a “pass” from the SEC.

With many workers at home, remote from the hub of the office, it is time to assess how material disclosures are made and determine if any process changes are needed to ensure accurate reporting.

Tip: Review audit steps well in advance of year-end to determine if work arounds or additional steps need to be implemented. This includes implementing additional controls to support the isolated nature of many operational tasks conducted in the new telework framework. Strive to maintain segregation of duties and audit oversight, even within a remote work environment.

Now is the perfect time to look ahead to year-end and use these tips to close out 2020 on a smooth note.

We’ve got a bunch of resources coming your way to help with year-end. Mark your calendars for our 2020 Tax Reporting Essentials webinar on November 18th. In addition, our next edition of the Advisor newsletter (out soon!) will address year-end in the context of COVID-19.


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