Recordkeeping for Payroll Records

For you to be able to respond to any inquiries from the IRS about your tax forms, you should keep the following records for at least four years after the due date of the return or the date it was filed, whichever is later. In the case of quarterly (Form 941) returns, the due date is considered April 15th of the calendar year after the quarter ends. In some cases, you may want to keep the records longer.

Employment Tax:

Forms 941 or 944
Employee copies of Forms W-2 and W-3
Employee Forms W-4
Employee Forms W-5
Records of fringe benefits paid to employees, and how their value was determined
Names, addresses, and social security numbers of all employees
Dates of employment for each employee
Special payments such as sick pay, lump sum leave payments
Travel vouchers and other accounting for reimbursements to employees
Receipts, cancelled checks, etc., for deposits made or tax paid with return

Vendor or Nonemployee Payments

Names, addresses, and taxpayer identification numbers of payees
Dates of payment
Forms W-9
Payer copies of 1099-MISC and other information returns
Forms 945
Description and purpose of payments made
Notices related to backup withholding

IRS Cautions Employers To Comply With Federal Recordkeeping Requirements

IRS has reminded employers via it's e-news for small businesses on July 25, 2007 about the importance of keeping good records. Under _Reg. § 31.6001-1(e)(2), employment tax records must be maintained for at least four years after the later of the due date of the tax for the return period to which the records relate, or the date the tax is paid.

IRS notes that the records should include the following information:

Employer identification number (EIN);
amounts and dates of all wage, annuity, and pension payments;
amounts of tips reported;
the fair market value of in-kind wages paid;
names, addresses, Social Security numbers, and occupations of employees and recipients;
employee copies of Forms W-2 that were returned as undeliverable;
dates of employment;
periods for which employees and recipients were paid while absent due to sickness or injury, and the amount and weekly rate of payments made to them by the employer or third-party payers;
copies of employees' and recipients' income tax withholding allowance certificates (Forms W-4, W-4P, W-4S, and W-4V);
dates and amounts of tax deposits;
copies of returns filed;
documentation for allocated tips; and
documentation for fringe benefits provided, including substantiation.

A willful failure to keep required records is a misdemeanor punishable by a fine of up to $25,000 ($100,000 for corporations) and/or imprisonment for up to one year. (Code Sec. 7203)