Payroll is complicated. Because of that, many businesses choose to stay small for as long as possible before hiring employees. When you finally do hire, it’s a good instinct to hold onto anything related to payroll and employment taxes. You never know if the IRS will come knocking, and you want to be on the right side of things.
That instinct, however, can easily turn into file cabinets, boxes, and folders taking up valuable space. Unless your business model is a library—which is usually not a great business model—you probably don’t want your floor space dedicated to paperwork instead of things that actually move the business forward.
So the question becomes: how long do you need to keep payroll tax records?
The Short Answer
Four years.
More specifically, four years after the due date of the fourth-quarter payroll tax return for the year in question. After that point, the IRS generally no longer requires you to keep those records.
What Payroll Records the IRS May Want to See
During those four years, the IRS may request access to quite a bit of documentation, including:
- Your employer identification number.
- Amounts and dates of all wage, annuity, and pension payments.
- Amounts of tips reported to you by your employees.
- Record of all allocated tips.
- The fair market value of in-kind wages paid.
- Names, addresses, social security numbers, and occupations of employees and recipients.
- Any employee copies of Form W-2 and W-2c returned to you as undeliverable.
- Dates of employment for each employee.
- Periods for which employees and recipients were paid while absent due to sickness or injury and the amount and weekly rate of payments you or third-party payers made to them.
- Copies of employees’ and recipients’ income tax withholding certificates (Forms W-4, W-4P, W-4S, and W-4V).
- Dates and amounts of tax deposits you made and acknowledgment numbers for deposits made by EFTPS.
- Copies of returns filed and confirmation numbers.
- Records of fringe benefits and expenses reimbursements provided to your employees, including substantiation.
- Documentation to substantiate any credits claimed. Records related to qualified sick leave wages and qualified family leave wages for leave taken after March 31, 2021, and records related to qualified wages for the employee retention credit paid after June 30, 2021, should be kept for at least 6 years. For more information on substantiation requirements, go to the Tax Credits for Paid Leave Under the Families First Coronavirus Response Act for Leave Prior to April 1, 2021 and FAQs: Employee Retention Credit under the CARES Act pages.
- Documentation to substantiate the amount of any employer or employee share of social security tax that you deferred and paid for 2020.
Some records need to be kept longer. For example, documentation related to certain COVID-era credits—such as qualified sick leave wages, family leave wages, or employee retention credits—should be kept for at least six years.
After Year Five
Once you’re past year five, you generally no longer need to keep these payroll tax documents. At that point, you can safely reduce what you’re storing, whether that’s physical files or digital clutter.
Was there anything on that list you didn’t expect? Let me know in the comments—most business owners are surprised by at least one item.
How I Can Help
As your bookkeeper, I can help you process payroll and account for it properly using online bookkeeping software like QuickBooks Online. If you use a separate payroll processor, I can still record accurate journal entries so your books stay clean and current.
Business owners typically save 80+ hours per year by hiring a bookkeeper instead of handling everything themselves. If you’d like help getting payroll organized and keeping your books audit-ready, schedule a free bookkeeping strategy call with me. We’ll talk about your business goals and see if we’re a good fit.