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A worker's paperwork should stay
long after he's been fired
By Cora M. Barnhart •
Bankrate.com
So you tossed the incompetent employee out on
his ear after just two days on the job. Too bad you can't do the
same with his paperwork.
Many business owners decide quickly
whether they want to retain a particular employee. Knowing how long
to keep records associated with that employee proves to be another
matter entirely.
First, don't celebrate terminating an aggravating
employee too quickly, especially if you feel yourself reaching for
the paper shredder. You're going to find that it is easier to replace
the worker than his employment records.
The Internal Revenue Service doesn't impose
a particular recordkeeping system on business owners who intend
to properly retain records. However, business owners learn over
time that being neat and organized matter in this area is a good
idea. The IRS, not to mention tax authorities in the state, will
count on examining employment records if tax questions emerge.
Not being able to put your hands on the appropriate
records won't get your business off the hook with the IRS -- or
other governmental agencies.
What
to keep
Tax advisers generally recommend maintaining a list that includes:
- The name, address, and Social Security Number
of each employee hired.
- The total amount and date of each paycheck
and the time period it covers.
- The amount of income that is actually taxable
-- pay reductions for retirement or insurance payments usually
aren't part of taxable income.
There are other employment records you should
store along with the information above. Employers should make copies
of returns they filed, as well as copies of any undeliverable Forms
W-2. In addition, they should keep copies of each employee's withholding
exemption certificate, and record the dates and amounts of tax deposits
they made.
Fill
those filing cabinets
Once you understand what to keep, you need to know how long
to keep it.
Most experts advise that you err on the side
of caution -- and on the side of extra filing cabinets.
Homeshred, a provider of shredding services
in Hayward, Calif., recommends saving employee records over the
entire period of employment, plus an additional three years. TurboTax
recommends keeping most employment records for at least four years.
By the way, this is four years from the due dates of the returns
or from the date taxes are paid, whichever is later.
Keep in mind that the requirements discussed
here only consider IRS actions against employers. Every state has
its own set of recordkeeping requirements. Bottom line? Make sure
you check the requirements of your particular state.
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