Spring is a great time to
clean up old files. Which records can you destroy, and which records
must you retain? The Internal Revenue Code (IRC) requires all employers
that withhold and pay federal income, social security, and Medicare
taxes maintain certain records for each employee. Failure to meet these
requirements can result in sizable penalties and large settlement
awards if you are unable to provide the required information when
requested by the IRS or in an employment-related lawsuit.
Income, Social Security,
and Medicare taxes: Employers must keep
income, social security, and Medicare tax records for at least four
years after the due date of the employee's personal income tax return
(generally, April 15) for the year in which the payment was made:
The employer's Employer Identification Number (EIN).
Employee name, address, occupation, and social security
The total amount and date of each payment of compensation
and any amount withheld for taxes or otherwise. This should include
reported tips and the fair market value of non-cash payments.
Amount of compensation subject to withholding for federal
income, social security, and Medicare taxes, and the corresponding
amount withheld for each tax (also the date withheld if withholding
occurred on a different day than payment).
The pay period covered by each payment of compensation.
If applicable, the reason(s) why the total compensation
and the taxable amount for each tax rate are different.
The employee's Form W-4.
Each employee's beginning and ending dates of employment.
Any statements provided by the employee reporting tips
Information regarding wage continuation payments made to
the employee by an employer or third party under an accident or health
plan. This should include the beginning and ending dates of the period
of absence from work and the amount and weekly rate of each payment
(including payments made by third parties).
Request for Federal Income
Tax Withholding from Sick Pay.
Fringe benefits provided to the employee and any required
Employee requests to use the cumulative method of wage
Adjustments or settlements of taxes.
Copies of returns filed (on paper or electronically),
including Forms 941 (with Schedules B, D, and/or R, as applicable),
943, 944, 945, 941-X, W-3, Copy A of Form W-2, and any Forms W-2 sent
to employees but returned as undeliverable. If you can electronically
reproduce the undeliverable Forms W-2, you may destroy the originals.
Amounts and dates of tax deposits.
Unemployment tax: Employers
subject to the Federal Unemployment Tax Act (FUTA) must also keep the
following records for at least four years after the due date of Form
940 or the date the required FUTA tax was paid, whichever is later:
The total amount of employee compensation paid during the
The amount of compensation subject to FUTA tax.
State unemployment contributions made, with separate
totals for amounts paid by the employer and amounts withheld from
employees' wages. Currently, Alaska, New Jersey, and Pennsylvania require employee
All information shown on Form 940.
If applicable, the reason why total compensation and the
taxable amounts are different.
DOL, State Requirements,
There are also record
retention requirements set by the Department of Labor (DOL), as well as
wage-hour and unemployment insurance agencies at the state level. You
can read the DOL.s rules by visiting www.dol.gov/dol/topic/wages/wagesrecordkeeping.htm.
Links to state agencies can be found by visiting
[SSA/IRS Reporter, Spring 2012; www.irs.gov/pub/irs-pdf/p1693.pdf].