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How Long Should You Hang on to Payroll Records?

The next time you get an itch to pitch old payroll records, make sure you’re not moving too fast. Generally, the IRS requires payroll records to be retained for four years, but there are exceptions.

Taxes. Records related to federal income, Social Security, and Medicare taxes withheld and paid should be retained for at least four years after the due date of the employee’s personal income-tax return (usually April 15) for the year the payment was made.

Fringe benefits. Employers that offer health insurance or various other fringe benefit plans should keep the records necessary to establish that the plan meets the requirements for excluding the benefit amounts from employees’ incomes. Assume the general four-year minimum applies unless there is a six-year retention period under federal pension law (ERISA).

Unemployment taxes. The four-year rule applies to records related to employee compensation and unemployment contributions. The period is tracked from the filing deadline for Form 940, Employer’s Annual Federal Unemployment (FUTA) Tax Return, or the date the FUTA tax was paid, whichever is later.