2026 Year-End Payroll & Tax Checklist for Employers

As 2026 comes to an end, now is the time to prepare for important year-end payroll tasks, understand key updates for 2027, and take note of important dates. This year-end payroll checklist and tax guide will walk you through what you need to know.

Key items to note include the projected Social Security wage base increase for 2027, state and local minimum wage increases on January 1, 2027, and IRS filing updates. We’ll also cover how to verify employee information, process your final paychecks, send out W-2s, and get ready for 2027 so you can avoid mistakes, penalties, and delays.

Payroll Checklist: Before the Last Payroll of the Calendar Year

As you prepare for filing payroll taxes and navigating year-end payroll, pay close attention to the changes above, especially the FICA wage base and state and local minimum wage changes. Here’s a closer look at some steps you can take now to prepare for the end of the year.

Verify Business Information

Verify that the business information you have on file for tax purposes is accurate. Specifically, confirm your state and federal employer identification number (EIN) and your company name and address. Check your state unemployment account number(s) as well.

Review Compensation for 2027

As you prepare your budget for the coming year, factor in any expected pay raises for your staff. Specific amounts will likely depend on what the law requires (e.g., minimum wage/salary thresholds), as well as what you can afford after factoring in costs such as current employee compensation and payroll taxes.

Here are some things to keep in mind:

• The wage base for the Social Security portion of FICA in 2027 is projected to be $190,200, which would result in employers paying more FICA taxes. The 6.2% share will be applied to this higher wage base.
• For nonexempt employees, verify you follow any minimum wage rate increases for the states and localities where your business operates.
• Ensure that exempt employees are being paid appropriately (e.g., receive at least the minimum threshold each workweek on a salary or fee basis) under the Fair Labor Standards Act (FLSA) and applicable state law. Review the specific requirements that apply to your employees now to ensure compliance.
• Businesses in certain states also need to check if any salary threshold changes are taking effect that would require adjustments for their exempt employees above and beyond FLSA requirements. States like California, New York, and Washington have their own salary thresholds for exempt employees that may be higher than the federal requirement.

Review Year-End Bonus Structure

If you offer bonuses to your employees, they may be tax-deductible. Assuming that you report your income and expenses on a calendar-year basis, use these guidelines to determine when you should deduct them:

• If You Are a Cash-Basis Business: Deduct the bonuses in the year they are paid. If you pay bonuses in 2026, they’re deductible for 2026. If you pay 2026 bonuses in 2027, they’re deductible in 2027.
• If You Are an Accrual-Basis Business: Bonuses declared (and accrued) before the end of the year are deductible this year if they are paid by March 15 (provided that the employee is required to be employed only on the bonus declaration date and not on the bonus payment date).
• If Your Business Is an S Corporation or C Corporation: Bonuses to S corporation shareholder-employees are deductible only when paid. For owner-employees in a C corporation, the bonus is deductible only when paid in the case of a personal service corporation or for majority owners (more than 50%).

Depending on the type, bonuses may also have an impact on overtime paid to nonexempt employees. Under the FLSA, bonuses can be either discretionary or nondiscretionary:

• Discretionary: These bonuses are typically paid solely at the discretion of the employer and are not announced to or known by employees in advance (e.g., bonuses for overcoming a challenging or stressful situation)
• Nondiscretionary: These bonuses typically include those known to employees, creating an expectation to receive the bonus (e.g., attendance bonuses, production bonuses, etc.)

Generally, nondiscretionary bonuses must be included when calculating any overtime pay owed to a nonexempt employee for the period covered by the bonus.

All bonuses must be reported as taxable income on Form W-2 in Box 1 (wages, tips, other compensation). Bonuses are subject to federal income tax withholding, Social Security tax, and Medicare tax.

The IRS treats bonuses as supplemental wages, which means employers can use either the percentage method (a flat 22% federal tax rate for bonuses under $1 million) or the aggregate method (combining the bonus with regular wages) for calculating federal income tax withholding.

Regardless of which method you use, all bonuses must be properly reported and withheld for payroll taxes. Make sure your payroll system accurately tracks and reports all bonus payments to ensure compliance and avoid penalties.

Consult with your attorney, trusted advisor, or HR Professional for assistance determining what impact, if any, bonuses may have on overtime pay owed to nonexempt employees under the FLSA, as well as state or local law.

Communicate Unused Benefits Deadlines to Employees

Some of the benefits employees earned or paid into in 2026 may expire at the end of the year. Consider your company policies for these benefits and advise employees accordingly:

• Vacation, Sick Days, or Personal Leave Time: Can unused days be carried over based on company policy and applicable law? If so, are there limits to the amount that can be carried over? Are there any amounts that need to be paid out? If so, are there timing parameters for when the payouts must occur? Note any paid time off that will expire at year-end and communicate this information to employees so that they can schedule and coordinate leave time accordingly.
• Flexible Spending Accounts (FSAs) for Medical Costs and Dependent Care: The contribution limit for health care flexible spending accounts (FSAs) is $3,400 for 2026; the 2027 limit is expected to rise slightly with inflation and will be confirmed by the IRS in fall 2026. Employees may elect to contribute up to the applicable annual limit in pretax dollars to their health care FSA for the plan year.

Historically, FSAs have a use-it-or-lose-it feature, which means amounts remaining in the account at the end of the year are forfeited. However, plans may allow employees to submit claims within a set time (run-out period) for expenses incurred in the previous year. For example, an employee may submit reimbursement for a medical expense incurred on December 15, 2026, by January 30, 2027. Typically, a medical FSA can also provide a grace period of up to 2½ months after the year’s close for new expenses, or the FSA can allow for a carryover of up to $680 from 2026 into 2027. The FSA cannot offer both a grace period and a carryover option. Advise employees about the terms of your plans.

Confirm Employee Identifying Information

Check for inaccurate or outdated employee information before preparing 2026 W-2s. These inaccuracies can lead to costly delays, reprints of W-2s, and IRS-imposed penalties. Ask employees to confirm their full name, Social Security number, address, and additional contact information to help streamline your end-of-year processes and ensure that vital tax documents get to the correct location.

If an employee has had a name change due to marriage, divorce, or other reasons, make sure the name on their W-2 matches the name on file with the Social Security Administration. This is also the time to ensure that deceased employees are correctly coded and that you abide by state laws regarding final pay for deceased employees.

Record and Reconcile All 2026 Paychecks

While you won’t be able to finalize your annual payroll and tax numbers until after the final pay period, you can get a jump-start on recording and verifying everything that has already been processed. Review all 2026 pay stubs and past pay periods to ensure that all amounts are logged accurately by verifying the following:

• Employee wage amounts
• Benefits deductions
• Child support or other miscellaneous deductions
• Disability or other benefits payments
• Employees exceeding the $184,500 FICA wage base for 2026
• Special tax exemptions that may have occurred throughout the calendar year

Evaluate Tax Credit Opportunities

Before the end of the year, take time to assess whether your business qualifies for valuable tax credits that could reduce your tax liability. Many employers miss out on significant savings simply because they aren’t aware of available credits or don’t take action before year-end deadlines.

• Work Opportunity Tax Credit (WOTC): The Work Opportunity Tax Credit, which provided tax incentives to employers who hired individuals from certain targeted groups that face barriers to employment, expired on December 31, 2025. Unless Congress extends or reinstates the credit, WOTC is not currently available for individuals who begin work after that date.
• Research and Development (R&D) Tax Credit: The R&D tax credit rewards businesses that invest in innovation, product development, or process improvements. Document your qualifying expenses and activities before year-end to support your claim.
• Small Business Health Care Tax Credit: If you have fewer than 25 full-time equivalent employees and you pay at least 50 percent of employee health insurance premiums, you may qualify for the Small Business Health Care Tax Credit. To determine eligibility for this credit, review your employee count, average wages, and premium contributions before the end of the year.

Consult with your tax advisor or accountant before December 31, 2026, to evaluate your eligibility for these and other available tax credits. Proper documentation and timely filing are essential to claim these benefits, so don’t wait until tax season to explore your options.

Order Required Year-End Tax Forms

Plan ahead to provide employees with 2026 wage statements by February 1, 2027 (the January 31 deadline falls on a Sunday) via IRS Form W-2. You can get these necessary forms from your payroll service provider, printed from your payroll management system, or the IRS. If you plan to obtain blank forms directly from the IRS for manual completion, order them well before the end of the year so you can begin processing them immediately after the final payroll period.

Remember, if you file 10 or more information returns (including W-2s, 1099s, and other forms combined), you are required to file electronically with the IRS.

Review Payroll Policies for 2027

The end of the year is a good time to make sure your payroll schedule and policies still meet your needs. Many businesses use the same payroll setup year after year, but changing employee expectations and evolving technology make this a good time to consider new options. Before January 1, review your paycheck deposit schedule, payment methods, and any policies you want to change or add for the coming year. Specifically, consider:

• Updated Payroll Options: Many employees today want faster and more flexible access to their paychecks. Pay-on-demand (also called earned wage access) lets employees get some of their earned wages before the regular payday. Daily pay options are also becoming more common, especially for businesses with hourly workers or high turnover.
• 2027 Holiday Schedules: Plan around federal holidays that might affect your normal payroll schedule. Important dates include New Year’s Day (January 1), Martin Luther King Jr. Day (January 18), Presidents Day (February 15), Memorial Day (May 31), Juneteenth (June 19, observed June 18), Independence Day (July 4, observed July 5), Labor Day (September 6), Columbus Day (October 11), Veterans Day (November 11), Thanksgiving (November 25), and Christmas (December 25, observed December 24). If your regular payday falls on a federal holiday or weekend, process payroll early so employees get paid on time. Banks generally stay open on a Friday when a Saturday holiday is observed, so the Juneteenth and Christmas observances may not affect direct deposit timing, but the Independence Day observance on Monday, July 5, will.

Address Special Circumstances

While these things may not apply to all businesses in every calendar year, take note of the following circumstances and associated tasks that may impact your business:

• Newly hired employees or employees who didn’t complete a W-4 at the time of hire
• Employees with voided or reversed paychecks
• Employees or former employees with active payroll disputes

If any of these situations apply, try to resolve these issues before the end of the year. If that isn’t possible, verify how these issues will affect your end-of-year payroll.

Payroll Checklist: After Year’s Last Payroll and Before First 2027 Payroll

While much of the planning and organization on your 2026 year-end payroll checklist can be done in advance, there are several essential steps to complete after the final payroll period of the year.

Finalize Annual Wage, Tax, and Benefits Totals

Before finalizing your payroll for 2026, review your information to ensure everything looks accurate for each employee and for the company. Total each employee’s wages, taxes paid, and benefits earned throughout the year, and then calculate summary figures for your business to use on the applicable year-end tax forms. This also includes any fringe benefits you offer, which are generally included in an employee’s income and can include personal and sick days, partial tuition reimbursement, company car, or stock options. Make sure that you report fringe benefits under employee earnings.

Prepare and Distribute 2026 Forms W-2

Once the final payroll for the year has been processed, you can print and distribute Forms W-2. Some payroll providers will send Forms W-2 directly to your employees. Regardless of delivery method, employees must receive a copy (or have access to download a copy) of their Form W-2 by February 1, 2027, so these forms must be calculated and distributed quickly. Copies must also be sent to the Social Security Administration by this date.

Prepare and File 1099 Forms

If you paid any independent contractors, freelancers, or other nonemployees $2,000 or more during 2026 for services (the threshold increased from $600 to $2,000 beginning with the 2026 tax year), you must report those payments to the IRS using Form 1099-NEC (Non-employee Compensation). Be sure you have a W-9 form on file with each contractor’s correct information. Form 1099-NEC must be provided to contractors and filed with the IRS by February 1, 2027, whether you file on paper or electronically.

File Federal Payroll Tax Forms and Pay Taxes Owed

If your end-of-year payroll tax return shows that you owe taxes, these must generally be paid online via the IRS business tax website. While individuals typically have until April 15 to file personal income taxes each year, employers must file payroll tax returns much earlier. Forms 940, 941 (Q4), and 944 are all due by February 1, 2027.

Note: Business income tax returns have separate deadlines: partnerships (Form 1065) and S corporations (Form 1120-S) must file by March 15, while C corporations (Form 1120) file by April 15.

Address State and Local Minimum Wage Changes and Tax Requirements

Many states and localities have announced minimum wage rate increases in response to inflation rates that continue to impact individuals and businesses nationwide. Scheduled increases are planned in numerous states and localities, and additional increases may be announced before the end of the year. Since many wage increases become effective on January 1, it’s essential to consider this when determining compensation for 2027.

If your business operates in multiple locations, verify your wage and tax obligations in each locality where you employ workers.

Prepare for 2027 Payroll Launch

After you have completed this year’s payroll, review your payroll schedule for 2027. Check all period-ending and quarterly closing dates to ensure they do not fall on any major holidays, weekends, or other dates that would make processing in a timely manner difficult. Make any necessary adjustments to your schedule based on updated 2027 tax tables, and then set up your first 2027 payroll.

What Is Year-End Payroll?

Year-end payroll is the careful review and verification of your financial information from the fourth-quarter of the calendar year through the first quarter of the following year. Businesses are responsible for year-end payroll tasks related to employee payments and records, including:

• Accurately calculating tax liabilities, employee compensation, and deductions to be withheld from employee paychecks
• Reviewing relevant tax documents to make sure you track all payments correctly in the new year
• Completing and filing forms with the Internal Revenue Service (IRS), Social Security Administration (SSA), and state and local tax departments
• Identifying and preparing for changes to local, state, and federal employment regulations that affect your business in the new year

Getting year-end payroll right helps your business stay compliant with federal, state, and local tax requirements and avoid penalties from missed deadlines or errors. Closing the year with accurate records also gives you a clear financial picture, so you can plan your budget for the year ahead and give employees a clean start to their own tax season.

For 2026 year-end, take note of the Social Security wage base increase to a projected $190,200 for 2027, minimum wage changes in numerous states effective January 1, 2027, and any tax credits available to your business.

A payroll calendar can be a game changer when planning for the upcoming year. It helps to ensure that all payroll-related administration is completed on time and that payroll delays are avoided.

When Does the 2026 Payroll Year End?

When submitting payroll forms and tax information, make every effort to meet important 2026 payroll year-end dates. Business tax obligations for year-end payroll and 2027 filing year deadlines will vary by state, business size, industry, and several other factors, but most businesses will be required to file:

• An annual business tax return, whose filing deadline depends on your business structure
• Forms W-2 and W-3 for each employee
• Form 1099-NEC for contractors
• Form 940 and fourth quarter FUTA taxes deposited
• Quarterly Form 941 tax return or the annual Form 944 (depending on when you file)

Be aware that proper preparation for year-end payroll taxes begins well before the end of the year. It’s essential to keep accurate, up-to-date payroll records throughout the year to help you meet required deadlines and make payroll tasks as straightforward as possible. To help estimate your payroll tax responsibilities as you prepare for year-end filings, you can use our Employer Payroll Tax Calculator.

What Happens if You Miss a Year-End Payroll Tax or Deadline?

Missing a year-end payroll tax deadline can have financial and legal consequences for your business, including penalties, interest, and IRS scrutiny. Late filings can also result in fines and unnecessary stress. Beyond penalties, you may face audits or deeper dives into your payroll practices, which can bring more administrative burdens.

If a payroll deadline is missed, act fast. Here’s what to do:

• Identify the Problem: What was missed? A filing or payment?
• File Now: File the paperwork as soon as possible, even if it’s late.
• Fix Errors: If needed, file an amended return to correct mistakes.
• Call the IRS: If penalties apply, consider setting up a payment plan to pay the fine.
• Engage a Professional: You may want to contact your accountant or tax lawyer to remedy the missed deadline.
• Review Processes: Implement safeguards, like automated reminders or payroll software, to prevent future missed deadlines.

Taking these steps can help minimize further financial impact and ensure payroll operations remain compliant.

Required Tax Forms for End-of-Year Payroll

As an employer, you must send employees and contractors specific tax forms early in the new year (see the Key Year-End Payroll Dates table below for exact deadlines) and submit wage and tax information to the SSA and IRS. Specifically, some of the year-end forms include:

• Form W-2: Reports employee wages and withholdings to the SSA.
• Form W-3: Summarizes the information in the W-2. This is submitted with W-2s to the SSA.
• Form 1099-NEC: Reports nonemployee compensation of $2,000 or more paid to contractors (effective for the 2026 tax year).
• Form 940: Filed with the IRS by businesses with one or more employees and used to determine the employer’s federal unemployment tax (FUTA) based on the business’s annual payroll.
• Form 941: Due quarterly and used to report wage withholding for income taxes, the employee’s share of Social Security and Medicare (FICA) taxes, and the employer’s share of FICA.
• Form 944: Applies to employers with annual tax liability who withheld federal income tax, FICA (employee and employer share) totaling $1,000 or less.
• Form 1095: As part of the Affordable Care Act, if you have an average of 50 or more full-time employees, including full-time equivalents, during the preceding calendar year or your business is self-insured, you must file Form 1095 with the IRS. Self-insured small companies must file Form 1095-B to report information on individuals provided minimum essential coverage, and employers with 50 or more full-time equivalent employees must file Form 1095-C on health insurance coverage offered to full-time employees and their dependents. If self-insured, they must also provide information on individuals enrolled in coverage. Failure to file or furnish these forms on time could lead to penalties.

Key Year-End Payroll Dates To Remember

As we near the end of the year, keep track of important year-end payroll and tax deadlines to avoid late filings, fines, and penalties. Be sure that employee tax forms like W-2s and 1099s are prepared and distributed on time and that payroll taxes are paid to the IRS.

To help you stay organized and transition smoothly to the new year, we’ve compiled a table of the most important 2026 year-end payroll deadlines, form distribution, filings, and tax payments. Use this table as a quick reference to ensure everything gets done on time.

Organizing these key dates in advance helps you stay on top of payroll requirements and reduce the last-minute rush that can lead to mistakes or missed deadlines.

Common Year-End Payroll Mistakes To Avoid

Most payroll errors happen because businesses wait until the last minute to prepare or lack systematic verification processes. Here are the most common year-end payroll mistakes and how to avoid them.

• Missing the January 31 (February 1 for the 2026 tax year) deadline for W-2s and 1099s. Failing to distribute Forms W-2 and 1099-NEC by the deadline can result in penalties starting at $60 per form and increasing based on how late you file.
  • Avoid This Mistake: Start gathering employee and contractor information early. Verify that all names match Social Security Administration records, confirm addresses are current, and request missing Form W-9s from contractors immediately.
• Overlooking state and local tax reporting requirements. Each state has its own year-end reporting requirements, filing deadlines, and forms. Some states require separate unemployment insurance reports, state income tax withholding reconciliations, or copies of federal forms. Missing these deadlines can result in penalties and interest charges.
  • Avoid This Mistake: Review the specific requirements for every state where you have employees. Create a checklist of all federal, state, and local filing obligations before December ends.
• Misclassifying workers and missing 1099s. Misclassifying workers as independent contractors when they should be employees (or vice versa) is a costly mistake. If you’ve been treating someone as a contractor all year but they should have been an employee, you may face back taxes, penalties, and potential legal issues. Similarly, failing to issue 1099-NEC forms to contractors who were paid $2,000 or more (the 2026 threshold) can result in penalties and IRS audits.
  • Avoid This Mistake: Before year-end, review all contractor relationships to ensure proper classification based on IRS guidelines(degree of control, financial relationship, and type of relationship) and all other applicable requirements. Create a complete list of all contractors paid during the year and cross-reference it against your accounting records to ensure no one is missed.
• Reporting bonuses and supplemental wages incorrectly. Year-end bonuses and supplemental wages must be reported correctly on Form W-2 and are subject to specific withholding rules. A common mistake is forgetting to include bonuses paid in late December on the current year’s W-2, or miscalculating tax withholding on supplemental wages.
  • Avoid This Mistake: Include all bonuses paid during the calendar year in Box 1 of the W-2, regardless of when they were earned. Also, make sure you’re using the correct withholding method (flat 22% rate or aggregate method) for bonus payments and verify that all taxes are properly withheld and deposited.
• Failing to update payroll systems. After filing year-end forms, many businesses forget to update their payroll systems for the coming year. Failing to make these updates can result in incorrect withholding amounts and compliance issues in the new year’s first payroll.
  • Avoid This Mistake: Before processing your first 2027 payroll, verify that all system updates are complete and test your first payroll run to catch any errors. This includes updating tax tables, implementing new wage rates to comply with minimum wage increases, adjusting the Social Security wage base, and updating any benefit contribution limits.

The best way to avoid these mistakes is to start your year-end preparation early. Create a detailed checklist of all tasks, deadlines, and required forms, and set up a systematic verification process to review employee information, tax calculations, and filing requirements.

What’s New for the 2027 Tax Year?

The 2027 tax year brings important changes that will affect your payroll operations and tax obligations. Understanding these updates now will help you prepare your payroll systems and avoid compliance issues in the new year.

• Social Security Wage Base (Projected): The Social Security wage base is projected to increase from $184,500 in 2026 to $190,200 in 2027. This is a projected increase of $5,700, meaning employers will pay more in FICA taxes for high-wage employees. The SSA will confirm the official 2027 figure in mid-October 2026. Employers must pay a 6.2% Social Security tax on employee wages up to this limit.
  • For example, if you have an employee earning $195,000 annually, you’ll pay Social Security taxes on $190,200 (6.2% × $190,200 = $11,792.40 in employer taxes). This is $353.40 more than you paid in 2026. Medicare taxes have no wage cap and continue at 1.45% on all wages.
• State and Local Minimum Wage Changes Effective January 1, 2027: Numerous states are expected to increase their minimum wage rates on January 1, 2027. Examples of confirmed or announced increases include the following states:
  • California's statewide minimum wage will increase to $17.40 per hour.
  • Connecticut will increase its minimum wage to $17.48 per hour.
  • Michigan is scheduled to raise its statewide minimum wage to $15.00 per hour on January 1, 2027, with future increases tied to inflation beginning in 2028.
  • Nebraska's minimum wage will increase to $15.26 per hour.
  • Additional states may increase wages: Several states that use automatic inflation-indexing formulas are expected to announce 2027 minimum wage increases later in 2026. Final rates are typically published in the fall after inflation data becomes available. Employers should check state and local requirements to stay current on applicable wage rates.
• Form 1099-MISC and 1099-NEC Threshold Increase (New for the 2026 Tax Year): Beginning with the 2026 tax year, the reporting threshold for Forms 1099-MISC and 1099-NEC increases from $600 to $2,000. Starting in 2027, the $2,000 figure will be adjusted annually for inflation.
• Form 1099-K Threshold: The Form 1099-K reporting threshold is $20,000 and more than 200 transactions. The One Big Beautiful Bill Act restored this as the permanent threshold, reversing the lower thresholds that had been scheduled to phase in.
• E-Filing Threshold: Businesses must e-file if they have 10 or more information returns across all form types (W-2s, 1099s, etc.). This threshold has been in effect since January 1, 2024 and continues to apply this year.
• Form 1095-B/C Changes: Employers are not required to automatically distribute Form 1095-B and 1095-C to all full-time employees. Instead, they can post a notice on their website and provide forms by February 1, 2027, or 30 days after the request date, whichever is later.

The IRS has also raised penalties for late filing and failure to file information returns, so filing accurately and on time can help you avoid costly fines.