To help you stay organized (and avoid last-minute surprises), we put together a comprehensive year-end payroll checklist. It includes insights from several CPAs and OnPay contributors who work with small businesses year-round.
What you’ll learn
What you’ll learn
Key takeaways
- Distribute W-2 and 1099-NEC to workers and file with the SSA and IRS by February 1, 2027 (as January 31, 2027, lands on a Sunday).
- The One Big Beautiful Bill Act introduces required reporting on Form W-2 for qualified tips (Box 12, Code TP), qualified overtime premium pay (Box 12, Code TT), and Treasury Tipped Occupation Codes (Box 14b).
- 1099-NEC filing threshold increases to $2,000 for 2026 contractor service payments, though 1099-K reporting threshold retroactively reverts to $20,000 and 200 transactions.
And for those who prefer to watch instead of read, check out our 12 days of sleighing year-end video series:
With the right prep, you can start 2027 strong — and maybe even relax a little along the way.
What is year-end payroll?
Year-end payroll is the process of finalizing payroll records, calculating and paying taxes, and sending out year-end payroll reports to both employees and government agencies. It’s an important task that ensures compliance with federal and state regulations and gives employees the information they need to prepare their own taxes during tax season in April.
Businesses need to be aware of year-end payroll procedures to avoid penalties, maintain accurate financial records, and fulfill their legal obligations.And while it operates a lot like any regular payroll run, year-end payroll also involves reviewing totals, entering final adjustments, and making sure everything is in sync before filings go out.
“Year-end payroll isn’t harder; just more detailed. Before you close the year, make sure all of your payroll numbers tie to your source documents. If you’ve been reconciling each payroll throughout the year, your December reconciliation will be quick. But if you haven’t kept up, you’ll need to go back and reconcile each payroll run to make sure everything matches your journals and bank statements.
This step is crucial as accurate reconciliation means your W-2s, 1099s, and tax filings will be correct when you submit them.”
— Peggy James, CPA and small business consultant
When is payroll year-end?
Payroll year-end follows the calendar year: January 1 through December 31 and means:
- Your final payroll of the year must run before December 31, 2026.
- W-2s and 1099s must be distributed to workers by January 31, 2027 (Note that because 1/31 falls on a weekend in 2027, you have until the next business day of February 1, 2027), but you probably don’t want to wait until the last minute!
- Copies of those forms must be filed with the IRS (and some states) by the same date.
Heads up: Banks close for federal holidays like Christmas and New Year’s Day. If a payday falls on or near a holiday, run payroll early so employees aren’t paid late.
In the next section, we’ll explain which payroll reports need to be produced and sent, and by when. If you prefer a visual to keep track, this graphic can help you see what you need to take care of at a glance.
Below is more information to help you keep your year-end tasks in order. And our team would love to hear from you if have questions or looking to make a switch.
Year-end payroll and HR checklist for 2026
Below is a handy year-end payroll and HR checklist you can bookmark on web and mobile so it’s easily accessible when you’re preparing payroll reports.
Verify worker information
Run an employee summary or W-2 preview report to confirm names, Social Security numbers, and addresses for all current and former workers. The accuracy of your year-end forms depends on the accuracy of your year-to-date payroll data, so it’s important to get it right. Take a moment to review everything carefully — including mailing addresses and phone numbers for employees and contractors you paid this year, even if they’ve left the company. Tools like the Social Security Number Verification Service can help verify employee IDs, and most payroll software lets you preview this information in an Employee Summary or W-2 Preview report.
“One of the biggest year-end headaches for small businesses is scrambling to collect missing tax IDs — especially for contractors and vendors you paid earlier in the year.
Some businesses don’t realize they need this information, and others feel awkward asking for it after the fact. But without a tax ID, you can’t file a 1099-NEC, and you risk missing the filing deadline.
My best advice? Collect W-9s before you pay anyone. Vendors are much more motivated to give you the information upfront when it’s tied to receiving payment, and it saves a lot of stress when January rolls around.”
— Peggy James, CPA
Watch your payment methods
Separately, keep in mind that if you’ve paid an independent contractor using a credit card or third-party network like PayPal or Venmo, you don’t need to issue a 1099-NEC for those payments. That’s because the payment processor handles this using Form 1099-K. But there’s something to keep in mind.
“Zelle is the exception, though. This is because Zelle moves money directly between bank accounts and does not issue 1099-Ks. Any payments you made to a contractor through Zelle do count toward your $2,000 threshold for issuing a 1099-NEC for the 2026 tax year.”
— Janet Berry-Johnson, CPA and OnPay contributor
Review year-to-date payroll data
Run a year-to-date summary to ensure wages, taxes, deductions, bonuses, commissions, and off-cycle payouts are accurate. Fix issues now to avoid amended returns later. Whether you use payroll software or a ledger, it’s important to make sure the books are accurate before you close them for the year. If you’re using payroll software to file your taxes automatically, ensure that all contractor payments, W-2 earnings, and bonuses are completed prior to December 31, 2026 to ensure that tax payments can be made on time. Any adjustments or new entries after December 31 could put you on the hook for penalties and interest from the IRS and the state.
Plan bonus pay
If you’re issuing bonuses, schedule these runs well in advance, allowing enough time for them to be processed before December 31, 2026. Bonus payments may trigger next-day tax deposit rules or require extra processing time due to direct deposit limits.
“Supplemental wages like bonuses often have higher withholding. Let employees know in advance so they aren’t surprised by a smaller net amount.”
— Peggy James, CPA
Review or set holiday pay policies
Confirm which holidays your business will observe next year and update any rules around premium pay, scheduling, or floating holidays. Make sure your policy is documented and shared with employees.
Account for S Corp shareholder benefits
For 2% (or more) shareholders of an “S” election corporation, certain fringe benefits you receive are taxable. These include company-paid health insurance, company HSA contributions on behalf of the shareholder, and company-provided automobiles.
For 2% shareholders, company-paid health insurance and HSA contributions are only subject to Federal and State Income Tax (where applicable). Personal use of a company car, for example, is subject to all employment taxes.
The amounts paid by the company for these fringe benefits will need to be included in the shareholders’ earned income so that their W-2s are accurate at the end of the year. If you’re not sure how this works, you may want to ask your accountant for help (or spend a little more time looking into the ways you can pay yourself).
Record employer healthcare contributions
Has your business paid all or a portion of any employee health insurance premiums throughout the year? If so, that data needs to be reported on each employee’s W-2, along with any premiums that the employee has paid toward a company-provided plan. Contact your health insurance provider and request a document listing the total employee and employer contributions to healthcare for the current year. Even if the year is not over, your provider will have this information.
Document third-party sick pay
Third-party sick pay includes any insurance payments received by an employee through an insurance company and is considered earned income for the employee. The insurance company will provide a notice that details what should be added to the employee’s income. You’ll need to update this information no later than December 31st to ensure everything reflects accurately on the W-2s.
Account for fringe benefits
Record any taxable perks such as gift cards, gym memberships, or personal use of a company vehicle. These must be included in payroll history and year-end forms. For more information on taxable fringe benefits, please refer to IRS Publication 15-B.
Check for updates to minimum wage, state unemployment tax wage bases, or new paid family leave laws. Stay aware of key federal thresholds taking effect for 2027:
- Social Security Wage Cap: The wage base for 2026 is capped at $184,500. The projected Social Security wage base for 2027 is $190,200 (we’ll add the final figure here when the Social Security Administration releases the number).
- Dependent Care FSA Increase: Under the One Big Beautiful Bill Act (OBBBA), the maximum tax-free exclusion increases to $7,500.
- SECURE 2.0 Roth Catch-Up Mandate: Employees aged 50+ who earned over $145,000 in the prior year must make 401(k) catch-up contributions on an after-tax (Roth) basis.
- Educational Assistance: Employer-paid qualified student loan repayments up to $5,250 annually under IRC Section 127 are now permanently extended.
Order new compliance posters
If you have at least one employee, you’re required to post up-to-date state and federal employment law notices in full view, and in an area frequented by all employees. Failure to display the correct state and federal employment law notices can result in penalties, fines, and potentially even lawsuits. With all the changes states have recently made, it’s a good idea to order new posters for your office every year.
Postmark year-end forms by February 1, 2027
If you mail W-2s or 1099-NEC forms yourself, they must be postmarked no later than 2/1/27 for the 2026 tax year. If you deliver copies to employees, whether that’s in person, digitally, or another way, you also need to provide them by 2/1/27.
You’re probably thinking, “Isn’t the deadline usually January 31?” Yes! But when January 31 falls on a weekend (as it does in 2027 – it’s a Sunday), the deadline moves to the next business day. That gives you a little extra time — though it’s still a good idea not to leave these forms to the last minute.
“Missing deadlines is one of the most common (and costly) year-end payroll mistakes — especially around W-2s and 1099s,” says Peggy.
Avoid fines
Making sure you get the documents to employees on time helps you avoid unwanted and very avoidable attention. Either not providing the forms or getting the forms wrong can lead to penalties:
| Filing timeline | IRS penalty per form |
| Filed within 30 days late | $60 per form |
| Filed after 30 days but by August 1 | $130 per form |
| Filed after August 1 or not filed | $340 per form |
| Intentional disregard of filing rules | At least $690 per form (no maximum limit) |
Look for slight changes to tax forms
Don’t be alarmed if forms look a little different. The IRS now has new reporting requirements under the One Big Beautiful Bill Act (OBBBA), and several boxes shifted:
- Form 1099-NEC: Nonemployee compensation has moved from Box 1 to Box 1a.
- Form W-2 Box 12 Codes:
- Code TP: Reports total qualified cash, credit card, and pooled tips.
- Code TT: Reports qualified overtime premium pay (the extra “half-time” portion under FLSA, not the full 1.5x wage).
- Code TA: Reports employer contributions to Trump accounts.
- Form W-2 Box 14 Updates: The previous Box 14 (“Other”) is renumbered to Box 14a, creating space for Box 14b to report the employee’s Treasury Tipped Occupation Code.
Year-end without anxiety
“OnPay is a wonderful support system for our small business. It saves time on payroll and tax calculations, handles direct deposit, our end-of-year reports, and filing state and local quarterly and year-end taxes with the IRS and state, while we manage day-to-day operations. And all at a much more reasonable price than any other payroll company.”
— Merry Chapman, Administrator, Sing a Song NJ, LLC
1099-NEC and 1099-K reporting threshold updates
- The reporting threshold for Form 1099-NEC increases from $600 to $2,000 for payments made in 2026. Only issue a 1099-NEC if contractor payments for services meet or exceed $2,000.
- Form 1099-K threshold for third-party payment networks (PayPal, Venmo) retroactively reverted to its previous limit of $20,000 and 200 transactions. Small-scale digital processor payments will not trigger 1099-K statements.
Relax, reflect, recharge
Review your 2027 payroll calendar for pay dates and bank holidays — then give yourself a well-earned break.
Extra credit: Review reasonable compensation (if it applies)
Not required for every business — but if you have an S Corp, some accountants recommend using year-end to double-check that owner compensation still aligns with IRS “reasonable compensation” guidelines. It’s optional, but worth a quick review if applicable.
How to do year-end payroll
Year-end payroll isn’t dramatically different from your regular payroll process, but the stakes are higher because your final reports and tax filings depend on accuracy.
In Peggy’s experience, small business owners should:
- Make sure all wages, bonuses, reimbursements, and deductions for the year are entered before the final payroll
- Double-check tax withholding, especially for supplemental wages like bonuses
- Reconcile payroll amounts against your books
- Enter fringe benefits and third-party sick pay before generating W-2s
- Run year-end previews (W-2, 1099-NEC, and payroll summaries) to catch issues early
How to reconcile payroll at year-end
Reconciliation ensures your W-2s, 1099s, and tax filings reflect accurate numbers.
Peggy recommends:
- Reconciling every payroll throughout the year
- If you haven’t, reviewing each run to ensure totals match payroll journals and bank statements
- Confirming that year-to-date totals match what will appear on employee forms
- Reviewing contractor payments to ensure you’ve met 1099-NEC thresholds
Want to learn more about how to simplify year end with accurate payroll and HR? Check out OnPay or see a list of payroll features we offer.
Please note all material in this article is for educational purposes only and does not constitute tax or legal advice. You should always contact a qualified tax, legal or financial professional, in your area for comprehensive tax or legal advice.
Jon Davis is the Sr. Content Marketing Manager at OnPay. He has over 15 years of experience writing for small and growing businesses. Jon lives and works in Atlanta.