The 2026 Year-End Payroll Checklist

12/3/2025

A 2026 year-end payroll close has four parts: collect and tax every fringe benefit before the last payroll, handle the new qualified tips and overtime reporting, reconcile the quarterly returns to Forms W-2 and W-3, and file W-2s and 1099-NECs by February 1, 2027 (January 31 falls on a Sunday). Then set up 2027 once the new limits are published. Use the checklist below as a starting point and add your own items, such as state forms, local taxes, and system-specific steps.

What Is Different for 2026

• Social Security wage base: $184,500. Confirm withholding stopped at the base for every high earner and that nobody was over-withheld because of a mid-year system or entity change.
• Form 1099-NEC and 1099-MISC threshold: $2,000. For payments made after December 31, 2025, the reporting threshold rose from $600 to $2,000. Update vendor-payment reports so you don't file unnecessary forms or miss required ones.
• Qualified tips and qualified overtime. The One Big Beautiful Bill Act (Pub. L. 119-21) created employee deductions for qualified tips and qualified overtime for tax years 2025 through 2028. For 2026, employers report these amounts separately on Form W-2. Only the FLSA-required overtime premium counts as qualified overtime, not overtime paid under a more generous company policy or state rule.
• Dependent care assistance: $7,500 ($3,750 for married filing separately), up from $5,000. Amounts above the limit are taxable wages.
• Health FSA: $3,400. Confirm that salary reduction elections didn't exceed the limit.

October–November: Plan the Close

1. Build a year-end team and calendar. Include payroll, HR, benefits, accounts payable, accounting, and IT, or your payroll provider. Assign every task below to a person with a date.
2. Send the year-end memo to employees. Ask them to confirm their mailing address and name spelling, sign up for electronic W-2s if you offer them, and submit any name change with a Social Security card. Set up a single channel for address changes and enter them as they arrive.
3. Verify names and SSNs. Run mismatches through the SSA's verification service before W-2s are produced, not after rejections come back.
4. Confirm vendor dates. Get the payroll provider's or system's processing calendar for final payrolls, bonus runs, W-2 printing, and amended returns.
5. Collect missing Forms W-9 from contractors paid $2,000 or more, so 1099-NEC work doesn't stall in January. If classification is in doubt, review it now; see independent contractor vs. employee.

Before the Last Payroll: Fringe Benefits and Taxable Items

List every taxable or reportable benefit not paid through payroll and get the 2026 amounts from the department that owns each one. Common items:

• Personal use of a company vehicle. Collect mileage logs and calculate the taxable value.
• Group-term life insurance over $50,000. Impute the cost as income.
• Dependent care assistance above $7,500.
• Educational assistance above $5,250 under a Section 127 plan, which now includes student-loan repayments. The limit is inflation-indexed after 2026 [VERIFY: indexed amount — IRS].
• Nonaccountable reimbursements and per diem paid above federal rates. See per diem payroll rules.
• Gift cards, awards, and bonuses paid outside payroll.
• Moving expense payments. These are taxable to most employees.
• Employer HSA contributions, including cafeteria-plan contributions, for Box 12 Code W.
• Cost of employer-sponsored health coverage (Box 12 Code DD). This is required if you filed 250 or more W-2s for the prior year.

Enter the amounts in the final regular payroll, or in a special off-cycle run, so they are taxed in 2026. Year-end bonuses paid separately may use the 22% optional flat rate for supplemental wages, or 37% on supplemental wages above $1 million.

At the Last Payroll

6. Confirm that all manual checks, voids, and reversals are processed and posted.
7. Confirm that retirement plan participation is flagged correctly for Box 13, and that 401(k) and 403(b) deferrals map to the right Box 12 codes.
8. Review garnishment and levy files for correct year-to-date totals; see wage garnishment priority order.
9. Check that tip and overtime data needed for the new reporting has been captured by pay code. If it was never split out, fix that now, because it's far harder to reconstruct in January.
10. Close out the 2026 manual check log, timesheet files, and supporting spreadsheets, and keep them together for the W-2 reconciliation.

January 2027: Reconcile and File

11. Reconcile the four quarterly Forms 941 to the W-3 totals for wages, Social Security wages, Medicare wages, and federal withholding. Explain every difference before filing.
12. Reconcile state withholding and unemployment returns to state W-2 totals.
13. Complete Form 940. Check whether any state where you pay wages is a FUTA credit reduction state for 2026 [VERIFY: 2026 FUTA credit reduction states — DOL, announced in November].
14. File W-2s, W-3, and 1099-NECs by February 1, 2027, and furnish copies to employees and contractors by the same date. Fourth-quarter Form 941 and Form 940 are normally due January 31, so they also move to the next business day.
15. Prepare ACA forms if you are an applicable large employer [VERIFY: 2027 furnishing and filing dates for Forms 1094-C/1095-C — IRS].
16. Handle corrections quickly. Issue W-2c forms promptly when errors surface. See avoiding payroll tax penalties for the filing penalties involved.

Setting Up 2027

• Wait for the official limits. The 2027 Social Security wage base, benefit plan limits, and withholding tables were not yet published as of September 2026. SSA usually announces the wage base in October and the IRS publishes most limits in November. Load them from the official sources rather than projections.
• State changes. Update state unemployment rates and wage bases from employer rate notices, plus state minimum wage and paid leave changes effective January 1. The state-by-state payroll requirements guide is a starting point.
• Exempt Forms W-4. Employees claiming exemption from withholding must give you a new Form W-4 by February 15, 2027, or you must start withholding as if they were single with no adjustments.
• Payroll calendar. Build the 2027 calendar from the company holiday schedule, and flag pay dates that fall on bank holidays.
• Benefit elections. Load open enrollment changes, including FSA and dependent care elections, before the first 2027 payroll.

Frequently Asked Questions

Why is the W-2 deadline February 1 instead of January 31?

January 31, 2027 is a Sunday, so the deadline moves to the next business day, which is Monday, February 1.

Do we still need 1099-NECs for contractors paid $600?

Not for 2026 payments. The threshold is $2,000 for payments made after December 31, 2025. Check state filing rules, which may differ.

Does all overtime count as qualified overtime?

No. Only the premium portion required by the FLSA counts, not straight-time pay or overtime paid only because of state law or company policy.

Can we set up 2027 wage bases now?

Not accurately. They are announced in the fall, so schedule the update for after the SSA and IRS releases.

Related Reading and Training

Pair this checklist with the payroll compliance checklist. For training on W-2, 941, and year-end reporting, see the Payroll Reporting training program and the Certified Payroll Administrator designation.