---
title: "Year-end payroll checklist for employers | Ledgerbrook"
source: https://ledgerbrook.com/blog/year-end-payroll-checklist/
description: "Year-end payroll checklist for 2026: W-2s due February 1, 2027, what to fix before the last payroll, and the books tie-out."
---

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# Year-end payroll checklist for employers

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[Omkar Moraye](/about/) · October 27, 2026 · Updated October 29, 2026

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## When are W-2s due to employees?

For 2026, W-2s are due to employees and to the Social Security Administration, with the W-3, by February 1, 2027, because January 31 is a Sunday. Before they go out, check names, Social Security numbers and fringe benefits, and tie the year's wages and withholding to the 4 quarterly 941s and to the books.

A year-end payroll checklist exists because most W-2 errors are made in December, not January. Once the last payroll of the year has run, a missed bonus, an owner’s health insurance premium or a wrong address can only be fixed with a corrected form. The W-2s for 2026 are due on **Monday, February 1, 2027**, and everything that goes on them has to be in the payroll system before the final 2026 pay date.

Payroll providers publish good checklists for the forms. Where they stop is the books: whether the wages, taxes and liabilities in QuickBooks agree with what the 941s and the W-3 say. This post covers both, in date order, for a small employer on a calendar year. Federal rules are cited to the IRS; states have their own forms and dates, so check your state’s as well. Ledgerbrook keeps books and does not run payroll or file returns.

## Payroll deadlines for the 2026 forms

January 31, 2027 is a Sunday, so the January 31 payroll forms move to the next business day.

| Form | Goes to | Due | Notes |
| --- | --- | --- | --- |
| W-2, Copies B, C and 2 | Employees | Feb 1, 2027 | Extension only on request (Form 15397), not automatic |
| W-2 Copy A, with W-3 | Social Security Administration | Feb 1, 2027 | Paper or electronic; extension only for extraordinary circumstances (Form 8809) |
| 941, fourth quarter | IRS | Feb 1, 2027 | Feb 10 if every deposit for the quarter was made on time |
| 940 (FUTA) | IRS | Feb 1, 2027 | Feb 10 if all FUTA tax was deposited when due |
| 1099-NEC | Contractors and the IRS | Feb 1, 2027 | For payments of $2,000 or more in 2026 |
| W-2c, with W-3c | SSA and employees | As soon as an error is found | No fixed deadline |

Sources: [General Instructions for Forms W-2 and W-3](https://www.irs.gov/instructions/iw2w3) (2026), [Instructions for Form 941](https://www.irs.gov/instructions/i941) (March 2026), [Instructions for Form 940](https://www.irs.gov/instructions/i940) and [Instructions for Forms 1099-MISC and 1099-NEC](https://www.irs.gov/instructions/i1099mec) (December 2026). The 940 instructions for 2026 are not out yet; the dates follow the January 31 and February 10 rule in the 2025 edition, moved for the weekend.

**E-filing.** A business that files at least 10 information returns in total, counting W-2s and 1099s together, must e-file its W-2s. An employer with six employees and five contractors is over the line. W-2s are e-filed through the SSA’s Business Services Online.

**Extensions are narrow.** The IRS grants extra time to file W-2s with the SSA “only in limited cases for extraordinary circumstances or catastrophe.” A request for more time to furnish employee copies, on Form 15397, is not automatically granted either, and generally gives no more than 15 days.

## The year-end payroll checklist, December to February

| When | Task | Why it cannot wait |
| --- | --- | --- |
| Early December | Check each employee’s legal name, Social Security number and mailing address | A name and number that do not match SSA records mean a W-2c later |
| Early December | Add S corp owner health insurance to the owner’s wages | It belongs in box 1 and has to be in a 2026 payroll |
| Early December | Add taxable fringe benefits: personal use of a company vehicle, group-term life over $50,000, gift cards | They are wages on the W-2 |
| Mid-December | Decide bonuses and run them in a 2026 payroll, or set them up as an accrual | The pay date decides which year’s W-2 they go on |
| Mid-December | Confirm 401(k) and other deferral changes for the final payroll | Deferrals only reduce wages paid in 2026 |
| Before the last payroll | Confirm the provider’s cutoff for the final 2026 pay date | Most providers need the run days before a December 31 pay date |
| After the last payroll | Tie the payroll register to the 4 quarterly 941s, the W-3 preview and the books | A difference found now is a fix in the system, not a W-2c |
| By January 15 | Deposit December’s taxes if the business is a monthly depositor | Late deposits carry their own penalty |
| By February 1 | Furnish W-2s, file W-2s and the W-3, the fourth-quarter 941, the 940 and the 1099-NECs | No automatic extension for any of them |
| February onward | File W-2c and W-3c for any error found | Each W-2c may also need a 941-X for the quarter |

A monthly depositor deposits each month’s taxes by the 15th of the following month ([IRS Publication 15](https://www.irs.gov/publications/p15)). The items in December are where the checklist does most of its work. They are explained below.

### What is new on the 2026 W-2

The 2026 W-2 has new reporting from Public Law 119-21 ([General Instructions for Forms W-2 and W-3](https://www.irs.gov/instructions/iw2w3), 2026):

- **Box 12, code TP:** the total cash tips the employee reported to the employer.
- **Box 12, code TT:** the total qualified overtime compensation.
- **Box 12, code TA:** employer contributions to a Trump account.
- **Box 14** is split into 14a (other) and 14b (Treasury tipped occupation codes).

A business with tipped employees or overtime needs those amounts tracked by employee in the payroll system, by pay date, for the whole year. A provider will populate the codes from its own records; a business that runs payroll by hand or changed providers mid-year needs to check them.

### S corp owner health insurance

For an S corporation, the health insurance premiums the company pays for a shareholder-employee who owns more than 2% go in box 1 of that owner’s W-2, and in boxes 3 and 5 only if they are not excludable under §3121(a)(2)(B) ([W-2 instructions](https://www.irs.gov/instructions/iw2w3); [Notice 2008-1](https://www.irs.gov/pub/irs-drop/n-08-01.pdf)). If the company paid the premiums from its bank account all year, they are in the books as an expense but not yet in payroll. Give the year’s total to the payroll provider before the last 2026 payroll so it can be added to wages. This is the item missed most often, because nothing in the payroll system prompts for it. How to set it up and check the W-2 against the books is in [S corp owner health insurance](/blog/s-corp-owner-health-insurance/).

The owner’s salary itself, and what a reasonable figure looks like, is in [S corp reasonable salary](/blog/s-corp-reasonable-salary/).

### Taxable fringe benefits

Benefits that are wages have to reach payroll before the W-2s are produced:

- **Personal use of a company vehicle.** Its value goes in boxes 1, 3 and 5 (W-2 instructions). The mileage log that supports business use, the same record the vehicle’s tax deduction depends on, is what separates the two; see [Section 179 for vehicles](/blog/section-179-vehicles/).
- **Group-term life insurance over $50,000.** The taxable cost of the coverage above $50,000 is reported in box 12 with code C.
- **Gift cards and cash gifts.** Cash and cash equivalents are never excludable as a de minimis fringe benefit ([IRS Publication 15-B](https://www.irs.gov/publications/p15b)), so a $100 holiday gift card is $100 of wages. Which holiday gifts are tax-free, and the entries that get gift cards into payroll, are in [are Christmas bonuses and gifts taxable](/blog/holiday-gifts-and-bonuses-taxes/).

### Bonuses and the last pay date

Wages go on the W-2 for the year they are paid, so a bonus paid on January 8, 2027 is a 2027 wage, even if it was earned in 2026. Whether the business can deduct it in 2026 is a separate question: an accrual-method business can deduct a bonus fixed by December 31 and paid by March 15, but not for most owners. That rule is in [year-end tax planning](/blog/year-end-tax-planning/).

Payroll liabilities in QuickBooks that never clear to zero?

That is a cleanup, not a one-off fix: $99 per month of backlog (20% off 6+ months), one fixed price agreed before any work starts. [Send the file for a free 48-hour review](/contact/?from=blog%2Fyear-end-payroll-checklist).

## Tie payroll to the books

This is the step the payroll checklists leave out. The provider’s reports agree with its own forms; nothing checks that the books agree with either. Three sets of numbers have to tell the same story: the quarterly 941s, the W-3 that totals the W-2s, and the wage and tax accounts in QuickBooks.

The IRS does the first comparison itself. It “matches amounts reported on your four quarterly Forms 941 with Form W-2 amounts” for federal income tax withheld, Social Security wages and tips, and Medicare wages and tips ([Instructions for Form 941](https://www.irs.gov/instructions/i941)). If they do not agree, the IRS or the SSA may contact the business.

### The 941s against the W-3

Here is a business with five employees and $240,000 of gross wages paid in 2026, $12,000 of it deferred into a 401(k). No one earned more than the 2026 Social Security wage base of $184,500.

| Quarter | 941 line 2, wages | 941 line 3, income tax withheld | 941 line 5a, Social Security wages | 941 line 5c, Medicare wages |
| --- | --- | --- | --- | --- |
| Q1 | $54,000 | $6,200 | $57,000 | $57,000 |
| Q2 | $56,000 | $6,500 | $59,000 | $59,000 |
| Q3 | $58,000 | $6,700 | $61,000 | $61,000 |
| Q4 | $60,000 | $7,000 | $63,000 | $63,000 |
| **Total** | **$228,000** | **$26,400** | **$240,000** | **$240,000** |
| **W-3 box** | Box 1 | Box 2 | Box 3 | Box 5 |

Each total must equal the W-3 box beneath it. Box 1 is $12,000 lower than boxes 3 and 5 because 401(k) deferrals reduce income tax wages but not Social Security and Medicare wages. That difference is expected; any other difference means a payroll was left off a 941, a manual check was never entered, or a quarter was amended without a W-2c.

The W-3 tax boxes follow from the wages: box 4, Social Security tax withheld, is 6.2% of $240,000, or $14,880, and box 6, Medicare tax withheld, is 1.45% of $240,000, or $3,480 ([941 instructions](https://www.irs.gov/instructions/i941), 2026 rates). An employee paid over $200,000 would also have the additional 0.9% Medicare tax withheld, with no employer share.

### The books against the forms

The same year in QuickBooks Online, using the account names from [Gusto and QuickBooks Online](/blog/gusto-and-quickbooks-online/):

| Account | 2026 amount in the books | Should agree with |
| --- | --- | --- |
| `Wages and Salaries` | $240,000 | W-3 box 5: gross wages paid, before deferrals |
| `Employer Payroll Taxes` | $20,190 | Employer Social Security $14,880 + employer Medicare $3,480 + FUTA $210 + state unemployment $1,620 |
| `Payroll Taxes Payable`, Dec 31 balance | $0 | Taxes withheld or owed but not yet paid on Dec 31 |
| `401(k) Payable`, Dec 31 balance | $500 | December deferrals not yet sent to the plan |

The employer taxes in the example: Social Security and Medicare match the employees’ share; FUTA is 0.6% of the first $7,000 per employee after the full 5.4% credit, or $210 for five employees; state unemployment is $1,620 at this state’s rate. A business in a FUTA credit reduction state pays more, figured on Schedule A (Form 940). To see what these taxes add to one salary, with benefits, use the [cost of an employee calculator](/tools/cost-of-an-employee-calculator/).

Wages in the books equal box 5 here because this business records payroll on the pay date. A business that accrues wages earned in late December and paid in January will show more wages in the books than on the W-3, and that difference is timing; the worked example is in step 8 of the [year-end bookkeeping checklist](/blog/year-end-bookkeeping-checklist/).

### Why payroll liabilities do not clear

The liability accounts are where payroll errors in the books show up. On December 31, `Payroll Taxes Payable` should hold only what is actually still owed: zero when the provider pays the taxes on each pay date, as Gusto does, or December’s deposit for a monthly depositor who pays in January. When it holds more, or a negative balance, the cause is almost always one of these:

- **Tax payments coded to an expense.** The provider’s tax debit was categorized from the bank feed as `Employer Payroll Taxes` or “taxes and licenses,” so the expense is counted twice and the liability never comes down.
- **A payroll recorded twice.** Once from the provider’s sync and once from the bank feed, which doubles both wages and the liability.
- **Net pay only.** The bank debit for net pay was coded to wages, with no entry for withholding and employer taxes, so wages are understated and the tax debits have nowhere to go.
- **A provider change mid-year.** Two systems posted to differently named accounts, and the year-end balance is the sum of both setups.

A balance that rolls forward year after year is not a liability anybody owes. It is a record of coding errors, and it makes the balance sheet and the payroll expense wrong at the same time.

## Correcting a W-2 after it is filed

The rule is short: “File Forms W-2c and W-3c as soon as possible after you discover an error,” and give the employee their copy as soon as possible too ([W-2 instructions](https://www.irs.gov/instructions/iw2w3)). There is no separate W-2c deadline, so the “W-2c correction deadline” is in practice the day the error is found.

Three details:

- **Always file a W-3c** with one or more W-2cs.
- **Match the filing method.** If the original W-2 had to be e-filed, the W-2c must be e-filed too.
- **Check the 941.** A W-2c that changes wages or withholding “may require you to make corrections to your previously filed employment tax returns,” on Form 941-X for the quarter involved.

The penalty for a W-2 that is late or wrong depends on how late it is corrected. For forms required to be filed after December 31, 2026:

| Corrected or filed | Penalty per W-2 |
| --- | --- |
| Within 30 days after the due date | $60 |
| More than 30 days late, by August 1 | $130 |
| After August 1, or not filed | $340 |
| Intentional disregard | At least $690, no maximum |

Annual maximums are lower for small businesses. Source: [General Instructions for Forms W-2 and W-3](https://www.irs.gov/instructions/iw2w3) (2026). W-2s and 1099s share these rules; the caps, the second penalty for late employee copies and how relief works are in [the 1099 late filing penalty](/blog/1099-late-filing-penalty/).

## Common questions about year-end payroll

### What happens if W-2s are late?

The penalties in the table above apply per form, both for filing late with the SSA and for furnishing employee copies late. There is no automatic extension. If a W-2 will be late, file and furnish it as soon as it is ready; the penalty is lower the sooner it is corrected.

### How late can an employer send a W-2?

For 2026 wages, February 1, 2027 is the deadline to furnish employee copies. An extension of up to 15 days, and occasionally 30, is possible only with an approved Form 15397. A W-2 mailed on the due date is on time.

### Do I need to e-file W-2s?

Yes, if the business files at least 10 information returns in total, counting W-2s and 1099s together. Below that, paper W-2s with a paper W-3 are still accepted by the SSA.

### How do you reconcile payroll at year end?

Add up the four 941s and compare each line to the matching W-3 box, then compare gross wages, employer taxes and the liability balances in the books to the payroll register. The tables above show which totals must agree and which differences are expected. The same check run monthly and quarterly is in [payroll reconciliation](/blog/payroll-reconciliation/).

### What is a general ledger for payroll?

It is the set of accounts in the books that payroll posts to: a wage expense, an employer tax expense, and liabilities for taxes and deductions owed. The payroll register is the provider’s record of each paycheck; the general ledger is where those paychecks land in the books. At year end the two have to agree.

## When payroll and the books disagree

A payroll provider files the forms from its own records, so a business can file correct W-2s and still have wrong books: wages double-counted from the bank feed, tax debits sitting in expense, and a liability balance that no one owes. The preparer sees those numbers in February, on the return. A catch-up rebuilds the payroll entries from the provider’s reports, reconciles the liabilities to zero or to what is actually owed, and ties the year to the 941s before the return is prepared.

$99per month of backlog20% off 6+ months

> **When to hand this off:** if `Payroll Taxes Payable` or `401(k) Payable` carries a balance from a prior year, or the year’s wages in the books do not reconcile to the W-3 within a named timing difference, the fix spans months already closed. A [free file review](/contact/?from=blog%2Fyear-end-payroll-checklist) traces where the balance came from and prices the catch-up before work begins. What a catch-up covers is on the [catch-up bookkeeping](/quickbooks-catch-up-bookkeeping/) page.

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Published October 27, 2026 · Updated October 29, 2026

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