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Close 2026. File forms. Set up 2027.
Year-end payroll isn’t a December 31 deadline. It’s the window between your last pay run of 2026 and your first pay run of 2027. This is when you close out 2026 records, generate W-2s and 1099-NECs, file year-end tax forms, and set up for 2027.
Miss a step and you're filing amended forms in February, paying late penalties, or starting the new year with incorrect tax withholdings.
This checklist closes the year: complete records, accurate forms, 2027 ready. Built for teams of 1 to 4 employees.
New for 2026: If you pay tips or overtime, W-2s now require three additional boxes (Box 12 Code TP, Code TT, and Box 14b).
If you're an S-corp owner on your own payroll, year-end includes documenting reasonable salary vs. distributions for your corporate return.
SurePayroll generates W-2s and 1099-NECs from your pay records and files them electronically. 2027 tax rates update automatically. Year-end becomes a process, not a project.
New for 2026: tip and overtime reporting
If you pay tips or overtime, you must complete three new boxes on every 2026 W-2. They were added as a result of the One Big Beautiful Bill Act (OBBBA), enacted July 4, 2025.
The new boxes (Box 12 Code TP for qualified tips, Box 12 Code TT for qualified overtime, Box 14b for Treasury Tipped Occupation Code) are required for 2026 W-2s filed in January-February 2027.
The boxes support the employee-side income tax deduction for qualified earnings. They do not change how tips or overtime are taxed for wages or Federal Insurance Contributions Act (FICA). Tips and overtime still appear in Boxes 1, 3, and 5.
Your employees need these figures on their W-2s to claim their income tax deduction for qualified tips and overtime.
If you didn’t track tips and overtime separately throughout 2026, review your records and reclassify what you can before generating W-2s.
Track tips and overtime from your first pay run of the new year. SurePayroll integrates with popular time tracking tools to capture amounts automatically, so next year-end the boxes populate from your records.
Before your last pay run of 2026
Before you process your final payroll of the year, verify your records. Correcting any discrepancies now means faster, smoother W-2 generation.
- Verify employee data. Confirm names and Social Security numbers match Social Security cards exactly. Spelling, hyphens, and spacing all matter for Social Security Administration (SSA) matching. Verify mailing addresses are current as W-2s go to the address on file. Check that W-4 withholding elections reflect any mid-year changes for marriage, new dependents, or a second job.
- Pull your year-to-date payroll reports. Review gross wages, federal income tax withheld, Social Security, Medicare, state and local withholding, and pre-tax benefit deductions like health insurance and retirement contributions. These feed directly to your W-2s, so they need to be accurate. If you made mid-year adjustments like retroactive raises, off-cycle corrections, or manual entries, confirm they are reflected in your year-to-date (YTD) totals.
- Calculate employee leave payments. If your leave policy requires payout of unused paid time off (PTO), calculate those amounts before you process your last payroll run. For bonuses and commissions, the pay date determines which tax year the income falls in. Decide before you process the final payroll.
- Review contractor payments for 1099-NEC eligibility. The threshold is $2,000 for 2026, up from $600 in prior years under the OBBBA. File a 1099-NEC for any contractor paid $2,000 or more for services. Only count payments for work, not expense reimbursements. If you paid a contractor $1,800 for a project and $400 to cover travel, you should only report the $1,800. Confirm you have a W-9 on file for every contractor at or above the threshold.
- Confirm direct deposit accounts and mailing addresses so everyone gets paid on schedule.
Your last pay run of 2026
Your final payroll run of the year is the one that closes your books. You’ll process it the same as your previous payroll runs: process wages, withhold taxes, submit deposits on your regular schedule. What you lock in here feeds directly into your W-2s.
Follow your regular pay schedule. If you pay biweekly, your last run usually falls in late December. If you pay monthly, it covers all of December so you’ll need to run it on or before December 31.
Include all regular wages, overtime, tips, bonuses, and commissions you’re reporting as 2026 income, plus any paid time off payouts your policy requires. Withhold federal income tax, Social Security, Medicare, and state and local taxes as usual.
Once you complete this payroll run, your 2026 payroll numbers are set and you have everything you need to generate your year-end forms. If you discover errors after filing and distributing those forms, you will need to file an amended W-2 (Form W-2c).
Don't wait until the end of the year to think about payroll taxes. SurePayroll automates your tax liability calculation every pay period — so you’re ready for filing deadlines.
After your last pay run: W-2 and 1099 generation
You must submit W-2s for employees and 1099-NECs for independent contractors by January 31. The W-2 is the official record of what you paid each employee and how much tax was withheld. Your employees use it to file their returns, and the IRS uses it to verify withholding.
For a breakdown of which form applies to which worker, see W-2 vs. 1099.
For W-2s, pull each employee’s final year-to-date totals. Populate:
- Boxes 1 through 6 with gross wages and all tax withholding
- Boxes 15 through 20 with state and local wages and withholding
- Box 12 Code TP, Code TT, and Box 14b if you track tips or overtime
Send each employee a copy by January 31 and file Copy A with the Social Security Administration, electronically if you have 10 or more forms.
For 1099-NECs, generate a form for each contractor paid $2,000 or more for services in 2026.
Enter total service payments in Box 1. Do not include expense reimbursements. Send copies to contractors by January 31, file Copy A with the IRS, and verify your state’s requirements. Keep a W-9 on file for every contractor who received a 1099 for your records.
Filing late carries IRS penalties per form.
If you have five W-2s and three 1099-NECs, missing the deadline by two months adds up to more than $1,000 in penalties.
“I like the fact that all your reports are available immediately. You know exactly what’s being deducted and where it’s going … all the reports can be saved digitally.”
— John, Google review
SurePayroll generates W-2s and 1099-NECs from your pay records, files them on schedule, and delivers copies by January 31, so nothing slows you down.
Year-end if you’re on your own payroll
If you’re an S-corp owner on your own payroll, year-end includes one more step: confirming your salary was reasonable for the work you performed in 2026. This is a corporate tax compliance requirement, not just a W-2 accuracy check.
At the end of the year, pull your 2026 owner compensation report and compare your W-2 wages to your total distributions. If your salary looks low relative to your role, a year-end bonus or wage adjustment before December 31 can help document reasonable compensation. Talk to your accountant before making changes.
The IRS requires S-corp owners who work for the business to pay themselves a reasonable salary before taking distributions. Salary is subject to payroll taxes. Distributions are not.
Reasonable compensation isn’t defined by a specific formula. The IRS looks at your role, time spent, qualifications, and what someone would earn for similar work at a comparable company. If you’re the owner-operator, running sales, managing operations, and performing billable work, your salary should reflect that level of involvement.
You receive a W-2 just like any other employee. Verify gross wages, federal and state withholding, and Social Security and Medicare withholding. Use this W-2 for your personal return (Form 1040) and your S-corp return (Form 1120-S), where you deduct officer compensation as a business expense and report distributions separately.
Setting up for your first 2027 pay run
Your first January payroll needs 2027 tax rates and wage bases locked in. Confirm them now. Accurate settings from the start mean correct withholdings all year.
The Social Security wage base changes each year. It was $184,500 for 2026. The SSA announces updated base amounts for the coming year each October. Enter the new base in your payroll system before January payroll. Once an employee earns above the cap, stop withholding Social Security for the year.
Check these rates before you process your first payroll of the new year:
Manual payroll means tracking every rate change yourself.
SurePayroll updates federal and state income tax limits automatically. Before your first January payroll, confirm you entered any W-4 changes your employees submitted.
Year-end tax filing deadlines
Year-end payroll also includes two federal tax returns, both due January 31:
Forms 941 and 940 are separate filings from your W-2s and 1099-NECs. Your state may require quarterly wage reports and an annual unemployment filing on the same schedule, and some local jurisdictions add their own requirements. If you operate in multiple states, verify each state’s deadlines before you close Q4.
“We are now enjoying our payroll taxes paid directly to the IRS and FTB, which was our main goal to accomplish.”
— Darlene, Google review
Year-end payroll, built to run on schedule
Year-end payroll follows the same sequence every year: verify records before your last 2026 pay run, generate W-2s and 1099s after it, file forms by January 31, update tax rates before your first 2027 run.
SurePayroll automates that sequence. Forms generate from your payroll records. W-2s and 1099s file electronically on schedule. Tax rates update before your first 2027 pay run. Businesses save 120 hours annually when year-end doesn't require manual data entry (Paychex 2022).
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This content is for educational purposes only, is not intended to provide specific legal advice, and should not be used as a substitute for the legal advice of a qualified attorney or other professional. The information may not reflect the most current legal developments, may be changed without notice and is not guaranteed to be complete, correct, or up to date
