Year-End Payroll Checklist: Key Steps for a Smooth Closeout

As the year comes to a close, payroll accuracy becomes more important than ever. Year-end payroll is about more than just the final paycheck—it’s a time to verify data, reconcile records, handle special compensation, and prepare tax filings. Mistakes can lead to penalties and frustration for employees, so starting early and staying organized is essential.

Before the Final Pay Run

·       Verify Employee Information

Confirm that all employee data—names, addresses, and Social Security or Tax Identification numbers—are correct. Encourage employees to review their own information to prevent errors on year-end tax forms.

·       Update Company Details

Double-check that your business information (legal name, address, and EIN) is accurate in your payroll system.

·       Review Wages and Benefits

Ensure year-to-date wages, bonuses, deductions, and benefits are correct. Look for discrepancies in PTO accruals, tax withholdings, and exempt/non-exempt classifications.

·       Account for Special Pay

Include all taxable fringe benefits, such as company cars or group-term life insurance, in your year-end payroll. Process bonuses or special compensation before December 31 to deduct them in the current year.

·       Reconcile Payroll Records

Compare payroll reports to your general ledger and tax filings to ensure consistency. Resolve discrepancies before finalizing year-end totals.

·       Plan Around Holidays

Adjust payroll schedules for bank holidays that may affect processing and pay dates.

·       Notify Employees About Expiring Benefits

Remind employees to use benefits that do not roll over, such as unused FSA funds.

After the Final Pay Run

·       Submit Final Tax Deposits

Confirm that all federal and state payroll tax deposits are made on time.

·       Distribute Year-End Forms

Provide employees with Form W-2 and contractors with Form 1099-NEC by January 31. If that date falls on a weekend, forms are due on the next business day.

·       File Federal Tax Forms

Submit required year-end forms to federal agencies:- Form W-3 – Summary of W-2s to the SSA- Form 1096 – Summary of paper 1099-NECs to the IRS- Form 940 – Annual FUTA Return- Form 941 or 944 – Quarterly or annual federal tax return

·       File State and Local Returns

Meet all applicable state and local filing requirements and deadlines.

·       Complete ACA Reporting

Applicable Large Employers (ALEs) must file Forms 1094-C and 1095-C for Affordable Care Act compliance.

·       Prepare for the New Year

Update your payroll system with the upcoming year’s tax rates, Social Security wage base limits, and any other regulatory changes.

·       Archive Payroll Records

Retain payroll records for at least four years as required by the IRS. Organized documentation ensures compliance and easy access for audits.

Final Thoughts

Year-end payroll doesn’t have to be stressful. By taking a structured, proactive approach—verifying data, meeting deadlines, and communicating with employees—you can ensure a smooth transition into the new year while maintaining compliance and employee trust.