🚨 Critical Year-End Deadlines
- 12/31 Final Payroll of 2026: Process all paychecks, bonuses, and commissions for the year
- 1/31 W-2 & 1099 Deadline: Mail to employees/contractors AND file with IRS/SSA
- 3/02 ACA 1095 Forms: Provide 1095-B/C to employees (if applicable)
- 3/31 ACA Filing: File 1094/1095 forms with IRS (if 50+ FTEs)
Year-end payroll is where mistakes get expensive. Miss a deadline, and you're looking at IRS penalties ranging from $50 to $290 per form. Process bonuses wrong, and employees get hit with surprise tax bills. Skip ACA reporting, and you could face $2,970 per employee in penalties.
The good news? Modern payroll software automates 90% of this work. The bad news? You still need to know what to check and when.
Your Complete Q4 Payroll Checklist
October: Prep & Verify
✅ Employee Data Audit
- □ Verify all employee names match Social Security cards exactly
- □ Confirm current addresses for W-2 mailing
- □ Update any name changes (marriage, divorce) in your system
- □ Verify Social Security numbers in payroll system
- □ Review employee classification (W-2 vs 1099)
✅ Payroll System Review
- □ Reconcile year-to-date payroll totals against bank statements
- □ Verify tax withholding settings are correct
- □ Check that state unemployment insurance (SUI) rates are current
- □ Review multi-state tax withholding for remote workers
- □ Confirm benefit deductions are calculating correctly
November: Bonus Planning & 1099 Prep
✅ Year-End Bonus Processing
- □ Calculate total bonus budget and individual amounts
- □ Decide on timing: December paycheck or separate bonus run?
- □ Choose withholding method: aggregate or flat 22% supplemental rate
- □ Communicate bonus amounts and timing to employees
- □ Set up bonus batch in payroll system
- □ Verify bonuses are included in W-2 wages (not 1099!)
✅ 1099 Contractor Preparation
- □ Identify all contractors paid $600+ in 2026
- □ Verify you have W-9 forms on file for each contractor
- □ Confirm contractor business name, EIN/SSN, and address
- □ Calculate total payments for each contractor
- □ Check for misclassified workers (should they be W-2?)
- □ Set up 1099-NEC filing in your payroll/accounting system
Pro Tip: Use the flat 22% supplemental withholding rate for bonuses under $1 million. It's simpler and prevents under-withholding issues. Your payroll software should handle this automatically.
December: Final Runs & Pre-Flight Checks
✅ Final Payroll Processing
- □ Process final regular payroll of 2026
- □ Process any year-end bonuses or commission payouts
- □ Verify all PTO balances are current (for accrual reporting)
- □ Process any outstanding expense reimbursements
- □ Confirm all pay dated 12/31 or earlier is included in 2026 wages
- □ Lock down your payroll system (prevent backdated entries)
✅ ACA Compliance (50+ FTE employers)
- □ Review which employees were offered health insurance
- □ Calculate affordability of your health plan for ACA purposes
- □ Verify months of coverage for each employee
- □ Generate 1095-C forms in your payroll or benefits system
- □ Plan for 1095-C mailing by March 2nd
Don't forget: Employees whose last paycheck is January 3, 2027 but the pay period ends December 31, 2026 should have those wages reported on their 2026 W-2. Your payroll software should handle this automatically, but double-check.
January: W-2 & 1099 Filing
✅ W-2 Processing & Distribution
- □ Generate W-2s from your payroll system (by Jan 15th latest)
- □ Review W-2s for accuracy: names, SSNs, wage totals, tax withholding
- □ Distribute W-2s to employees (postal mail, electronic, or both)
- □ File W-2s with Social Security Administration (SSA) via W-2c portal
- □ File W-2s with state agencies (varies by state)
- □ Deadline: January 31, 2027
✅ 1099-NEC Processing & Distribution
- □ Generate 1099-NEC forms for contractors paid $600+
- □ Review 1099s for accuracy: names, EINs/SSNs, payment totals
- □ Mail copies to contractors
- □ File 1099-NEC with IRS (Form 1096 if filing by paper)
- □ E-file via IRS FIRE system or use your payroll software
- □ Deadline: January 31, 2027
Year-End Payroll Timeline at a Glance
| Date | Task | Priority |
|---|---|---|
| Oct 1 - Oct 31 | Employee data audit, verify SSNs and addresses | Medium |
| Nov 1 - Nov 15 | Plan year-end bonuses, set withholding strategy | High |
| Nov 15 - Nov 30 | Collect W-9s from contractors, verify 1099 data | High |
| Dec 1 - Dec 15 | Process year-end bonuses and final expenses | Critical |
| Dec 16 - Dec 31 | Final payroll of 2026, lock system, reconcile totals | Critical |
| Jan 1 - Jan 15 | Generate and review W-2s and 1099s | Critical |
| Jan 31 | Deadline: Mail W-2s/1099s, file with IRS/SSA | Critical |
| Mar 2 | Deadline: Provide 1095-B/C forms to employees | Medium |
| Mar 31 | Deadline: File ACA 1094/1095 with IRS | Medium |
Best Payroll Software for Year-End Processing
Not all payroll platforms handle year-end equally well. Here are the tools that make Q4 painless:
🏆 Gusto
Best for Small Businesses (1-100 employees)
Gusto's year-end wizard walks you through every step. It automatically generates W-2s and 1099s, files them electronically with the IRS/SSA, and handles bonus processing with smart tax withholding.
- ✅ Automated W-2 and 1099-NEC generation
- ✅ E-filing included at all pricing tiers
- ✅ Employee self-service W-2 access
- ✅ Bonus runs with automatic supplemental withholding
- ✅ Year-end checklist and deadline reminders
- ✅ ACA 1095-C forms (Premium and Concierge plans)
Why it's great: Gusto holds your hand through year-end. You'll get email reminders starting in November, a visual checklist, and one-click W-2 filing. Perfect for first-time business owners.
Read Full Review →Rippling
Best for Fast-Growing Companies (50-500 employees)
Rippling combines payroll, HRIS, and IT management. For year-end, it shines with multi-state tax handling, contractor management, and advanced reporting. Great if you have complex needs.
- ✅ W-2 and 1099 generation and e-filing
- ✅ Multi-state tax reconciliation tools
- ✅ International contractor payments and tax forms
- ✅ Custom year-end reports and audit trails
- ✅ ACA compliance tracking and 1095-C forms
- ✅ API integrations for accounting software sync
Why it's great: If you have remote workers in multiple states or international contractors, Rippling's tax complexity handling is unmatched. Expensive, but worth it at scale.
Read Full Review →ADP Workforce Now
Best for Enterprises & Complex Payroll (100+ employees)
ADP is the 800-pound gorilla. It handles the most complex payroll scenarios, offers white-glove year-end support, and has decades of experience filing tax forms correctly.
- ✅ Full-service W-2 and 1099 preparation and filing
- ✅ Dedicated year-end support team
- ✅ Multi-state, multi-country payroll reconciliation
- ✅ ACA compliance services and penalty protection
- ✅ Year-end tax filing guarantee (they cover penalties if they mess up)
- ✅ Integration with 401(k), benefits, and time tracking
Why it's great: If you can't afford to screw up year-end (public companies, heavily regulated industries), ADP's compliance guarantee and support are worth the premium price.
Read Full Review →QuickBooks Payroll
Best for QuickBooks Users (1-50 employees)
If you already use QuickBooks for accounting, their payroll add-on is a no-brainer. Year-end data syncs seamlessly, and you can manage everything in one platform.
- ✅ W-2 and 1099 generation (e-filing extra cost)
- ✅ Seamless sync with QuickBooks accounting
- ✅ Bonus processing with tax calculations
- ✅ Year-end reports for tax prep
- ✅ Employee W-2 portal access
- ✅ Same-day direct deposit for bonuses
Why it's great: If you're already in the QuickBooks ecosystem, this is the easiest path. Year-end accounting reconciliation is automatic, saving you hours of spreadsheet hell.
Read Full Review →Common Year-End Payroll Mistakes (And How to Avoid Them)
❌ Mistake #1: Missing the January 31st Deadline
The IRS doesn't care if you were busy. Late W-2s = $50-$290 penalty per form, per recipient.
✅ Solution: Start your W-2 review by January 10th. E-file through your payroll software to avoid postal delays.
❌ Mistake #2: Misclassifying Contractors as Employees
If the IRS reclassifies your 1099 contractor as a W-2 employee, you'll owe back payroll taxes, penalties, and interest.
✅ Solution: Use the IRS "behavioral control" test. If you control how, when, and where they work, they're probably an employee.
❌ Mistake #3: Incorrect Bonus Withholding
Using the aggregate method (adding bonus to regular wages) can result in massive over-withholding and angry employees.
✅ Solution: Use the flat 22% supplemental rate for bonuses. Your payroll software should offer this as an option.
❌ Mistake #4: Forgetting to Update State Tax Rates
State unemployment insurance (SUI) rates change annually. Using last year's rate means you'll owe a surprise tax bill in Q1.
✅ Solution: Modern payroll software auto-updates state tax rates. If you're DIY-ing payroll, check your state's labor department website in October.
❌ Mistake #5: Skipping ACA Reporting (50+ FTEs)
If you're an "applicable large employer" (50+ full-time equivalents), you MUST file 1095-C forms. Penalties start at $310 per form.
✅ Solution: Use payroll software with built-in ACA tracking (Gusto, Rippling, ADP). It calculates FTE status and generates forms automatically.
Year-End Payroll FAQ
Q: Can I e-mail W-2s to my employees instead of mailing them?
A: Yes, but only if employees opt in to electronic delivery. You still need to mail paper copies to anyone who doesn't consent. Most payroll software offers an employee portal where W-2s are automatically available.
Q: What if an employee's W-2 gets returned as undeliverable?
A: Keep it on file for at least 4 years. You met the deadline by mailing it, so you're not penalized. Try to contact the employee to get their current address, but you're not required to chase them down.
Q: Do I need to send 1099s to LLCs?
A: It depends. If the LLC is taxed as a corporation (C-corp or S-corp), you don't need to send a 1099. If it's a single-member LLC or partnership, you do. Check Box 3 on their W-9 form to see how they're classified.
Q: What's the difference between 1099-NEC and 1099-MISC?
A: 1099-NEC is for non-employee compensation (contractors, freelancers). 1099-MISC is for other payments like rent, royalties, or prizes. Most businesses only need 1099-NEC for their contractors.
Q: Can I process year-end bonuses in January and include them on 2026 W-2s?
A: No. Bonuses are reported in the year they're paid, not earned. If you pay a 2026 performance bonus in January 2027, it goes on the 2027 W-2. Plan accordingly.
Q: What if I made a mistake on a W-2 after filing it?
A: File a W-2c (corrected W-2) as soon as you discover the error. Most payroll software can generate W-2c forms. The sooner you correct it, the less likely you'll face penalties.
Q: Do I need to report employee health insurance on W-2s?
A: If you're an applicable large employer (50+ FTEs), yes. The value of employer-provided health coverage must be reported in Box 12 with code DD. Your payroll software should calculate this automatically.
Q: What's the penalty for filing late?
A: It depends on how late:
- 1-30 days late: $50 per form
- 31 days to August 1: $110 per form
- After August 1 or not filed: $290 per form
- Intentional disregard: $580 per form (no maximum)
Final Thoughts: Automate or Suffer
Year-end payroll is not the time to DIY. One missed deadline, one incorrect tax form, one misclassified worker—and you're looking at thousands in penalties and hours of cleanup work.
Modern payroll software handles 95% of the work for you. For $40-80/month, you get:
- Automated W-2 and 1099 generation with e-filing included
- Tax withholding calculations that stay up-to-date with IRS rules
- Year-end checklists and deadline reminders so you don't forget critical tasks
- Employee self-service portals that reduce "where's my W-2?" emails to zero
- Multi-state tax compliance for remote workers
Our recommendation: If you have fewer than 100 employees and straightforward payroll needs, use Gusto. If you're growing fast or have complex tax situations, invest in Rippling. If you're already using QuickBooks, stick with QuickBooks Payroll for seamless integration.
Whatever you choose, start your year-end prep in October—not December. Future you will thank you.
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