Year-End Tax Reconciliation Checklist

Run an employee master file audit to confirm that all names, Social Security numbers, and addresses match current records. Mismatches between your payroll records and SSA data cause W-2 rejects and employee filing complications.

• Compare employee names/SSNs against SSA verification (SSNVS)
• Request updated W-4s for any changes in filing status or withholding
• Verify addresses for accurate state tax withholding and W-2 delivery
• Check for duplicate SSNs in the system

Ensure you have active registrations in every state (and locality) where employees performed work during the year. Remote work arrangements may have created new filing obligations.

• Audit work-from-home locations for remote employees
• Register in any new states where nexus was established
• Verify local tax registration (especially PA, OH, NY localities)
• Confirm reciprocal agreement handling between states

Third-party sick pay (e.g., short-term disability through an insurance carrier) must be properly reflected on W-2s. Form 8922 is used to reconcile third-party sick pay when the third party and employer each report portions of the tax.

• Contact third-party sick pay providers for year-end data
• Determine reporting responsibilities (who reports on W-2)
• Verify taxability based on who pays the premium (employer vs. employee, pre-tax vs. after-tax)

Taxable fringe benefits must be valued and included in employees' W-2 income. Identify all employees receiving fringe benefits and calculate the taxable amounts before year-end processing.

• Group-term life insurance: Calculate imputed income for coverage exceeding $50,000 using IRS Table 2-2
• Personal use of company vehicles: Determine value using cents-per-mile, commuting, or Annual Lease Value method
• Other taxable fringe: moving expenses (taxable since 2018 except military), gym memberships, educational assistance >$5,250, gift cards
• Report in W-2 Box 12 with appropriate codes (C for GTL)

Ensure no employees have exceeded the annual 401(k) deferral limit. Excess deferrals must be returned to employees by April 15 of the following year.

• 2026 401(k) elective deferral limit: $23,500
• Age 50+ catch-up contribution: additional $7,500
• Total annual additions limit (415 limit): $70,000
• Report 401(k) deferrals in W-2 Box 12 Code D (traditional) or Code AA (Roth 401k)
• Check for employees who changed employers mid-year and may have contributed at two plans

Confirm that employee and employer HSA contributions have not exceeded the annual limits. FSA elections should be verified for the grace period or carryover provisions.

• 2026 HSA limits: $4,300 (self-only), $8,550 (family)
• Age 55+ HSA catch-up: additional $1,000
• Report HSA contributions in W-2 Box 12 Code W
• FSA health limit: $3,200 (2026 est.)
• Dependent care FSA limit: $5,000 (married filing jointly)

State unemployment insurance (SUI) wage bases and rates change annually. Confirm that your payroll system is using the correct wage bases and rates for each state.

• Verify SUI rate notices received from each state
• Update any mid-year rate changes
• Confirm experience rating calculations
• Check for credit reduction states (FUTA credit may be reduced)

Compare Q1, Q2, and Q3 Form 941 totals against payroll register summaries. Identify and resolve discrepancies before the year-end close to prevent W-2/W-3 mismatches.

• Reconcile total wages, federal income tax withheld, Social Security and Medicare wages/taxes
• Verify tax deposit totals match 941 liability reported
• Investigate any adjustments or corrections applied during the year
• Ensure voided/reissued checks are properly reflected

Important: Form 944 (Employer's Annual Federal Tax Return) is OBSOLETE as of tax year 2026. All employers who previously filed Form 944 must now file Form 941 quarterly.

• If you were a Form 944 filer, transition to quarterly Form 941 filing
• Update your payroll system to generate quarterly 941 returns
• Adjust your tax deposit schedule to the quarterly cycle
• Confirm with the IRS if you have questions about the transition

Agricultural employers must file Form 943 annually to report income tax withheld and employer and employee Social Security and Medicare taxes on farmworkers.

• Determine if employees qualify as farmworkers under IRC Section 3121(g)
• Verify the $150 cash pay test / $2,500 group test thresholds
• Do not also report agricultural wages on Form 941
• Form 943 is due January 31 (or February 10 if all deposits timely)

The final payroll of the year is your last chance to make corrections and adjustments. Ensure all year-end adjustments are included in this payroll run.

• Process all pending adjustments before closing the payroll year
• Verify check date vs. pay period for proper tax year attribution
• Ensure all manual checks and off-cycle payments are recorded
• Constructive receipt rules: wages are taxable when available, not when received

The cost of group-term life insurance exceeding $50,000 of coverage must be included in employees' income. Use IRS Table 2-2 (Publication 15-B) to calculate the imputed income based on the employee's age as of December 31.

• Calculate coverage amount minus $50,000 exclusion
• Apply monthly cost per $1,000 from IRS uniform premium table
• Subtract any after-tax employee contributions
• Include in W-2 Boxes 1, 3, 5 and Box 12 Code C
• Subject to Social Security and Medicare tax, but NOT federal income tax withholding

Personal use of a company-provided vehicle is a taxable fringe benefit. The value must be calculated and added to the employee's income.

• Cents-per-mile rule: 2026 standard mileage rate applied to personal miles
• Commuting rule: $1.50 per one-way commute (if qualifications met)
• Annual Lease Value (ALV) method: based on vehicle FMV using IRS table
• Collect final mileage logs from employees
• Include the personal use value in W-2 Boxes 1, 3, and 5

Year-end bonuses and incentive payments are supplemental wages. The federal flat rate for supplemental wages is 22% (or 37% for amounts exceeding $1 million cumulative for the year). Alternatively, the aggregate method may be used.

• Flat rate: 22% federal withholding (simpler method)
• Aggregate method: combine with regular wages and calculate total withholding
• Over $1M cumulative supplemental wages: 37% rate on excess
• State supplemental rates vary; check each state's requirements
• Bonuses are subject to all employment taxes (SS, Medicare, FUTA, SUI)

Large food and beverage establishments (typically 10+ employees) must allocate tips if reported tips fall below 8% of gross receipts. Allocated tips are reported in W-2 Box 8.

• Determine if your establishment meets the large employer threshold
• Calculate 8% of gross receipts vs. total reported tips
• Allocate shortfall using hours-worked or gross receipts method
• Allocated tips go in Box 8; they are NOT subject to withholding or employer FICA
• File Form 8027 (Employer's Annual Information Return of Tip Income)

Any checks that need to be voided and reissued should be processed before closing the tax year. Void/reissues within the same year are simpler than cross-year adjustments.

• Identify any uncashed payroll checks from the current year
• Process voids for incorrect payments
• Reissue corrected checks with proper pay date
• Ensure voided amounts are reversed from tax accumulators

Ensure all Q4 federal tax deposits are made on time per your deposit schedule. Late deposits result in penalties ranging from 2% to 15% depending on how late.

• Monthly depositors: due by the 15th of the following month
• Semi-weekly depositors: Wednesday/Friday schedule based on payday
• Use EFTPS for all federal deposits
• Verify state and local deposit schedules and make timely payments

Several states have unique year-end requirements or adjustments that must be applied before closing the year. Review each state where you have employees.

• State disability insurance (SDI) true-ups (CA, NJ, NY, HI, RI, PR)
• Paid family and medical leave (PFML) adjustments
• State-specific W-2 box requirements
• Local tax year-end reconciliations (PA, OH, KY municipalities)

All employees must receive their W-2 by January 31. This includes former employees who worked any part of the year. Electronic delivery is permitted with employee consent.

• Verify all W-2 data against payroll registers one final time
• Print or publish electronically by January 31
• Mail to last known address if not delivered electronically
• Terminated employees must also receive W-2s by the deadline

File Copy A of all W-2s with Form W-3 transmittal to the SSA. Electronic filing is required if you have 10 or more information returns in aggregate.

• Use BSO (Business Services Online) for electronic filing
• W-3 totals must match the sum of all W-2s
• Cross-check W-3 totals against quarterly 941 cumulative totals
• Retain copies for at least 4 years

File Form 1099-NEC for each person you paid $600 or more in non-employee compensation during the year. This includes independent contractors, freelancers, and certain other payments.

• Verify W-9 information for all payees
• Furnish to recipients and file with IRS by January 31
• No automatic extension is available for 1099-NEC
• Apply backup withholding (24%) if payee failed to provide TIN

Form 940 reports annual FUTA (Federal Unemployment Tax Act) tax. The FUTA rate is 6.0% on the first $7,000 of wages per employee, with a maximum credit of 5.4% for timely state unemployment tax payments.

• Calculate FUTA tax: 0.6% (after credit) x $7,000 per employee
• Check for credit reduction states which reduce the 5.4% credit
• Deposit FUTA tax quarterly if liability exceeds $500
• Extended deadline to February 10 if all deposits were made in full and on time

File the Q4 Form 941 to report wages, tips, and tax withholding for October through December. This is also the time to reconcile full-year 941 totals to W-2/W-3.

• Verify Q4 wages and tax amounts match payroll registers
• Reconcile cumulative 941 totals (Q1-Q4) to W-3 amounts
• Report any Schedule B (semi-weekly depositors) tax liability
• All employers now file 941; Form 944 is obsolete for 2026

Agricultural employers file Form 943 annually instead of Form 941 for farmworker wages. Do not report the same wages on both Form 943 and Form 941.

• Report all agricultural employee wages, tips, and withholding
• Include employer and employee shares of Social Security and Medicare taxes
• Extended deadline to February 10 if all deposits timely
• File electronically if required (10+ information returns threshold)

Most states require a copy of W-2s to be filed with the state revenue department. Deadlines and methods vary; check the State Requirements tab for details.

• Many states require filing by January 31, same as federal
• Some states participate in the Combined Federal/State Filing program
• Verify electronic filing thresholds per state
• Some states require a state transmittal form in lieu of W-3

State quarterly wage reports for unemployment insurance purposes are due for Q4. These report individual employee wages for the quarter.

• File in each state where you have employees
• Include all employees, even those who exceeded the SUI wage base
• Many states accept electronic filing through their UI portal
• Pay any outstanding SUI balances

Many states require an annual reconciliation return that ties quarterly wage/tax reports to W-2 totals. This ensures the state received the correct amount of withholding tax.

• Reconcile total state withholding reported on W-2s to quarterly returns
• File the state-specific reconciliation form (varies by state)
• Resolve any discrepancies before filing
• Some states assess penalties for out-of-balance reconciliations

Various 1099 forms have different filing deadlines. Recipient copies are generally due January 31, while IRS copies are due February 28 (paper) or March 31 (electronic).

• 1099-MISC: rents, prizes, other payments of $600+
• 1099-DIV: dividends and distributions
• 1099-INT: interest income of $10+
• 1099-R: distributions from retirement plans
• Electronic filing required if 10+ information returns in aggregate

Applicable Large Employers (ALEs) with 50+ full-time equivalent employees must furnish Form 1095-C to each full-time employee.

• Report offer of coverage, employee share of premium, and months of coverage
• Use correct Series 1 codes (Line 14, 15, 16) for each employee/month
• Include all full-time employees, even those who declined coverage
• Electronic delivery requires affirmative employee consent

File Form 1094-C (transmittal) and all 1095-C copies with the IRS. Electronic filing is required for filers with 10+ information returns.

• Paper deadline: February 28 (if eligible for paper filing)
• Electronic deadline: March 31
• Use the AIR (ACA Information Returns) system for electronic filing
• Extensions available via Form 8809

Several states have their own individual mandate and reporting requirements that may differ from federal ACA reporting.

• California (FTB), New Jersey (Division of Taxation), Massachusetts (Health Connector), Rhode Island, DC, and others
• State-specific forms and formats may be required
• Deadlines may differ from federal deadlines
• Some states require reporting for all residents, not just full-time employees

If the year-end reconciliation process revealed discrepancies in prior quarterly filings, file amended returns promptly.

• Use Form 941-X to correct previously filed 941s
• Choose between adjustment process and claim process
• File W-2c/W-3c if employee-level corrections are needed
• State amended returns may also be required

Retain all employment tax records for at least 4 years after the due date of the return or the date the tax was paid, whichever is later. Many practitioners recommend 7 years.

• Payroll registers and summaries
• Copies of all W-2s, W-3, 941s, 940, 943, 1099s
• State returns and reconciliation forms
• Employee W-4s and benefit enrollment records
• Year-end adjustment worksheets and reconciliation documentation
• Store securely with restricted access (PII protection)