US payroll year-end: a checklist
Reviewed by Mellow Editorial Team, HR & payroll content team
US payroll year-end closes out your tax records for the calendar year and produces the forms employees and agencies need to file their own returns. Done right, it is methodical; missed steps create penalties and amended filings that cost far more time than the process itself.
Reconcile your payroll records before anything else
Before you touch a single form, pull your payroll register for the full year and reconcile it against your quarterly Form 941 filings. The four 941s you submitted should add up to your annual totals for wages paid, federal income tax withheld, and FICA taxes — both the employee and employer sides.
Check that Social Security withholding stopped correctly at the annual wage base for any employee who crossed that threshold during the year. Medicare at 1.45% applies to all wages with no cap, so verify that figure runs cleanly to year-end as well. If any employee earned enough to trigger the 0.9% Additional Medicare Tax surcharge, confirm your system withheld it correctly on the excess.
Discrepancies between your 941s and your payroll register are easier to explain and correct now than after W-2s are distributed.
Collect and confirm employee data
Year-end is when data gaps become expensive. Before you generate W-2s, verify:
- Legal names and Social Security numbers match what employees provided on their Social Security cards. A mismatch causes the SSA to reject the record.
- Current mailing addresses, especially for employees who moved during the year.
- Pre-tax benefit deductions — 401(k) contributions, health insurance premiums, HSA contributions, dependent care FSAs — are coded correctly and reflected in the right W-2 boxes.
If an employee has a name discrepancy, ask them to provide their Social Security card. Do not guess or correct unilaterally.
Prepare and distribute W-2s by January 31
Form W-2 reports each employee's total wages, federal income tax withheld, Social Security and Medicare wages and taxes, and any pre-tax benefit amounts. You must furnish a copy to each employee and transmit the employer copy to the Social Security Administration by January 31.
That single deadline covers both obligations. Missing it triggers penalties that scale with how late you file — the longer you wait, the higher the per-form penalty.
A few W-2 specifics worth confirming:
- Box 1 (wages, tips, other compensation) reflects taxable wages after pre-tax deductions, not gross pay.
- Box 12 captures a range of coded items — 401(k) deferrals, health coverage costs for 2+ percent S-corp shareholders, HSA contributions, and others. Each code is specific; use the IRS instructions for Form W-2 to verify your codes.
- Box 13 should be checked if the employee participated in a company retirement plan, even if they contributed nothing themselves.
If you have contractors rather than employees, separate process applies: issue Form 1099-NEC for any individual paid $600 or more during the year for services. The 1099-NEC deadline is also January 31.
Handle state and local filings
Federal forms are only part of the picture. Depending on where your employees work, you may have state income tax withholding returns, state unemployment tax annual reconciliations, and W-2 transmittals to state revenue agencies.
States like Texas, Florida, and Washington have no state income tax, which removes that layer of filing. But most states do, and many require you to file W-2 data electronically if you have more than a certain number of employees. Check each state's deadline separately — some mirror the federal January 31 date; others differ.
Local income taxes add another layer in cities like New York City and Philadelphia. If you have employees there, verify your local withholding and any separate local reconciliation forms.
If you operate across multiple states, how Mellow runs payroll across six countries on one platform covers some of the complexity that comes with distributed workforces.
Close out and prepare for the new year
Once W-2s and 941 reconciliation are complete, a few final steps set you up cleanly for the next year:
- Archive payroll records. The IRS generally recommends keeping employment tax records for at least four years from the date the tax was due or paid, whichever is later.
- Review W-4s on file. Employees can submit a new Form W-4 at any time, but the start of a new year is a natural prompt to ask staff whether their withholding elections still reflect their situation.
- Update your payroll system for any new tax year changes — revised bracket tables, updated wage bases, or state rate adjustments that take effect January 1.
- Confirm direct deposit and payment information is current for all active employees before the first payroll of the new year runs.
Year-end payroll is not complicated, but it is unforgiving of sloppy record-keeping during the year. The employers who find it straightforward are usually the ones who reconcile quarterly rather than waiting until December to discover discrepancies.
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