Payroll Year End: Complete Guide With Checklist

If the words year-end payroll make you think of late nights, last-minute scrambles, and a frantic race to meet deadlines—you’re not alone. 

For many HR and finance teams, the end of the payroll year can feel like organized chaos: juggling tax updates, final pay runs, benefit reporting, and government filings, all while employees are asking about their W-2s.

It’s a lot.

But here’s the good news: it doesn’t have to be that way. With the right prep, tools, and a clear checklist, year-end payroll can shift from a high-stress fire drill to a smooth, predictable process. 

Here I’ll walk you through what needs to be done, when to do it, and how to stay ahead—so you can wrap the year with confidence (and maybe even a little breathing room).

What To Do For Processing The Last Payroll of the Calendar Year

Here’s what to do for processing the last payroll of the year and submitting your W-2s and 1099s.

1. Get clear on your process

As the Raoul P.E. Schweicher, Managing Partner at MS Advisory, highlights, the first step is to get clear on your process: “For year-end payroll, have everything documented—who does what, when deadlines hit, and backup plans when things go sideways. Write down the process from the previous year.”

pro tip

From my legal perspective, accuracy is your best protection against penalties and employee claims. Have a checklist for the most common risks, finalizing bonus calculations, reconciling benefit deductions, verifying tax rates, and assign a second reviewer to catch errors.—Edward Hones, employment lawyer and the founder of Hones Law PLLC

2. Update employee information

• Check that all employee names, addresses, and Social Security Numbers (or National Insurance Numbers) are current and correct.
• Ensure you've processed any starters and leavers completely, with accurate tax codes or withholding information.
• For contractors who should be on payroll (US: 1099 vs W-2), re-evaluate their classification now—not in January.

pro tip

My biggest tip is to tackle year-end payroll as early as you can and keep everyone in the loop. Work backward from your filing deadlines and send regular updates to HR, finance, and even employees so they know what information is needed and when. Giving employees an early opportunity to review personal details, tax withholding elections, and benefit selections reduces errors that could trigger compliance issues or disputes later.—Edward Hones, Founder, Hones Law PLLC

3. Reconcile payroll records

This means:

• Reviewing gross wages, taxes withheld, benefits, and deductions.
• Look out for negative balances, duplicate entries, or misclassified earnings.
• Confirm bonuses or fringe benefits are scheduled properly—and taxed accurately.

pro tip

Maintain a running list of payroll adjustments throughout the year. Bonuses, reimbursements, wage garnishments, whatever comes up. This makes it way easier to verify everything’s recorded right when December hits.—Andrew Lokenauth, Fractional FO and financial advisor

3. Process final pay run carefully

• Run payroll as usual, but flag it as your final payroll of the year in your system.
• Account for special payments like:
  • Year-end bonuses
  • Commissions
  • Outstanding vacation pay
  • Fringe benefits or taxable reimbursements

Author's Tip

If you’re on a weekly or bi-weekly schedule, check if you’ll run into a Week 53/54/56—a quirk that can affect tax calculations—Most modern payroll systems will alert you if this applies.

4. Verify Benefit Contributions

• Confirm retirement (401(k)/pension), FSA, and HSA contributions are maxed out (or not overfunded).
• Catch any last-minute adjustments—for example, if someone wants to bump up their 401(k) deferrals before December 31.

Pro Tip

Communication between departments also matters more than most people realize. HR, finance, and payroll all need to be on the same page, especially when it comes to things like deferred comp, retirement plan contributions, or health benefits.—Kevin Marshall, CPA and personal finance professional, Amortization Calculator

5. Run Pre-Year-End Reports

Generate a few sanity-check reports:

• Employee Earnings Summary
• Tax Liability Report
• Deductions & Benefits Summary
• PTO accruals

These reports help confirm everything is tidy before submitting your final payroll.

6. Submit Final Payroll Filings

Mark final tax submissions accurately:

• Prepare Forms 941, 940, and finalize W-2s/W-3.

TL;DR Checklist

1. Deadlines vary, but aim to finalize these on or before the last payday of the year.
2. Review employee and payroll data
3. Process bonuses and final payments
4. Submit final payroll and tax filings
5. Max out or adjust benefits
6. Run verification reports

What To Do After the Last Payroll of the Calendar Year

Now you can breathe a little… but there’s more to do. Post-payroll tasks ensure your team gets the right tax forms and you start the new year clean.

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1. Distribute Employee Year-End Forms

W-2s: Must go to employees by January 31. Most payroll systems generate these automatically—but double-check everything before hitting “send.”

Pro Tip

Run draft payroll reports and W-2 previews early, allowing time to catch discrepancies before finalizing.—Edward Hones, Founder, Hones Law PLLC

2. Report Benefits and Expenses

• Include the value of benefits like personal use of a company car or relocation reimbursement in W-2 Box 12 or 14.
• Ensure taxable benefits are recorded and reported in line with local rules.

3. Update tax tables and codes

• Download and apply new IRS tax tables.
• Update employee tax codes for the new year if you’ve received notices.

Author's Tip

Don’t skip this! Using old tax codes in the new year is a classic mistake.

4. Reset Annual Balances

• Reset PTO/vacation carryover (if applicable).
• Clear year-to-date balances in your payroll system for 401(k), health plans, and tax limits.
• Recalibrate benefits caps, accrual rates, or wage thresholds.

5. Schedule First Payroll of the New Year

Prep and preview your January payroll:

• Apply any new deductions or wage increases.
• Check if your payroll calendar aligns with public holidays.
• Ensure tax settings have been updated correctly before the first direct deposit.

Pro Tip

Check that pay dates don’t fall on weekends or holidays, because this sounds obvious, but so many people forget.—Raoul P.E. Schweicher, Managing Partner at MS Advisory

6. Archive Year-End Reports

For audit and compliance:

• Store year-end tax filings securely.
• Keep final pay stubs, benefits reports, and liability summaries on file for the required retention period (typically 4–7 years, depending on jurisdiction).

TL;DR checklist

• Distribute W-2s / 1099s
• Update tax codes and software settings
• Reset YTD values and balances
• Archive reports and prep for January

What Is Year-End Payroll?

Year-end payroll is the process of finalizing your company’s payroll operations for the calendar year. It includes reviewing employee records, processing the final payroll run, reconciling wages and deductions, reporting benefits, and submitting necessary tax documents to the IRS.

It’s also when you generate and distribute year-end tax forms like W-2s or P60s to employees.

Think of it as the payroll version of tying up loose ends. Everything that happened—bonuses, tax withholdings, benefit deductions—needs to be checked, calculated, and reported accurately. 

Year-end payroll is also your chance to reset for the next calendar year, applying new tax codes and wage thresholds.

Why Is Year-End Payroll Important?

Year-end payroll isn’t just about compliance; it’s about ensuring every number that goes to the government and your employees is accurate.

Mistakes here can lead to overpaid taxes, underpaid employees, or worse—penalties for missed filings or incorrect data.

It's a critical time to confirm that employee earnings, deductions, and taxes align with both federal and local laws.

Additionally, employees depend on you to get it right so they can file their taxes easily and without correction.

It’s also a key moment to reconcile benefit contributions like 401(k) or pension plans, flag any misclassified contractors or bonuses, and make sure nothing slipped through the cracks during a hectic year.

When Does The 2025 Payroll Year End?

In most cases, the payroll year aligns with the calendar year. 

That means the 2025 payroll year ends on December 31, 2025 in the U.S.

The final payroll of the year needs to be processed and submitted in line with that respective year-end deadline.

If your regular payroll schedule (weekly, bi-weekly, monthly) overlaps with the year-end, you may encounter a special “Week 53” or similar extra pay period.

These situations can impact tax calculations and need to be handled properly to avoid incorrect withholdings or benefit reporting.

Tip: If your software flags week‑53 payrolls, trust it—it’s usually right!

What Happens if You Miss a Year-End Payroll Tax or Deadline?

Missing a payroll deadline can result in more than just a headache—it often comes with financial penalties and administrative hassle.

Late filing of W-2s or 941s can result in penalties ranging from $60 to $310 per form, depending on how late they are.

Beyond fines, the bigger issue is having to correct mistakes after the fact. Employees may receive inaccurate W-2s, potentially causing issues when they file their personal taxes. Amending those forms can take time and erode trust. 

Staying ahead of deadlines not only avoids compliance issues but also builds reliability and goodwill among your team.

What Tax Forms Do You Need for End-of-Year Payroll?

The required tax forms depend on your country and employment type. In the U.S., employers must prepare:

• Form W-2: Sent to employees, reporting wages and taxes withheld.
• Form W-3: A summary sent to the Social Security Administration.
• Form 1099-NEC: For independent contractors paid $600 or more.
• Form 941/940: Quarterly and annual reports of federal payroll taxes.

Key Year-End Payroll Dates To Remember 2025

Here are the crucial deadlines to keep on your radar:

• December 31, 2025: Final payroll run of the year.
• January 31, 2026: Deadline to provide W-2s and 1099-NEC to employees/contractors.
• January 31, 2026: Deadline to file Forms W-2 and W-3 with the SSA.
• February 28, 2026 (paper) or March 31, 2026 (e-file): Deadline to file Form 1099-NEC with the IRS.
• April 15, 2026: Deadline for Form 940 (FUTA) and possibly some state unemployment filings.

Key Year-End Payroll Forms

Here’s a summary of all the most important payroll forms by region:

Form	Purpose
W-2	Reports employee wages and taxes withheld
W-3	Summarizes W-2s sent to the SSA
1099-NEC	Reports nonemployee compensation (contractors)
941	Quarterly payroll tax report
940	Annual FUTA tax report

Payroll Year-End: 8 Best Practices

Building on the above, here are some best practices for ensuring the year-end payroll project runs smoothly.

1. Run regular audits and reconciliations throughout the year

Ashley Akin, CPA and tax consultant, Gold IRA Companies recommends “Cleaning up your payroll records throughout the year, not just during Q4. If you’ve been conducting payroll audits and reconciling your payroll data every quarter, the year-end process becomes a matter of confirming, not scrambling. It’s also smart to block time to review tax updates that take effect in January.

Even if those changes don’t impact this year’s filings, they affect planning for bonuses and retirement contributions.”

2. Start early and work backwards from deadlines

Avoid last-minute stress by initiating year-end payroll preparations as early as possible. Work backward from tax form distribution deadlines (e.g., January 31 for W-2s) to create a timeline. Share this with HR, finance, and employees so they can update their information on time.

Pro Tip

We see year-end payroll as a convergence point for risk, reconciliation, and real-time decision-making. The biggest operational gap? Misaligned timelines. Bonus approvals often lag behind payroll deadlines, benefit adjustments happen in isolation, and global teams are waiting on headquarters to greenlight changes. Our advice to mid-market HR and finance teams: Treat November like December. Begin your year-end payroll reconciliation early, especially across global entities.—Katherine Loranger, CPO, Safeguard Global

3. Document your process and assign responsibilities

Create a clear, written workflow outlining what needs to be done, when, and by whom. Include contingency plans in case key staff are unavailable or systems fail.

A documented process reduces miscommunication, ensures accountability, and makes onboarding new team members easier for future cycles.

pro tip

Set deadlines weeks in advance, not days. Break big tasks into smaller deliverables — bonuses, benefit reconciliations, tax updates, document prep — and schedule them like a production line. Also, make sure payroll teams aren’t overloaded with unrelated tasks during Q4.—José Roberto Araujo Filho, Founder, Wide Brazil

4. Audit employee and contractor information thoroughly

Ensure all names, addresses, Social Security Numbers, and employment classifications (e.g., W-2 vs. 1099) are current and correct. Process any new hires or terminations fully before year-end.

5. Reconcile payroll records with a fine-tooth comb

Check that wages, bonuses, deductions, and taxes are correct and there are no anomalies like negative balances or duplicate entries. Review fringe benefits and make sure they’re classified and taxed correctly.

pro tip

If employees are expecting year end bonuses, some may adjust their 401k or Roth deductions to make the most of their money, so employers need to make sure that they are tracking any reported changes appropriately and communicating with the 401k record keeper and employees about the last date they have to make changes. Sometimes it may take 2 or 3 weeks for the 401k provider to approve and communicate the changes to the people responsible for payroll.— Eric Mochnacz, Operations Director, Red Clover HR

6. Ensure communication across departments

Keep HR, finance, and payroll in sync—especially regarding bonuses, deferred compensation, benefits, and contributions. Share timelines, requirements, and status updates frequently.

Generate reports like employee earnings summaries, tax liability reports, PTO accruals, and deduction summaries before finalizing payroll. Use these for a final round of review and error-catching.

pro tip

Launch a cross-functional “tax compliance war room” by October 1, where payroll, HR, and legal teams meet biweekly to track IRS/state deadline shifts (like California’s accelerated January 15 filing) and pre-process December bonuses by the 10th to avoid clearance chaos. For global teams, sync international reporting calendars (e.g., UK P60s and FATCA) via dashboards like Airtable.—Josh Katz, CPA

7. Have a backup plan

Don’t forget about backup plans. Tech can fail, files can get lost, and the holidays often mean key people are out of the office. It’s worth having extra hands trained and available, just in case someone can’t finish their part.

Year-end is stressful enough without scrambling because someone’s out sick or a system update went sideways.—Kevin Marshall, and I'm a CPA and personal finance professional at Amortization Calculator

pro tip

Employers should also be communicating with employees, ensuring they’ve updated their personal information, including social security numbers, addresses, and tax withholding elections to reduce errors. That’s a lot for small businesses, which is why we’d recommend working with a PEO to help manage payroll. You’ll get a dedicated partner who is communicating with your team all year, not just at the end.—Kristin Baldwin, Director of Compliance at leading PEO CoAdvantage.

8. Double check the logic behind your tools

Without clear processes, people burn out and planning fails. Automate where you can, but always double-check the logic behind your tools—especially after payroll software updates.

pro tip

Build checklists that are reviewed annually. And make sure everyone knows exactly what to do and when. Processes are the safety net that turn panic into routine.—José Roberto Araujo Filho, Founder, Wide Brazil

Year-End Payroll Checklist

Courtesy of Akin, use this year-end checklist to keep everyone aligned and ensure nothing gets missed:

“This doesn’t have to live in a spreadsheet. I’ve seen teams put it on a whiteboard, in Slack, or even on sticky notes... whatever works to keep the process visible and collaborative.”

Employee data and info

•  Confirm all employee names match their Social Security or National Insurance records
•  Verify current addresses for mailing W-2s/P60s
•  Double-check bank account info for direct deposits
•  Confirm benefit elections and deductions are accurate

Wages and compensation

•  Review all final regular pay runs
•  Process bonuses with correct tax withholding
•  Handle unused vacation payouts and commissions
•  Check fringe benefits and taxable perks (e.g., company car, relocation reimbursements)

Tax and compliance

•  Reconcile year-to-date payroll against quarterly filings
•  Apply any year-end tax adjustments
•  Review and update state/local tax codes if needed
•  Cross-check retirement contributions and benefit limits

Forms and filing

•  Generate and review W-2s, 1099s, or P60s
•  File forms with IRS/HMRC and other agencies by deadline
•  Prepare ACA or pension reports if applicable

System and software

• Back up all payroll data
• Test any software updates or rule changes
• Lock the year after final run to prevent edits

Team and communication

•  Notify employees when to expect tax forms
•  Share instructions on how to access them
•  Provide contact info in case of issues or corrections

Process evaluation and automation

• Track how long it takes to gather and verify data.
• Identify manual steps—consider automation to reduce errors and save time.
• Evaluate recurring processes for automation opportunities.

Year-End Payroll: Be Proactive, Not Reactive

Like with most projects involving multiple stakeholders and deadlines, successful year-end payroll is built on a foundation of pre-planning, communication and iteration. 

As Teresa Smith, director, HCM Strategic Advisory Group at UKG, puts it so well, “Year-end payroll doesn’t have to be a scramble—it can be a strategic advantage.

By building a project plan, validating data early, and leveraging automation, payroll professionals can reduce errors, meet deadlines with confidence, and bring greater value to their organizations.

It’s about turning a traditionally reactive process into a proactive opportunity for accuracy, efficiency, and insight. Now is the time to assess your current workflows, identify gaps, and take action to streamline your year-end process for even greater success".

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