You may or may not get December snow in your part of the country, but in every locale, December is when snowballing payroll problems can come crashing down on businesses. They can begin forming months earlier when a bonus is promised, a company vehicle is used for personal errands, or an owner pays an insurance premium without informing the right people.
The problems loom large when the payroll administrators ask for year-end information on a tight timeline. Owners and employees may be unavailable, records may be incomplete and the final payroll run may already be scheduled.
That’s why November is the right time for a payroll checkup. Gathering information now gives your business time to value taxable benefits, confirm bonus amounts, correct employee records and meet the payroll provider’s cutoff. It also reduces the risk of inaccurate W-2s, amended payroll returns and unpleasant surprises for employees.
For 2026, be sure to verify required reporting of qualified tips, applicable tipped-occupation codes, and qualified overtime compensation, where applicable; these deductions do not eliminate ordinary payroll-tax obligations.
Ask your payroll provider for its year-end deadline
Federal filing deadlines don’t tell the whole story. Payroll processors may establish year-end cutoffs for special payrolls, manual adjustments and fringe-benefit reporting; confirm the dates with your provider. The dates will vary by provider and by the services the business uses.
Ask for the year-end calendar now. Confirm the last date for reporting bonuses, taxable fringe benefits, shareholder health insurance and employee corrections. If the business plans to run an off-cycle bonus payroll, find out how much lead time is required and what additional fees may apply.
The company should also identify one person who will collect the information and communicate with the payroll provider. Clear ownership is especially important when bookkeeping, human resources and payroll are handled by different people.
Finalize bonuses and withholding
Bonuses are taxable wages and generally are subject to federal income tax withholding, Social Security, Medicare and applicable state and local taxes. The withholding method may depend on whether the bonus is paid separately or combined with regular wages. For wages of $1 million or less, the optional 22% method has eligibility conditions. Supplemental wages above $1 million are subject to mandatory 37% withholding on the excess. Withholding does not determine the employee’s final income tax.
Employees sometimes expect the net payment to equal the announced bonus. That can create confusion when taxes are withheld. Decide whether the approved amount is gross or net, and explain the treatment before payroll is processed. If management promises a specific take-home amount, the gross payment may need to be increased to cover the associated withholding, which raises the cost to the employer.
Also consider the timing of deductions. A bonus may affect 401(k) deferrals, employer matching contributions, garnishments or other payroll-based items depending on the plan documents and employee elections. Confirm these details before submitting the payroll rather than trying to reverse transactions later. Determine whether the bonus must be included in the FLSA regular rate and whether additional overtime pay is due.
Calculate personal use of company vehicles
When an employee uses an employer-provided vehicle for personal purposes, the value of that use is generally taxable. Commuting is usually personal use, even when the vehicle is clearly associated with the business. The taxable amount must be determined under an allowable valuation method and included in wages. Confirm eligibility for the chosen valuation method and reduce the taxable value by qualifying employee reimbursements.
To calculate the benefit, the company needs reliable mileage and usage records. Ask employees to submit business and personal mileage before the payroll cutoff. The calculation may also require the vehicle’s fair market value, the date it was first made available and amounts the employee reimbursed.
Employers may use a special accounting period for certain noncash fringe benefits. Under that rule, benefits provided in November and December may be treated as paid in the following year, and a consistent 12-month period ending no earlier than October 31 may be used. The special accounting rule applies to eligible non-cash fringe benefits actually provided in the final two months—not cash bonuses—and requires the applicable employee notice and consistent treatment.
This flexibility can help with year-end processing, but it must be applied correctly and doesn’t make the personal use tax-free.
Report S corporation owner health insurance
Health and accident insurance premiums paid or reimbursed by an S corporation for a shareholder who owns more than 2% generally require special W-2 treatment. Qualifying premiums are included in W-2 Box 1 and are subject to federal income tax withholding, but generally are excluded from Boxes 3 and 5 and from FUTA wages.
This reporting is important because it helps support the shareholder’s potential self-employed health insurance deduction. W-2 inclusion alone does not establish deductibility; the corporation-payment/reimbursement rules, earned-income limit, and other employer-subsidized coverage restrictions also apply. If the premiums are omitted from the W-2, the shareholder may not receive the intended tax treatment even though the corporation paid the expense.
Gather the full-year premium amount in November, then update it for any final December payment before the payroll cutoff. Include premiums paid directly by the corporation and qualifying amounts paid by the shareholder and reimbursed by the corporation. Coordinate with your trusted tax advisor when ownership, family attribution or the insurance arrangement makes the treatment unclear.
Identify other taxable fringe benefits
Company cars are only one example. Group-term life insurance above the tax-free limit, certain moving-expense reimbursements, non-qualified achievement awards (those that do not satisfy the exclusion requirements or exceed the applicable exclusion limits), taxable educational assistance and other employer-provided benefits may also need to be included in wages.
Don’t assume that a benefit is excluded merely because it was purchased through the business. The tax treatment depends on the type, value, frequency and business purpose of the benefit. Some low-value items may qualify as de minimis benefits, but cash and cash equivalents generally do not qualify simply because the amount is small.
Review the general ledger for accounts such as employee benefits, gifts, vehicle expense, insurance, reimbursements and owner distributions. The bookkeeping description may reveal payments that never reached payroll. Ask your tax advisor to review unusual items before the last payroll is processed.
Verify employee information
A W-2 can contain the correct wage amount and still be rejected or delayed because the employee’s name or Social Security number doesn’t match government records. November is a good time to ask employees to review their legal name, Social Security number and mailing address.
Employees should also report address changes and review their withholding elections. Employers should not advise employees how to complete theirW-4s, but they can remind employees to submit an updated form if their circumstances have changed.
If an error is discovered, correct it in the payroll system before W-2s are generated. If an error is found after forms have been furnished or filed, follow the applicable W-2 correction procedures; employment tax return corrections are needed only when the underlying tax reporting is affected.
Reconcile payroll before the final run
Compare year-to-date payroll reports with the general ledger and quarterly 941 forms. Investigate differences in gross wages, federal withholding, Social Security wages, Medicare wages and employer tax expense. Confirm that payroll liabilities have cleared and that manual checks or voids were recorded in both systems.
Review state and local payroll accounts as well, particularly if employees changed work locations or worked remotely in another jurisdiction. Make sure terminated employees, new hires and employees on leave are reflected properly.
A reconciliation completed in November leaves time to correct the final regular payroll. It also gives the tax preparer cleaner records and reduces the chance that a discrepancy will surface during return preparation months later.
Prepare for January filing requirements
W-2s generally must be furnished to employees and filed with the Social Security Administration by the end of January. (The 2027 deadline is February 1, since January 31 falls on a Sunday.) Extensions are limited, so don’t plan on extra time.
Confirm whether your payroll administrator or services provider will file federal, state and local forms and whether the business must approve a draft first. Ask how corrections submitted after the provider’s cutoff will be handled and charged. Retain required employment-tax records for at least four years, and apply any longer period required for particular records.
Businesses also should review payments to independent contractors as part of the broader year-end process. Those payments may create separate Form 1099 obligations and should be reconciled before January.
A smoother year-end starts in November
There’s far more to year-end payroll than meets the eye. The processor can report only the information the business provides, and many of the most important items originate outside the payroll system.
Use November to confirm your provider’s deadlines, finalize bonus plans, gather vehicle records, calculate S corporation shareholder health insurance and review other fringe benefits. Then verify employee data and reconcile payroll before the final run.
Your accounting advisor can help identify taxable benefits, review unusual payments and coordinate the year-end reconciliation. A few organized conversations in November can prevent corrected forms, additional fees and a last-minute rush after the holidays.