2024 Year-End Payroll Checklist for US Teams

Managing year-end payroll is an important, time-sensitive task for payroll managers as they reconcile taxes, issue employee tax forms, finalize payroll records, and settle up for the new year.

Each task must be completed accurately and on time to meet IRS and state compliance standards, as even small errors or missed deadlines can lead to fines, employee dissatisfaction, and administrative headaches.

This guide takes you through year-end payroll preparations, explaining what payroll managers need to know to manage the process and set up for success in the new year.

Closing the current year’s payroll

Closing the current year’s payroll, as a US payroll manager, means finalizing all payroll-related activities for the current tax year to ensure compliance and prepare for year-end reporting.

Payroll managers must make sure all wages, bonuses, commissions, and other compensation paid during the calendar year are accurately processed in the last payroll of the year.

The final payroll must account for accurate tax withholdings for federal income tax, Social Security, Medicare, and state/local taxes. Payroll deductions for benefits like retirement contributions and health insurance also need to be reconciled.

You may be interested in: Buyer’s Handbook: Choosing a USA Payroll Service [+ Checklist]

Tax form generation and distribution

One of the biggest responsibilities at year-end is preparing and distributing Form W-2 to all employees. Every employer in the US who operates a business and pays compensation to employees of $600 USD or more during the year, including noncash payments, is required to file a Form W-2 for each employee.

This form must reflect all forms of employee compensation, and if any federal income, Social Security, or Medicare tax has been withheld from the employee’s wages. The deadline to provide W-2s to employees is January 31 of the following year.

Independent contractors must receive Form 1099-NEC for services rendered if they earned $600 or more during the year. This form is also due to contractors by January 31.

Reconciliation and reporting

Payroll managers must reconcile payroll taxes (FICA, FUTA, state unemployment taxes) so the withheld amounts match what was paid throughout the year. Any discrepancies need to be corrected before year-end filings.

W-2 forms must be submitted to the Social Security Administration (SSA), and 1099 forms must be filed with the IRS. Form W-3, which summarizes the W-2 information, must also be submitted to the SSA by January 31.

Final tax payments and compliance

All remaining federal and state payroll tax liabilities for the year must be settled. The IRS and state tax agencies have set deadlines to ensure taxes are paid before penalties are incurred. The Federal Unemployment Tax Act (FUTA) requires annual payment, and any remaining FUTA balance must be paid by January 31 to avoid penalties. Use Form 940 to report your annual FUTA tax.

Prepare for the new year

Payroll managers need to adjust payroll systems to account for new federal, state, and local tax rates, as well as changes in minimum wage laws that may go into effect in the new year.

Employee benefits such as health insurance, retirement contributions, and PTO accruals are often reset or changed in the new year. Payroll managers must review these details and confirm updates are accurately reflected in the payroll system.

Deadlines to avoid penalties

The most crucial deadline is January 31 of the following year, by which payroll managers must distribute W-2s, 1099s, and file required forms with the SSA and IRS. In addition to federal requirements, some states and local jurisdictions have specific filing and payment deadlines that payroll managers must meet to avoid penalties.

Learn more: IRS Employment Tax Due Dates

Year-end payroll checklist for US payroll managers

Here’s a closer look at each step of year-end payroll management, including checklist items:

1. Review employee information

Start by verifying the accuracy of all employee data, as mistakes in social security numbers, addresses, or wage information can disrupt tax filings and delay the distribution of tax forms.

• Verify Social Security Numbers: Double-check that all employee Social Security Numbers (SSNs) are correct in your payroll system to avoid tax filing errors
• Update employee contact information: Review and confirm addresses and contact details for W-2 delivery
• Review employee wages and benefits: Confirm wages, bonuses, reimbursements, and benefits (e.g., health insurance) are correctly recorded
• Resolve discrepancies: Address any inconsistencies between payroll records and employee information to prevent issues in reporting

2. Reconcile payroll taxes

Payroll tax reconciliation involves confirming that federal, state, and local taxes have been withheld and paid accurately throughout the year, resolving discrepancies before filing tax forms.

• Reconcile federal payroll taxes (FICA): Confirm that Social Security and Medicare taxes match payroll records
• Check state and local payroll taxes: Verify the accuracy of state and local income taxes, including state unemployment taxes
• Calculate FUTA: Check that FUTA payments are calculated correctly, making any final payments as needed
• Review quarterly tax forms (941/944): Ensure payroll tax reports align with tax deposits and correct any inconsistencies

3. Prepare and distribute employee tax forms

One of the most essential year-end tasks is accurately generating and distributing tax forms to employees and contractors by the IRS deadline of January 31. This includes issuing W-2s for employees and 1099-NECs for contractors.

• Generate Form W-2s: Prepare W-2 forms for employees, confirming that wages, taxes withheld, and benefits are correctly reported
• Distribute W-2s: Provide W-2s to employees by the January 31 deadline, whether by mail or online portals
• Issue 1099-NEC Forms: For contractors, issue Form 1099-NEC if they earned more than $600
• File forms with the IRS and SSA: Submit W-2s and W-3s to the Social Security Administration and 1099s to the IRS by the required deadlines

4. Finalize year-end payroll reports

Year-end payroll reports summarize all payments made to employees and are necessary for tax filing accuracy.

• Generate year-end payroll reports: Run reports that capture total wages, tax withholdings, and benefits provided over the year
• Reconcile payroll totals: Verify that payroll totals align with actual wages and taxes paid
• Audit deductions: Review and confirm the accuracy of payroll deductions for retirement contributions, health insurance, and other benefits
• Prepare for audits: Organize payroll records thoroughly to be ready for potential audits, including pay stubs and timesheets, W-2 and 1099 forms, tax filings and deposits (e.g., Form 941 and 940), benefits enrollment and deductions documentation, and copies of contracts for independent contractors

5. Confirm benefits and deductions

Review employee benefits and deductions to ensure they are correctly recorded for tax purposes.

• Review health insurance contributions: Confirm employee and employer contributions are recorded accurately
• Check retirement contributions: Make sure all 401(k) or retirement contributions align with payroll deductions
• Record fringe benefits: Confirm that taxable fringe benefits (e.g., company cars, stipends) are included in payroll records
• Reconcile PTO balances: Confirm that PTO balances, including unused vacation days, are properly accounted for

6. Process final payroll of the year

The last payroll of the year should include all final wages, bonuses, and other payments, with accurate tax withholdings.

• Run final payroll: Process the last payroll, ensuring year-end bonuses and any unpaid wages are included
• Verify tax withholdings: Check that federal and state tax withholdings are calculated correctly
• Review final deductions: Confirm that deductions for benefits and contributions are correctly applied

7. Submit final tax payments

Pay any outstanding tax liabilities before year-end to avoid penalties, verifying that all federal, state, and local tax payments are complete.

• Make final tax deposits: Confirm that any remaining federal, state, and local tax payments are made by year-end
• Reconcile tax payments: Double-check that tax payments match payroll records
• Pay FUTA: Complete any remaining FUTA payments before January 31

8. Update payroll software and systems for the new year

Preparing payroll systems and processes for the new year helps align with changing tax laws, rates, and benefits.

• Update tax tables: Confirm your payroll software reflects new federal, state, and local tax rates for the upcoming year
• Adjust for minimum wage changes: Apply any minimum wage increases that take effect in the new year
• Review benefits plans: Update benefits plans to reflect changes in health insurance, retirement contributions, or other benefits
• Set the payroll schedule: Plan the payroll schedule for the new year, considering holidays and weekends

9. Communicate year-end changes to employees

Keeping employees informed about tax forms, payroll schedules, and benefits changes eases the transition into the new year.

• Inform employees about W-2s: Let employees know when to expect their W-2s and how to access them
• Notify employees about benefits changes: Communicate any updates to benefits or payroll deductions for the upcoming year
• Clarify PTO policies: Make sure employees understand any updates to PTO accrual or carryover policies

Take the stress out of year-end payroll with Deel

Year-end payroll management is a critical process for US payroll managers. From reconciling taxes and preparing employee forms to updating payroll systems for the new year, payroll managers must manage a series of important tasks to protect compliance and avoid penalties. By following this checklist, payroll managers can close out the year with confidence and prepare for a smooth start in the new year.

With Deel US Payroll and Deel PEO, you can offload the tedious work that comes with managing US payroll, benefits, and compliance, with:

• 200 in-house legal specialists
• 24/7 in-app chat support, dedicated client success managers, and onboarding managers
• Bulk payment options
• Standardized US and international reporting
• 68+ power integrations and customizable API
• Time-tracking, onboarding, and offboarding
• HR support to help you navigate leave management, employee handbooks, training, and state-specific compliance
• Benefits from market-leading carriers and the option to retain your current benefits provider
• And more

Book a demo today to learn more.