Last updated: September 23, 2026
Year-end payroll is the one time of year when everything has to be right — employee records, tax filings, W-2s, bonuses, SUI reconciliation, benefit deductions, and updated tax rates for the new year. Get it wrong and the problems don’t show up until January, when employees are expecting their W-2s and the IRS is expecting your filings. This year-end payroll checklist walks Illinois and Wisconsin small business owners through the seven steps to close 2026 correctly and start 2027 clean.
Year-End Payroll Deadlines for 2026 — At a Glance
Before diving into the checklist, here are the hard deadlines for closing tax year 2026. Because January 31, 2027 falls on a Sunday, most federal year-end deadlines shift to Monday, February 1, 2027.
| Form / Task | Deadline | Notes |
|---|---|---|
| W-2 to employees | February 1, 2027 | Must be postmarked or electronically delivered |
| W-2 / W-3 to SSA | February 1, 2027 | Electronic filing required if filing 10+ forms; see SSA Business Services Online |
| 1099-NEC to contractors | February 1, 2027 | Furnish to recipient AND file with IRS by same date |
| Form 940 (FUTA) | February 1, 2027 | February 10 if all FUTA deposits made on time |
| Form 941 — Q4 2026 | February 1, 2027 | February 10 if all deposits made on time and in full |
| Illinois SUI Q4 | January 31, 2027 | IDES filing; SUI wage base for 2026: $13,271 |
| Wisconsin SUI Q4 | January 31, 2027 | DWD filing; SUI wage base for 2026: $14,000 |
Illinois and Wisconsin SUI Q4 filings are due January 31 and do not shift to February 1 — confirm current filing portals with IDES and Wisconsin DWD respectively.
Step 1 — Verify Employee Information
Year-end payroll starts with data accuracy. When an employee’s name, Social Security number, address, or filing status is wrong in your payroll system, the result is an incorrect W-2 — which means a corrected W-2 (W-2c), a possible IRS notice, and an employee who either can’t file their taxes or files them incorrectly.
Send a company-wide message in November asking every employee to verify their address and confirm their W-4 withholding elections. Do this before the last payroll run of the year. Specifically, flag any employees who changed their name, moved, changed their marital status, or had a child — all of these affect W-2 accuracy and tax withholding.
Additionally, confirm contractor records separately. Every contractor paid $600 or more in 2026 needs a 1099-NEC. Verify their TIN against the W-9 on file. If you don’t have a W-9, you should have been collecting backup withholding at 24% throughout the year — if you weren’t, that’s a problem to address before filing.
Step 2 — Reconcile Payroll Accounts
Payroll reconciliation means verifying that what you paid employees matches what you reported to the IRS in your quarterly Form 941 filings — and that both match what your W-2s will show at year-end. When these three don’t agree, the IRS notices. Specifically, the SSA cross-checks W-2 totals against the 941s filed during the year, and discrepancies generate CP2000 notices the following year.
For Illinois and Wisconsin employers, reconciliation also means verifying the following state-specific items:
- SUI taxable wages: Illinois SUI applies to the first $13,271 of wages per employee in 2026. Wisconsin SUI applies to the first $14,000. Verify that your payroll system stopped taxing wages above these thresholds correctly for each employee.
- Illinois PLAWA accruals: Confirm your payroll records show correct accrual of Illinois Paid Leave for All Workers Act leave — one hour per 40 hours worked, up to 40 hours per year — for every employee.
- Overtime calculation accuracy: For any non-exempt employees who received nondiscretionary bonuses during the year, verify that those bonuses were included in the regular rate of pay for overtime calculations in the workweeks they were earned. This is one of the most commonly missed FLSA requirements at year-end.
Step 3 — Process Year-End Tax Forms
Once payroll is reconciled, year-end tax forms follow. For most Illinois and Wisconsin small businesses, that means:
- W-2s — one per employee, reporting wages, tips, and tax withholdings for the year. Due to employees and the SSA by February 1, 2027. Electronic filing with the SSA is required if you’re submitting 10 or more W-2s.
- 1099-NECs — one per contractor paid $600 or more in 2026. Due to the contractor and the IRS by February 1, 2027.
- Form W-3 — the transmittal form that accompanies W-2s filed with the SSA. Summarizes total wages and withholdings across all employees.
- Form 940 — the annual FUTA return. Due February 1, 2027 (February 10 if all deposits were timely). The FUTA rate is 6% on the first $7,000 of wages per employee; most employers qualify for a 5.4% credit, reducing the effective rate to 0.6%.
- Form 941 — Q4 — the quarterly federal payroll tax return for the period October 1 through December 31, 2026. Due February 1, 2027.
Step 4 — Handle Year-End Bonuses Correctly
Year-end bonuses are one of the most commonly mishandled payroll items. The mistakes aren’t obvious until a W-2 is wrong or an employee’s tax return doesn’t match their records. Here are the errors that come up most often:
Bonus Tax Withholding
Bonuses paid as a separate check are subject to federal supplemental wage withholding at a flat 22% (or 37% for amounts over $1 million). Bonuses added to a regular payroll run are taxed at the employee’s standard withholding rate. Neither approach is wrong — however, the withholding method must match how the bonus is paid. Applying the wrong rate means the employee owes more tax at filing than expected.
Retirement Contributions on Bonuses
If an employee has a 401(k) or SIMPLE IRA deferral election, that election applies to bonus pay unless the plan document specifically excludes it. Many employers forget to run retirement deductions against bonus checks. As a result, the employee under-contributes for the year — which can’t be corrected after the year closes.
Nondiscretionary Bonuses and Overtime
This is the most frequently overlooked year-end payroll obligation. Under the FLSA, nondiscretionary bonuses — production bonuses, attendance bonuses, bonuses promised in advance — must be included in a non-exempt employee’s regular rate of pay for the workweeks in which they were earned. If an employee worked overtime during a bonus period and the bonus wasn’t factored into the regular rate, you likely owe additional overtime. This requires a retroactive calculation for each affected workweek, not a single lump-sum adjustment.
Cash Gifts and Gift Cards
Cash gifts and gift cards are taxable wages — not de minimis fringe benefits — regardless of amount. They must appear on the employee’s W-2 as wages and be subject to withholding. Gift cards with a specific cash value are treated identically to cash under IRS rules.
Step 5 — Update Tax Rates and Limits for 2027
Several payroll tax parameters change January 1. Update your payroll system before the first 2027 payroll run — not after. For Illinois and Wisconsin employers, the key items to verify for 2027 include:
- Federal Social Security wage base: Confirm the new annual maximum (the IRS typically announces this in October or November)
- Illinois SUI wage base and rate: Check IDES for the 2027 taxable wage base and your account’s assigned rate
- Wisconsin SUI wage base and rate: Check Wisconsin DWD for the 2027 figures
- Illinois minimum wage: $15.00/hour statewide as of 2025 — confirm whether any scheduled increases apply in 2027
- Federal income tax withholding tables: IRS Publication 15-T is updated annually; your payroll software should update automatically, but verify
- 401(k) and SIMPLE IRA contribution limits: Confirm the 2027 deferral limits with your plan administrator and communicate them to employees
Step 6 — Run Year-End Reports
Before closing the year, generate these reports from your payroll system and review them for anomalies:
- Payroll summary report — total wages, taxes withheld, and deductions for January 1 through December 31, 2026. This is the source document for your W-3 and should reconcile against your four 941s.
- Employee-level summary — wages and withholdings per employee. Spot-check a sample against individual pay stubs for accuracy.
- PTO balance report — remaining accrued PTO per employee. Determine whether unused PTO carries over, pays out, or expires under your policy and Illinois or Wisconsin law.
- Workers’ comp report — total payroll by classification code for your workers’ comp audit. The carrier uses this to calculate your year-end premium true-up.
- Retirement contribution summary — employer and employee contributions by participant, for reconciliation against plan records and 5500 filing if applicable.
Step 7 — Archive Payroll Records
Federal recordkeeping requirements vary by record type. The IRS requires payroll tax records for at least four years after the tax is due or paid, whichever is later. The Department of Labor requires payroll records for at least three years. In practice, retain payroll records for four years at minimum — the IRS requirement is the longer of the two.
Records that must be retained include: employee name, address, and SSN; dates of employment; pay rates and total wages paid per period; hours worked each day for non-exempt employees; tax withholdings and deductions; W-2 copies; 941, 940, and state return copies; and wage garnishment orders.
Furthermore, Illinois employers should note that the Illinois Wage Payment and Collection Act requires payroll records to be available for inspection on request. Digital, cloud-based storage makes this compliance requirement significantly easier to meet than paper-based archives.
What This Means for Your Business
Year-end payroll is genuinely one of the highest-stakes payroll runs of the year. The forms filed in January and February set the baseline for every employee’s tax situation, every contractor’s income, and your business’s payroll tax record with the IRS. Errors that seem minor — a wrong address, a missed bonus deduction, a reconciliation gap — surface as IRS notices and corrected forms months later, when they’re harder and more expensive to fix.
If your current payroll setup requires significant manual work to complete these steps, that’s worth examining before year-end arrives. Our 30-minute meeting covers your current year-end payroll process and where iSolved handles these steps automatically. Our pricing calculator shows you what a fully managed year-end payroll setup costs for your headcount.
For authoritative IRS guidance on year-end payroll requirements, see IRS Publication 15 (Employer’s Tax Guide).
Illinois: 847-949-8373 | Wisconsin: 262-375-2440
This article is provided for general informational purposes only and does not constitute legal, tax, payroll, or HR advice. Deadlines, tax rates, and wage bases are subject to change. All 2026/2027 deadline information reflects federal IRS guidance and should be verified before filing. Illinois and Wisconsin state filing requirements may differ. Before making year-end payroll decisions, consult with a qualified payroll professional or CPA. Reach out to Payroll Freedom for guidance specific to your business.
