Year End Payroll Checklist: W2s, 1099s and Final Pay Runs

Check your worker information before the last pay run

Before the last pay run of the year, take a fresh look at the information you keep for each worker. Small errors here turn into bigger problems later, when the forms go out and the year end close starts.

For each employee, check the legal name, the social security number, and the address on file. These are the details that land on the W2. When one of them is wrong, the form comes back and the fix takes longer than the check would have.

For each contractor, check the same kind of details plus the W9 form you keep on file. The name and the taxpayer number on the W9 are what you put on the 1099 NEC form. When the W9 is missing or out of date, the form is harder to get right.

Here is the worker information to check before the last pay run.

• Legal name and address for each worker.
• Social security number or taxpayer number.
• The W9 form for each contractor.
• The pay type for each worker, employee or contractor.

Dates can change. Confirm the details your payroll provider needs with your payroll provider, your CPA, or the agency.

The final pay run of the year

The last pay run of the year is the one that closes out the payroll record for the year. It matters because the totals from that run feed into the forms and the year end reconciliation.

Run the final pay run the same way you ran every other one. The hours get approved. The pay gets figured out. The withholdings come out. The take home pay goes out. Nothing about the last run is special in how it happens. What makes it special is what you do with the numbers after.

After the final pay run, the full year of payroll is on the table. You can see the total wages, the total withholdings, and the total employer costs for the year. Those totals are what you check in the next step.

Here is what the final pay run gives you for the year end close.

• Total wages for the year.
• Total withholdings held and sent.
• Total employer costs for the year.
• The base numbers for the forms and the reconciliation.

Your CPA decides the accounting method and we keep the books consistent with it. Ask your payroll provider when your last pay run must land for the year.

Reconcile payroll for the whole year

A year end payroll reconciliation is a check that the payroll numbers and the books agree for the whole year. You have been checking this each month. At year end you check it one more time across all twelve months.

Start with the wages. The total wages on the payroll report for the year should match the wages line in your books for the year. When they do not, a pay run is missing or a number was entered wrong at some point in the year.

Next check the withholdings. The amounts held for the agencies should match the amounts sent to the agencies. When the two agree, the liability accounts end the year close to zero. When they do not, a payment was missed or sent in the new year.

Then check the bank. The cash that left the bank for payroll across the year should match the take home pay plus the agency payments. When the books and the bank agree, the year end close is easier.

Here is the year end payroll reconciliation in plain steps.

• Wages for the year match the wages line in the books.
• Withholdings held match the amounts sent to the agencies.
• The bank matches take home pay and agency payments for the year.
• The liability accounts end the year close to zero.

Dates and rules change. Confirm your year end reconciliation steps with your payroll provider, your CPA, or the agency.

W2s for employees and 1099 NEC forms for contractors

At year end you send out a form for each person you paid during the year. The form depends on whether the person is an employee or a contractor. Your CPA or an attorney decides who is which. We keep the books and do not decide.

For employees, the form is the W2. It shows the wages, the withholdings, and the employer costs for the year. One W2 goes to each employee. A copy also goes to the social security agency. The W2 is usually due by the end of January.

For contractors, the form is the 1099 NEC. You send one to each contractor you paid above a certain amount during the year. The amount that triggers the form can change, so ask your CPA or the agency what applies to you. The 1099 NEC is also usually due by the end of January.

Here is the form for each kind of worker.

• Employees get a W2.
• Contractors get a 1099 NEC form.
• Both are usually due by the end of January.

Dates and rules change. Confirm the forms you owe, the amounts that trigger them, and the due dates with your payroll provider, your CPA, or the agency.

What to hand your CPA

Your CPA uses the payroll record to finish the tax work. A clean handoff saves time on both sides. The goal is to give your CPA a payroll record that already agrees with the books.

Hand over the payroll reports for the year, the W2s and 1099 NEC forms, and the reconciliation you just finished. Add notes about any corrections that ran during the year. When the notes travel with the numbers, your CPA can see the full story.

Here is what to hand your CPA.

• The payroll reports for the full year.
• The W2s and 1099 NEC forms.
• The year end payroll reconciliation.
• Notes on any corrections that ran during the year.

Ask your CPA what else they want for the year end handoff. The list above is a starting point, not a final word.

Made up example for teaching

A small company tracing one year of payroll

A small company has three employees and two contractors. The numbers below are made up and round so the math is easy to follow. They are not real rates or real rules. Confirm the real amounts with your payroll provider or your CPA.

The company runs payroll every two weeks. Across the year, the wages on the payroll report add up to one hundred thousand dollars. The withholdings held for the agencies add up to twenty thousand dollars. The employer costs add up to ten thousand dollars. The take home pay adds up to eighty thousand dollars.

At year end the owner checks the books. The wages line shows one hundred thousand dollars. The liability accounts show the amounts held and the amounts sent. The bank shows the take home pay plus the agency payments. The two agree, and the liability accounts end the year close to zero.

The owner also sends out forms. Each of the three employees gets a W2. Each of the two contractors gets a 1099 NEC form. The forms are sent by the end of January.

The owner uses their own payroll provider to run the pay, figure out the withholdings, send the pay checks, and send the filings. We keep the books. Each line lands where it belongs, and the year end close is a sum across the whole year.

This is a made up example for teaching. Your numbers and your setup are your own. Confirm the dates and rules that apply to you with your payroll provider, your CPA, or the agency.

Common questions

What is the difference between a W2 and a 1099 NEC form? A W2 goes to an employee. A 1099 NEC form goes to a contractor. Your CPA or an attorney decides who is which.

When are the W2s and 1099 NEC forms due? They are usually due by the end of January. The dates can change, so confirm the exact due date with your payroll provider, your CPA, or the agency.

What is a year end payroll reconciliation? It is a check that the payroll numbers and the books agree for the whole year. You match wages, withholdings, and the bank across all twelve months.

Do you run the payroll? We offer monthly payroll with pay runs every pay period, pay checks, filings and a clean tie to your books. You can read more on our payroll page or reach us on our contact page.