Year-End Payroll Checklist 2026: New W-2 Codes and Deadlines

Year-End Payroll Checklist 2026: New W-2 Codes, Deadlines, and Reconciliations

Three things make closing the 2026 payroll year different from closing 2025: three new box 12 codes on Form W-2, the expiry of the transition relief that made the new reporting optional, and a retirement plan change that quietly took effect this year.

Work through them in that order. Most of what follows is the same as last year, but the parts that changed are the parts that carry penalties

What Changed on the 2026 Form W-2

The 2026 General Instructions for Forms W-2 and W-3 open by noting that the legislation enacted on July 4, 2025 "contains several new items that may affect employers". Here is what landed.

Where	What	Notes
Box 12, code TP	Total cash tips reported to the employer	New for 2026
Box 12, code TT	Total qualified overtime compensation	New for 2026. The premium half only, see below
Box 12, code TA	Employer contributions to a Trump account under a section 128 program	New, and widely missed. Employers could begin contributing July 4, 2026
Box 14 split	Box 14a carries what box 14 used to carry; box 14b is new	Box 14b is for the Treasury Tipped Occupation Code. Box 9 was reduced in size so an additional entry fits in box 14a

Two further changes that are easy to miss:

State paid family and medical leave is now explicitly W-2 wages. Employee contributions and employer voluntary payments must be included as wages, per Rev. Rul. 2025-4 and Notice 2026-6. If you operate in a state with a PFML program and have been handling this inconsistently in box 14, that is a 2026 correction.
The W-2 wage reporting threshold rose from $600 to $2,000, for wages paid after 2025 where no federal income, Social Security or Medicare tax was withheld. This mirrors the 1099-NEC threshold change and is inflation-adjusted after 2026.

The electronic filing format changed too, which is what actually breaks in January. The SSA specification for tax year 2026 adds box 14b to the employee record and the three new box 12 codes to the optional records. If you file through a provider, ask them to confirm they are on the 2026 format. If you file yourself, note that the employer record also gains an Employer Signature PIN field for 2026, that the employer name, delivery address and contact fields have been required on electronic submissions since tax year 2025 and a submission will be returned if any are blank, that SSA will not accept shortened Social Security numbers on Copy A, and that SSA advises allowing at least two weeks to complete registration.

Not sure your payroll system is tagging qualified overtime correctly?

Qualified Overtime: The Premium Half, Not the Whole Check

This is one of the easiest things to report wrongly on a 2026 W-2, so it is worth being exact.

The IRS fact sheet defines qualified overtime compensation as the amount paid "that is in excess of the employee's regular rate". On standard time-and-a-half, that is one half of the regular rate, multiplied by the FLSA overtime hours. Not the whole overtime payment.

An employee at $30 an hour works 10 overtime hours	Amount
Overtime paid at time and a half ($45 x 10)	$450
Of which the straight-time component ($30 x 10)	$300
Qualified overtime compensation for box 12 code TT	$150

And only FLSA overtime counts. The deduction covers overtime "required under section 7 of the Fair Labor Standards Act", and the IRS states plainly that overtime not required by the FLSA is not eligible. That excludes:

Year-End Payroll Checklist 2026 New W-2 Codes, Deadlines, and Reconciliations_G1.webp

State daily overtime, such as California's after eight hours in a day, where the week stays under 40 hours.
Double time, and any contractual or collectively bargained premium above the FLSA minimum, to the extent it exceeds that minimum.
Overtime paid voluntarily where the FLSA did not require it at all.

For a multi-state employer this is the hardest tracking problem of the year end. A payroll system configured to tag an "overtime" earnings code and report the total will overstate box 12 code TT, sometimes substantially. The question to put to your provider is not whether they support code TT but whether they can isolate the FLSA section 7 premium specifically.

One more trap. The $12,500 and $25,000 figures you have seen are limits on what the employee can deduct on their own return, and they phase out above $150,000 of modified AGI, or $300,000 on a joint return. They are not reporting ceilings. Box 12 code TT carries the full qualified overtime paid for the year even where it exceeds what the employee is able to deduct. Our guide to the overtime deduction and box 12 code TT works through the employee side.

Qualified Tips and the Occupation Code

Code TP reports total cash tips reported to the employer under section 6053(a), and box 14b carries the Treasury Tipped Occupation Code.

That code system is new. Final regulations published in April 2026 built it on the 2018 Standard Occupational Classification system, and of the 867 detailed SOC codes in that system, 77 relate to at least one Treasury Tipped Occupation Code occupation. The list is exhaustive: if an occupation is not on it, the deduction is not available. The regulations also put the responsibility for getting the occupation right on the taxpayer claiming the deduction and on whoever is doing the information reporting, which means you.

On what counts as a tip, the regulations are stricter than most people assume. A qualified tip must be paid voluntarily, must not be negotiated, and must be determined by the customer. An amount that is "agreed to, required, charged, or otherwise reasonably expected" is not a tip, which takes automatic service charges and mandatory gratuities outside the definition entirely.

The Relief Expired. 2026 Is the First Mandatory Year

There was transition relief, and reading about it in an article written last winter is a good way to get this wrong.

Notice 2025-62 waived the information return penalties for the new separate reporting, and it said so in terms: "This relief applies only for taxable year 2025." It was also narrower than it is usually described. It excused the separate accounting for cash tips, the occupation code and the separate overtime figure. It never excused getting the total wages right, and it applied only where the employer filed and furnished an otherwise complete and correct return.

Nothing extends it. The IRS has stated affirmatively that starting in tax year 2026, employers are required to separately report qualified overtime compensation, and the question and answer page confirms the optional treatment applied only to 2025.

The Roth Catch-Up Mandate Took Effect This Year

This is the second headline of the 2026 year end, and it is easy to miss because the work sits in the plan document rather than on the W-2. If your plan allows catch-up contributions, you need to have handled it already, and if you have not, now is the moment.

The rule: a catch-up eligible participant whose prior-year wages from the employer sponsoring the plan exceeded the threshold must make catch-up contributions as Roth contributions.

The threshold is $150,000, not $145,000. $145,000 is the figure in the statute and the amount that applied for 2025. Notice 2025-67 increased it, and the test for 2026 catch-ups is whether 2025 wages exceeded $150,000.

Which wages, and measured when, is where this goes wrong most often:

Year-End Payroll Checklist 2026 New W-2 Codes, Deadlines, and Reconciliations_G2.webp

Prior-year Social Security wages, the figure in box 3 of the 2025 Form W-2. Not box 1, not box 5, not total compensation, not current-year pay.
From the employer sponsoring the plan. Wages from a previous employer do not count.
So a new hire is not caught. An employee hired in March 2026 on $400,000 has no 2025 wages from you and is not subject to the requirement for 2026.
Partners and the self-employed are not subject, because there are no Social Security wages to measure.

On timing, two things are true at once and they get collapsed into one. The transition period created by Notice 2023-62 covered 2024 and 2025 and has ended, so the requirement applies now. But the final regulations do not apply until taxable years beginning after December 31, 2026, and for 2026 a reasonable, good faith interpretation standard applies. In short: comply this year, in good faith; the detailed rulebook binds from 2027. Document the approach you took and why.

If your plan has no Roth feature, you do not have to add one. A plan may, but is not required to, include a Roth program. The alternative is to permit catch-up contributions only for participants who are not subject to the requirement and switch them off for affected high earners. Note the rule does not run the other way either: a plan may not force every participant's catch-up to be Roth.

The 2026 limits, all from Notice 2025-67:

Limit	2026	2025
Elective deferral, section 402(g)	$24,500	$23,500
Catch-up, age 50 and over	$8,000	$7,500
Catch-up, ages 60 to 63	$11,250	$11,250 (unchanged)
Roth catch-up wage threshold	$150,000	$145,000
Annual additions, section 415(c)	$72,000	$70,000
Compensation limit, section 401(a)(17)	$360,000	$350,000
Highly compensated employee threshold	$160,000	$160,000 (unchanged)

Note that two lines did not move. A limits table where every row increases is wrong.

Deadlines for the 2026 Year End

Form	Due	Notes
W-2 to employees	Mon Feb 1, 2027	January 31 falls on a Sunday
W-2 Copy A and W-3 to SSA	Mon Feb 1, 2027	Same date whether you file on paper or electronically
Form 941, Q4 2026	Mon Feb 1, 2027	Feb 10 if all deposits were made on time
Form 940 (FUTA)	Mon Feb 1, 2027	Feb 10 if all FUTA was deposited when due
1099-NEC, file and furnish	Mon Feb 1, 2027	Derived from the statute; no automatic extension available
Other 1099 series to IRS, paper	Mon Mar 1, 2027	Derived from the statute
Other 1099 series to IRS, electronic	Wed Mar 31, 2027	Derived from the statute
1095-C to employees	Tue Mar 2, 2027	Applicable large employers
1094-C and 1095-C to IRS	Mar 1 on paper, Mar 31 electronic	2027
Form 8922, third-party sick pay recap	Mon Mar 1, 2027	Derived from the statute

A note on the dates marked derived. The 2026 general instructions for information returns had not been published when this was written, so those dates are computed from the filing statute and the rule that shifts a weekend due date to the next business day, rather than quoted from an IRS instruction. They are almost certainly right, and the IRS's own draft ACA instructions land on the same March 1 date, but confirm them when the instructions appear in December or January.

Two points that catch people out.

Electronic filing does not buy you more time on W-2s. The February 1 date applies whether you file on paper or electronically. The rest of the 1099 series works the other way, with paper due March 1 and electronic due March 31. If you have internalized "e-filing gets me to the end of March", that is true of 1099s other than the 1099-NEC, and false of W-2s. There is also no automatic extension for W-2 or 1099-NEC.

The ten-return electronic filing threshold aggregates across form types. It is calculated by adding up all information returns, not counted separately by family. Eight W-2s plus three 1099-NECs is eleven returns, and both families must then be filed electronically. A waiver is available on Form 8508 if you genuinely cannot.

Reconciliations That Actually Catch Errors

The IRS publishes its own reconciliation lesson, and the pairings it gives are the ones the matching programs use. Add your four quarterly Form 941s and compare to the W-3:

Form 941, four quarters	Form W-3	Matches directly?
Line 2, wages and tips	Box 1	Yes
Line 3, federal income tax withheld	Box 2	Yes
Line 5a col. 1, Social Security wages	Box 3	Yes
Line 5a col. 2, Social Security tax	Box 4	No. Halve it first
Line 5c col. 1, Medicare wages	Box 5	Yes
Line 5c col. 2, Medicare tax	Box 6	No. Halve it first

That caveat is easy to miss, and it produces a false alarm every time. The IRS lesson flags it explicitly: lines 5a and 5c of the 941 include the employer and employee portions, while W-3 boxes 4 and 6 carry only what was withheld from the employee. So box 4 should be roughly half of the four quarters' line 5a column 2. Box 6 will not be exactly half, because Additional Medicare Tax is employee-only and flows into box 6 without an employer match. Break that out separately in the proof.

The order to work in, which is professional practice rather than a rule:

Reconcile each 941 to the payroll register, quarter by quarter, before touching W-2s. An error caught here is a 941-X. Caught in February it is a 941-X and a W-2c.
Prove the W-3 to the sum of the W-2s, box by box. Your system does this silently. Check it anyway.
Run the six pairings above, halving the two tax lines.
Gross-to-net proof: gross wages, less pre-tax deductions, less taxes, less post-tax deductions, equals net pay, equals what left the bank. This is what catches manual checks, voided checks and off-cycle payments that never reached the tax engine.
Bridge W-2 box 1 to the general ledger wage accounts, documenting each difference: pre-tax deferrals, section 125 amounts, HSA contributions, taxable fringes added outside the wage accounts, and S corporation shareholder health insurance.
Sanity-check the caps. Box 3 and box 7 share the wage base, so the two together cannot exceed $184,500 per employee for 2026, and box 5 should equal or exceed the sum of boxes 3 and 7. Social Security tips in box 7 carry the same 6.2% rate as box 3 wages, so box 4 should reconcile to 6.2% of the two combined. Checking box 3 alone gives a false mismatch for tipped employees.
New this year: tie box 12 code TP to your tip reporting records, and box 12 code TT to the FLSA overtime premium register. Neither has a prior-year comparison to lean on, so build the support now.

If a mismatch gets through, know which notice you are holding. The W-2 to 941 matching program is Combined Annual Wage Reporting. Where the W-2 totals filed with SSA come in lower than your Forms 941, SSA writes first, with Notice SSA-L-93-SM and then SSA-L-94-SM, and refers the case to the IRS if it is still open, which issues Letter 98C. Where the reconciliation instead points to an apparent underpayment of tax or over-withheld federal income tax, the IRS issues Letter 99C directly. The IRS must have your response within 45 days of either letter, or the case closes without your side of it. CP2100 is a different program entirely: it is the backup withholding notice for TIN mismatches on 1099s, it carries a 15 business day clock for sending a B notice to the payee, and it has nothing to do with W-2 reconciliation. The two are easy to confuse, and confusing them sends you down the wrong path.

Before the Last Check: Taxable Fringe Benefits

These have to run through payroll while there is still a paycheck to withhold from. After the last check of the year your options narrow to collecting from the employee, grossing up, or reporting an uncollected amount.

S corporation shareholder health insurance is the highest-value item here, and there are two separate errors. First, it belongs in box 1 but not boxes 3 and 5: it is income tax wages, not Social Security and Medicare wages, where the conditions are met. Second, and more expensive, Notice 2008-1 requires the corporation to pay the premiums or reimburse the shareholder in the same tax year. The policy may be in the shareholder's own name, but if the shareholder paid personally all year and the corporation never reimbursed, the deduction is lost. Fix that before December 31, not in March.
Personal use of a company vehicle. Value it under the annual lease value rule or, if eligible, cents per mile. For 2026 the cents-per-mile method cannot be used where the vehicle was worth more than $61,700 when first made available for personal use. That is a limit on using the method, not a cap on the benefit: an expensive vehicle gets pushed into the annual lease value rule, which usually produces a larger inclusion.
Group-term life over $50,000. The cost of coverage above $50,000 is wages, valued from the IRS table by age band and prorated for partial months.
Gift cards and cash equivalents are never de minimis, at any amount. There is no $25 or $50 safe harbor. A $25 gift card is wages; a $25 turkey is not.
Third-party sick pay. Social Security, Medicare and FUTA do not apply to sick pay paid more than six calendar months after the last month the employee worked. And Form 8922 is filed by whichever party is not the one whose name and EIN appear on the W-2, which is a cross-filing that surprises people every year.
Employee achievement awards are excludable up to $1,600, or $400 for awards that are not qualified plan awards. Educational assistance is excludable up to $5,250.

The special accounting rule is worth knowing about. Non-cash fringe benefits provided in November and December may be treated as paid in the following year, which moves the withholding and reporting into the next payroll year. You do not have to notify the IRS to use it. You do have to apply it to all employees who receive that benefit, which is where employers who use it for executives only create a real problem.

One timing oddity specific to 2026: there were two business standard mileage rates this year, 72.5 cents through June 30 and 76 cents from July 1. If you reimburse at a single annual rate, split the year by date and check whether any reimbursement above the applicable rate created taxable wages.

Deposits and Penalties

Your 2027 deposit schedule is set by your 2026 lookback period, which runs July 1, 2025 through June 30, 2026. Report more than $50,000 of employment tax liability across those four quarters and you are a semiweekly depositor for 2027; $50,000 or less and you are monthly. Check this now, because the schedule changes on January 1 and depositing on the wrong schedule can trigger failure-to-deposit penalties. The penalty can be abated for reasonable cause, but the IRS manual says in terms that not receiving, or not checking, the deposit status notice is not grounds for abatement, so this one is on you to diarize.

Separately, and regardless of schedule, accumulating $100,000 or more of liability on any day means depositing by the close of the next business day. A single large bonus run can trigger it.

Information return penalties for 2026 returns, per Revenue Procedure 2025-32:

When corrected	Per return	Small business maximum
Within 30 days	$60	$244,500
After 30 days, by August 1	$130	$698,500
After August 1, or not filed	$340	$1,397,000
Intentional disregard	Greater of $690 or 10%	No maximum

These stack. Failing to file a correct return with the SSA and failing to furnish a correct statement to the employee are two separate penalties at identical amounts, so one badly handled W-2 can cost $680 at the top tier.

Worth keeping in proportion, though: the per-return amounts did not change this year. The annual maximums rose with inflation, from $239,000, $683,000 and $1,366,000 to $244,500, $698,500 and $1,397,000, and the intentional disregard floor moved by $10, from $680 to $690. That is routine indexation, not an enforcement change. Note also who those caps are for: they apply where average annual gross receipts for the three most recent tax years are $5,000,000 or less, which the IRS labels a small business. Above that line the caps are roughly three times higher at the general-rule tier.

Bottom Line

Three new box 12 codes, not two. TP for tips, TT for qualified overtime, TA for Trump account contributions.
Qualified overtime is the premium half only, and only where the FLSA required it. State daily overtime and contractual premiums do not qualify.
The 2025 relief has expired. 2026 is the first mandatory year for the separate reporting.
The Roth catch-up threshold is $150,000, measured on 2025 box 3 wages from your own plan's sponsor. Comply this year in good faith; the regulations bind from 2027.
Halve the 941 tax lines before comparing them to the W-3, or you will chase a difference that was never there.
Run the taxable fringes before the last check, and get S corporation shareholder health reimbursed inside the calendar year.

Orbit Accountants runs payroll for US employers, including the year-end close: the 941 to W-3 reconciliation, the new code TP and TT support, W-2 and 1099 filing, and the fringe benefit entries that have to land before the final payroll of the year.

Also read: No Tax on Overtime: What Employers Must Track and Report on the 2026 Form W-2

Frequently Asked Questions

What are the new W-2 box 12 codes for 2026?

There are three. Code TP reports the total cash tips reported to the employer, code TT reports total qualified overtime compensation, and code TA reports employer contributions to a Trump account under a section 128 program, which employers could begin making on July 4, 2026. Box 14 was also split, with box 14a carrying what box 14 used to and box 14b carrying the Treasury Tipped Occupation Code.

How do I calculate qualified overtime compensation for box 12 code TT?

It is the amount paid in excess of the employee's regular rate, which on standard time-and-a-half is one half of the regular rate times the FLSA overtime hours, not the whole overtime payment. An employee paid $30 an hour who works ten overtime hours receives $450 of overtime pay, of which $150 is qualified overtime compensation. Only overtime required under section 7 of the Fair Labor Standards Act counts, so state daily overtime, double time and richer contractual premiums do not qualify beyond the federal minimum.

Is reporting qualified tips and overtime optional for 2026?

No. Notice 2025-62 provided penalty relief for the separate reporting, but it stated that the relief applied only for taxable year 2025, and it was limited to the separate accounting rather than excusing incorrect totals. The IRS has confirmed that starting in tax year 2026 employers are required to separately report qualified overtime compensation. 2026 is the first mandatory year.

What is the Roth catch-up wage threshold for 2026?

$150,000, increased from $145,000 by Notice 2025-67. An employee whose 2025 Social Security wages from the employer sponsoring the plan, the figure in box 3 of the 2025 Form W-2, exceeded $150,000 must make their 2026 catch-up contributions as Roth contributions. It is measured on prior-year wages from that employer, so an employee hired during 2026 is not subject for 2026, and partners with only self-employment income are never subject.

Did the Roth catch-up requirement get delayed to 2027?

No, and this is commonly confused. The transition period created by Notice 2023-62 covered 2024 and 2025 and has ended, so the requirement applies for 2026. What applies from 2027 is the final regulations, which generally apply to contributions in taxable years beginning after December 31, 2026. For 2026 a reasonable, good faith interpretation standard applies, so employers should comply now and document the approach taken.

When are 2026 W-2s due?

Monday, February 1, 2027, both to employees and to the Social Security Administration, because January 31 falls on a Sunday. The date is the same whether you file on paper or electronically, which differs from the 1099 series where paper is due March 1 and electronic March 31. There is no automatic extension for Forms W-2 or 1099-NEC.

Do I have to file W-2s electronically?

If you are required to file ten or more information returns in total. The threshold is calculated by aggregating all information returns rather than counting each type separately, so eight W-2s plus three 1099-NECs is eleven returns and triggers mandatory electronic filing for both. A hardship waiver can be requested on Form 8508.

How do I reconcile Form 941 to Form W-3?

Add the four quarterly 941s and compare six figures to the W-3: line 2 to box 1, line 3 to box 2, line 5a column 1 to box 3, line 5a column 2 to box 4, line 5c column 1 to box 5, and line 5c column 2 to box 6. The wage lines match directly, but the two tax lines do not: 941 lines 5a and 5c column 2 include both the employer and employee shares, while W-3 boxes 4 and 6 carry only what was withheld from the employee, so halve them first. Box 6 will not be exactly half because Additional Medicare Tax is employee-only, so break that out separately.

Can Orbit Accountants handle our year-end payroll?

Yes. We run the quarterly and annual filings, reconcile the 941s to the W-3 before anything is submitted, handle the new code TP and TT reporting, process the taxable fringe benefit entries before the final payroll, and file W-2s and 1099s. That sits within our payroll service on a fixed monthly fee.

Legal Disclaimer
This article is for general information only and is not tax, legal, payroll or accounting advice. It reflects IRS notices, instructions, publications and regulations, and SSA specifications, as of [publish date]. Several provisions discussed here are new for 2026 and some are governed by interim standards pending final regulations, so detail may change. Some 2027 filing dates given are derived from the filing statute because the relevant IRS instructions had not been published when this was written, and are marked as such. State payroll requirements vary and are not covered. Please speak with a qualified professional about your own position. Reading this article does not create a client relationship with Orbit Accountants.