Payroll compliance: the 2026 checklist
Payroll compliance means withholding and depositing payroll taxes on schedule, filing Form 941 each quarter (the next is due November 2, 2026) and W-2s and Form 940 by February 1, 2027, and reporting each new hire to your state within 20 days, according to the IRS and 42 USC 653a (checked October 16, 2026). On top of that sit state unemployment, paid leave, pay frequency and final pay rules, and local wage taxes in states like Pennsylvania and Ohio.
Below is the checklist by level, the penalties that come up most, and what each payroll provider's tax penalty promise covers in writing.
Payroll compliance is meeting every legal requirement for paying employees: correct classification, minimum wage and overtime, tax withholding, deposits and filings, new hire reporting, state program contributions and record retention.
On this page
- Federal payroll compliance checklist
- State payroll compliance checklist
- Local payroll tax compliance
- Recordkeeping: what to keep and for how long
- Common payroll compliance penalties and what triggers them
- How payroll compliance software helps, and where it stops
- Payroll compliance calendar: late 2026 to mid-2027
- Common payroll compliance mistakes
Federal payroll compliance checklist
| Obligation | The rule | When |
|---|---|---|
| Classify each worker | IRS common-law test: behavioral control, financial control, type of relationship. The FLSA test is separate; a 2026 DOL proposal is not final | Before the first payment |
| Collect Form W-4 and Form I-9 | W-4 sets federal withholding; I-9 verifies identity and work authorization | At hire |
| Report new hires | To the State Directory of New Hires: name, address, SSN, first day of paid work, employer name, address and EIN | Within 20 days of hire (federal maximum) |
| Withhold and pay FICA | Social Security 6.2% each side on the first $184,500; Medicare 1.45% each side; Additional Medicare 0.9% withheld over $200,000 | Every payroll |
| Deposit federal payroll tax | Monthly depositor by the 15th of the next month; semiweekly if over $50,000 in the lookback period; next business day at $100,000 | Per your schedule |
| Pay FUTA | 0.6% net on the first $7,000; deposit when the quarter’s liability exceeds $500 | Quarterly |
| File Form 941 | Quarterly federal return | Nov 2, 2026 (Q3); Feb 1, 2027 (Q4) |
| File Form 940 | Annual FUTA return | Feb 1, 2027 for 2026 |
| Furnish and file W-2s and W-3 | To employees and SSA; e-file required at 10 or more information returns in total | Feb 1, 2027 for 2026 |
| File 1099-NEC for contractors | $2,000 threshold for 2026 payments (was $600) | Feb 1, 2027 for 2026 |
| Pay minimum wage and overtime | Federal minimum $7.25; exempt salary floor $684 a week ($35,568 a year); highly compensated $107,432 | Every payroll |
Sources: IRS employment tax due dates, Topic 757, Topics 751 and 759, 2026 W-2 and 1099 instructions; 42 USC 653a; DOL minimum wage page; 29 CFR 541.600. Checked October 16, 2026.
The exempt salary floor went back to $684 a week after courts vacated the 2024 rule; DOL published a technical rule on May 15, 2026 restoring the 2019 levels. See exempt vs non-exempt employees and W-2 vs 1099 classification.
State payroll compliance checklist
- Unemployment (SUTA) account and quarterly wage reports in every state where you have employees. New employer rates and wage bases differ a lot, from 2.7% on $7,000 in Florida to 2.8% on $44,800 in New Jersey. See 2026 SUTA rates by state.
- Income tax withholding account in every state with a wage income tax (all but AK, FL, NV, NH, SD, TN, TX, WA and WY).
- New hire reporting on the state’s deadline, which can be shorter than 20 days: 7 days in Alabama and Maine, 10 in Georgia and Vermont, 14 in Massachusetts, Rhode Island and West Virginia.
- Paid leave and disability programs: California SDI, New York PFL and DBL, New Jersey TDI and FLI, Washington PFML and WA Cares, Massachusetts, Oregon, Colorado, Connecticut, Delaware, DC, Maine, Minnesota (started January 1, 2026), Rhode Island TDI, Hawaii TDI, and Maryland from January 1, 2027.
- Workers’ comp where required (1 employee in California and New York; 3 in Georgia; 4 in Florida; elective in Texas).
- Pay frequency: for example twice a month in California, weekly for manual workers in New York, weekly or biweekly for hourly staff in Massachusetts. See state pay frequency rules.
- Final paycheck timing: immediately on discharge in California and Massachusetts; within 6 calendar days of discharge in Texas; next regular payday in New York and Illinois. Federal law sets no deadline.
- State minimum wage and exempt salary floors, which are often higher than federal (California’s exempt floor rises to $72,384 in 2027). See 2026 minimum wage by state.
Each state page in the payroll tax hub lists the agencies, registration links and current figures.
Local payroll tax compliance
Local wage taxes add a separate account, a separate return and sometimes a separate filing frequency. The places to check first:
- Pennsylvania local earned income tax in nearly every municipality, plus the Local Services Tax (up to $52 a year), and Philadelphia Wage Tax at 3.735% for residents and 3.425% for nonresidents from July 1, 2026.
- Ohio municipal income tax in most cities and villages, collected through RITA, CCA or the city itself (Cleveland 2.5%).
- New York City and Yonkers resident taxes withheld with state tax.
- Oregon transit taxes (TriMet 0.8237% and Lane 0.80% paid by the employer) and Portland-area personal income taxes.
- Kansas City and St. Louis earnings taxes (1%), with a 0.5% employer payroll expense tax in St. Louis.
- County income taxes in Indiana and Maryland, city taxes in Michigan, and Denver’s Occupational Privilege Tax.
Recordkeeping: what to keep and for how long
Three sets of federal rules set minimum retention periods: IRS employment tax records (Publication 15), FLSA payroll and time records (29 CFR Part 516) and Form I-9 (USCIS). States add their own, and some are longer. Keep these for each employee:
- Name, address, SSN, Form W-4 and state withholding forms
- Form I-9 and copies of documents if you keep copies (store I-9s so you can produce them on request)
- Pay rate, hours worked each day and week, overtime, and the dates of each pay period and payday
- Gross pay, every deduction and net pay for each payroll
- Tax deposits, filed Forms 941, 940, W-2 and W-3, state wage reports and any agency notices
- Records of fringe benefits and tips reported
We could not confirm the retention periods on the official pages when we reviewed this guide on October 17, 2026, so we do not print them here. Check the recordkeeping section of IRS Publication 15, DOL Fact Sheet 21 and the Form I-9 instructions before you destroy any record. When rules differ, keep the record for the longest period that applies.
Your payroll provider is not your archive. After you cancel, access ends on the provider’s terms: Wave access ends at the end of the month you cancel, QuickBooks keeps it for one year, Gusto gives admins limited read-only access, ADP "may keep" reports "for a period of time" and I-9 access ends on termination, and Patriot keeps reports downloadable. Download everything before you leave.
Common payroll compliance penalties and what triggers them
- Late tax deposits. The IRS charges a failure-to-deposit penalty that rises with the number of days late, plus interest. Deposit dates follow your schedule, not your return due date.
- Late or missing returns. A missed Form 941 or state wage report brings its own penalty and, at the state level, can raise your unemployment rate. One employer said their rate "went from 0.8% to 12.75%" after a provider switch (Hacker News, August 2026).
- Misclassification. Treating employees as contractors means back employment taxes. Section 530 relief can protect a business that filed 1099s consistently, treated similar workers the same way and had a reasonable basis, but it covers federal employment tax only, not wage claims.
- Wage and hour violations. Unpaid overtime from misclassifying a salaried employee as exempt, or paying less often than state law requires.
- Liens and notices from provider errors. Reviews describe IRS notices, state liens and penalties after providers misfiled 941s or skipped quarterly reports, with the provider declining to pay.
How payroll compliance software helps, and where it stops
Full-service payroll software calculates withholding, makes the deposits, files federal and state returns and tracks wage bases. That removes most deadline risk. It does not take on your legal duties: you stay the employer, and the penalty promise is narrower than the marketing.
| Provider | Covers | Does not cover or requires |
|---|---|---|
| Gusto | Penalties directly from Gusto’s failure to remit on time | Interest not named; notice at least 30 days before the agency response date; not errors from your data |
| ADP RUN | Penalties from ADP’s error or omission | Interest only if ADP held funds past the due date; yearly liability cap of one average payroll charge |
| QuickBooks Payroll | Penalties and interest up to $25,000 a year | Elite plan only; notice within 15 days; excludes misclassification and labor law issues |
| OnPay | Penalties from OnPay’s negligent error | Interest from OnPay errors not addressed; liability otherwise capped at 6 months of fees |
| Square Payroll | Penalties and fines from Square’s error | Interest not mentioned |
| Wave | Amounts owing if Wave is at fault | You pay first and send proof |
| Patriot Full Service | "Tax filing reliability guarantee" named | Terms not published |
| Paychex Flex | No published guarantee terms found | Ask for them in writing |
Source: provider terms and guarantee pages (Gusto payroll terms Sec. 11, ADP RUN terms effective Feb 12, 2026, QuickBooks Tax Penalty Protection, OnPay terms Sec. 2, Square help article 6306, Wave FAQ updated Jul 14, 2026, Patriot payroll page, Paychex small business payroll page). Checked October 16, 2026.
What software does not do for you:
- Decide whether a worker is an employee or a contractor, or whether a job is exempt.
- Register every state and local account. Gusto can register through a partner or its $85 per state per month Business Compliance add-on; QuickBooks says you enroll in each new state yourself; ADP’s terms expect you to supply ID numbers.
- Buy workers’ comp or enroll you in a state paid leave program it does not support. Gusto, for example, says you register yourself for Delaware and Maine paid leave.
- Check the I-9 documents in person, post required notices, or fix wrong hours you entered.
For multi-state compliance, price the extra states: Gusto Plus at $80 + $12 per person covers multiple states; QuickBooks and Patriot add $12 a month per state; SurePayroll adds $9.99 a month for multi-state payroll. Compare in best payroll software and payroll pricing. A PEO takes on more of this under co-employment; see PEO vs payroll software.
Payroll compliance calendar: late 2026 to mid-2027
| Date | What is due or changes |
|---|---|
| 15th of every month | Monthly depositors: federal payroll tax for the prior month |
| November 2, 2026 | Form 941 for Q3 2026 |
| After November 10, 2026 | DOL final FUTA credit reduction list (California potential 1.5%) |
| January 1, 2027 | Social Security wage base rises to $192,300; Maryland FAMLI contributions start (0.9%, split); new state SUTA rates and minimum wages take effect |
| February 1, 2027 | Form 941 (Q4), Form 940, W-2s and W-3, 1099-NEC for 2026 |
| April 30, 2027 | Form 941 for Q1 2027; first Maryland FAMLI remittance |
| August 2, 2027 | Form 941 for Q2 2027 |
Sources: IRS employment tax due dates and Topic 757; SSA 2027 fact sheet; DOL ETA FUTA credit reductions; Maryland Department of Labor. Checked October 16, 2026.
Common payroll compliance mistakes
- Registering only in your home state when a remote employee lives elsewhere.
- Missing a new state program, such as Minnesota paid leave in 2026 or Maryland FAMLI in 2027.
- Letting a switch create a gap in quarterly filings. See the switching checklist in how to set up payroll.
- Assuming the provider pays penalties without reading the notice deadline in its terms.
- Losing records after canceling a payroll service.
- Ignoring agency mail. QuickBooks wants the notice within 15 days of its date, and Gusto at least 30 days before the agency’s response date.
More in payroll mistakes and payroll taxes explained.
Frequently asked questions
What is payroll compliance?
Who pays the penalty if my payroll company makes a tax mistake?
Does payroll software keep me compliant with every state?
What payroll records do employers have to keep?
What is the deadline for reporting new hires?
What changes in payroll compliance for 2027?
Sources (21)
- IRS: Employment tax due dates (checked Oct 16, 2026)
- IRS: Topic 757, deposit requirements (checked Oct 16, 2026)
- IRS: Publication 15 (2026) (checked Oct 16, 2026)
- IRS: Instructions for Forms W-2 and W-3 (2026) (checked Oct 16, 2026)
- IRS: Instructions for Forms 1099-MISC and 1099-NEC (checked Oct 16, 2026)
- IRS: Worker reclassification: Section 530 relief (checked Oct 16, 2026)
- Cornell LII (statute text): 42 USC 653a (checked Oct 16, 2026)
- US Department of Labor: Last paycheck (checked Oct 16, 2026)
- US Department of Labor: Independent contractor rulemaking (checked Oct 16, 2026)
- eCFR: 29 CFR 541.600, salary level (checked Oct 16, 2026)
- Social Security Administration: 2027 COLA fact sheet (checked Oct 16, 2026)
- Maryland Department of Labor: FAMLI contributions (checked Oct 16, 2026)
- Gusto: Payroll terms (Section 11) (checked Oct 16, 2026)
- Gusto: State tax registration help (checked Oct 16, 2026)
- ADP: RUN terms of service (checked Oct 16, 2026 (effective Feb 12, 2026))
- Intuit QuickBooks: Tax Penalty Protection (checked Oct 16, 2026)
- OnPay: Terms of service (checked Oct 16, 2026)
- Square: Square Payroll guarantee (checked Oct 16, 2026)
- Wave: Tax payments and filings FAQ (checked Oct 16, 2026 (updated Jul 14, 2026))
- SurePayroll: SurePayroll pricing (checked Oct 16, 2026)
- Hacker News: Comment on SUTA rate after a payroll switch (Aug 17, 2026; read Oct 16, 2026)
This page is general information, not tax, legal or accounting advice. Rules and rates change, so check the official source linked above before you file or sign a contract. Read our disclaimer.