For employers with mobile and cross-border employees, year-end US payroll involves more than simply reviewing wages paid through the US payroll system. Employees may have worked in multiple states or countries, received payments through overseas payroll, or received relocation benefits and equity compensation that require additional review.
Bringing this information together before the final payroll run gives mobility and payroll teams time to identify reporting gaps, reconcile compensation, and address withholding requirements. Because some year-end payments and benefits may fall outside payroll’s day-to-day view, teams should coordinate with HR, finance, and service providers to ensure all required details are captured and reported.
As you prepare to close out 2026, here are five areas to review to support accurate US payroll reporting and help minimize avoidable corrections after year-end.
1. Remote work and multi-jurisdictional tax reporting
An employee’s home address in your payroll system may not tell the full story of where they worked during the year. Remote work arrangements, business travel, and temporary assignments can create reporting and withholding obligations in additional states or countries, even when the employee remains on their usual payroll.
Before year-end, compare employee work locations and travel records with the jurisdictions where you are reporting wages and withholding taxes. This review should include employees outside your formal mobility program, such as business travelers and employees with approved remote work arrangements.
Questions to address include:
- Where did employees live and work during the year? Document work locations, dates, and changes in residency or assigned office.
- Does payroll reflect those arrangements? Identify locations that may require payroll registration, additional reporting, or withholding adjustments.
- Are exemptions properly documented? Check that any applicable withholding certificates, treaty claims, or social security certificates of coverage are in place and cover the relevant period.
Review US state and local requirements
An employee’s physical work location is a key starting point for determining state payroll obligations, but residency, state-specific rules, and local taxes also matter. Two areas that warrant particular attention are:
Reciprocity agreements. Some US states have agreements that generally allow qualifying employees to pay state income tax on wages only in their state of residence. Proper payroll documentation is typically needed to support this treatment.
Convenience of the employer rules. Certain US states may treat days worked remotely in another state as workdays in the assigned-office state when the arrangement is for the employee’s convenience rather than the employer’s necessity. For example, New York generally treats a nonresident employee’s remote workdays as New York workdays when their primary office is in New York, unless the applicable requirements for out-of-state treatment are met.
Check cross-border obligations separately
For employees working internationally, a short stay does not automatically eliminate payroll obligations. Review the domestic rules in each relevant country before considering relief under an applicable agreement.
Income tax treaties. The United States has income tax treaties with many countries that may provide relief from Host-country taxation on employment income when specific requirements are satisfied. These requirements often include a limit on the employee's physical presence, commonly 183 days measured under the particular treaty, as well as conditions relating to the employer and whether compensation costs are borne by an entity or permanent establishment in the Host country. Treaty terms vary, so each employee's facts and applicable treaty should be reviewed separately. (See the IRS Index of US Income Tax Treaties for the full list of treaty countries and terms.) Treaty relief from income tax does not necessarily eliminate employer payroll registration, reporting, withholding, or employee filing requirements.
Social security agreements. US totalization agreements coordinate social security coverage and can prevent contributions on the same earnings in both countries. Assess which country’s system applies and obtain the appropriate certificate of coverage where applicable to document continued coverage under one country's system and support an exemption from coverage under the other country's system. See the SSA Status of Totalization Agreements for the current list of participating countries.
International remote work: Digital nomad visas and other remote-work arrangements can make it easier for employees to work from another country, but immigration permission to work does not determine the tax result. Depending on the location and the employee's activities, international remote work can create individual tax, payroll, social security, immigration, and potentially corporate tax considerations. Establish a process for identifying these arrangements early and involving the appropriate tax and legal stakeholders.
2. Federal payroll tax rates, limits, and withholding updates
Confirm that payroll has applied the correct 2026 US tax rates, wage thresholds, and retirement contribution limits, including for employees paid through multiple payrolls.
Review key 2026 figures
| Item | 2026 rate or limit |
| Social Security | 6.2% each for the employee and employer on covered wages up to $184,500 |
| Medicare | 1.45% each for the employee and employer, with no wage cap |
| Additional Medicare Tax withholding | An additional 0.9% withheld from employee wages exceeding $200,000 in the calendar year; no employer contribution |
| Federal supplemental wage withholding | Optional 22% flat rate when applicable requirements are met; mandatory 37% on supplemental wages exceeding $1 million in the calendar year |
| Standard 401(k) employee elective deferral limit | $24,500 |
| 401(k) catch-up contribution limit, age 50 or older | $8,000, if permitted by the plan |
| Higher 401(k) catch-up contribution limit, ages 60–63 | $11,250 instead of the standard $8,000 catch-up, if permitted by the plan |
| Defined contribution plan limits (§415(c) limit) | $72,000 |
| SECURE 2.0 Roth catch-up wage threshold | Prior-year wages from the plan sponsor exceeding $150,000; affected catch-up contributions generally must be made on a Roth basis |
These figures apply to 2026. Supplemental withholding rates are withholding mechanisms and may differ from an employee’s final income tax rate.
Review withholding arrangements for employees working abroad
The maximum foreign earned income exclusion is $132,900 per qualifying individual for 2026, up from $130,000 in 2025. Eligibility depends on meeting the applicable requirements, and the maximum may be prorated for employees who qualify for only part of the year. The exclusion should not be treated as an automatic payroll exemption simply because an employee works overseas. The exclusion also does not eliminate Social Security and Medicare taxes where those taxes otherwise apply.
Where US withholding has been reduced based on an anticipated exclusion, review whether the employee’s circumstances still support that treatment, particularly following an assignment extension, early return, or change in work location.
Prepare payroll for the new year
Alongside the 2026 review, assign responsibility for checking official 2027 federal, state, and local updates as they are released. Verify that payroll providers have incorporated applicable changes before the first payroll of the new year and communicate changes that may affect employees’ take-home pay or retirement elections.
3. Taxation of long-term incentive awards
Equity awards, long-term bonuses, and deferred compensation can create tax obligations in more than one jurisdiction. When employees work across states or countries during the period an award relates to, part of the income may remain taxable in a previous work location, even after they transfer, return home, or leave the company.
The relevant work period depends on the award and the applicable rules. For example, for US sourcing purposes involving nonresident aliens, compensation attributable to a nonstatutory stock option is generally allocated based on services performed during the period from grant to vesting. Other awards may relate to a different service or performance period. Employee residency and state or country-specific requirements can also affect the result, so one allocation method should not automatically be applied across all awards and jurisdictions.
Reconcile award activity with payroll
Before year-end, bring together information from your stock plan administrator, HR, mobility, and payroll teams to address these questions:
- Have all relevant award events been captured? Reconcile option exercises, restricted stock unit settlements, long-term cash incentive payments, and other reportable transactions with payroll records. Include employees who transferred, returned home, or left the company during or before the year.
- Are historical work locations available? Review assignment dates and workday records for the applicable earning period, including relevant business travel.
- Have reporting and withholding requirements been assessed in each jurisdiction? Verify the taxable event, income allocation, and applicable payroll treatment rather than relying solely on the employee’s current payroll location.
Check the treatment of tax-favored plans
An award’s favorable tax treatment in one country does not automatically carry over to another. US incentive stock options (ISOs) and qualifying employee stock purchase plans (ESPPs), for example, require separate review in other jurisdictions.
Reporting and withholding requirements can also differ within the United States. Certain dispositions of stock acquired through ISOs or qualified ESPPs can create employer Form W-2 reporting obligations even where federal income tax withholding does not apply. The reporting result depends on the specific plan and transaction. Review the specific award and transaction before applying the payroll treatment used for other equity compensation.
4. Year-end reporting cutoffs and the special accounting rule
Gathering compensation data from overseas payrolls, relocation providers, and accounts payable takes time. An earlier internal deadline can help teams prepare for year-end reporting, but it does not automatically change the year in which compensation must be reported.
Understand the limited exception for noncash benefits
The IRS special accounting rule allows employers to treat certain taxable noncash fringe benefits actually provided during November and December, or a shorter period within those months, as paid in the following year.
For example, an employer consistently using a November–October period for an eligible benefit would include benefits provided from November 1, 2025, through October 31, 2026, on the employee’s 2026 Form W-2. Eligible benefits provided in November and December 2026 would be included in 2027.
The rule has important limits:
- Cash payments do not qualify. Taxable cash allowances and expense reimbursements cannot be shifted to the next year under this rule.
- Not every noncash benefit qualifies. The rule does not apply to all forms of noncash compensation, so confirm eligibility before treating an item as paid in the following year. For example, transfers of investment property, such as stock, and real property are excluded.
- Consistent treatment is required. If the rule is used for a particular benefit, it must apply to all employees receiving that benefit.
- Employees must be notified. Employers must explain the reporting period used on or near the date they provide Form W-2, but no earlier than the employee’s final paycheck of the calendar year.
Do not assume a benefit qualifies simply because a provider or accounts payable team paid it outside payroll. Review the underlying arrangement and payment type before applying the rule.
Build a process for activity after your cutoff
Assign responsibility for capturing taxable payments and benefits after the internal deadline that still belong in the current reporting year. If you use a special accounting period, document the benefits covered and verify that the rule has been applied consistently.
5. Taxable fringe benefits, tax gross-ups, and year-end corrections
Payments made outside payroll can still create taxable compensation. Relocation reimbursements, housing allowances, personal expenses paid by the company, and other benefits need to be reviewed and, where taxable, included in the appropriate payroll reporting.
Before the final payroll run, reconcile information from accounts payable, relocation providers, overseas payrolls, and other sources. Determine which benefits are taxable, whether they have already been reported, and whether the employee or employer is responsible for the related taxes.
Review relocation expense treatment
Federal legislation enacted in 2025 permanently eliminated the exclusion for qualified moving expense reimbursements for most employees that otherwise would have returned after 2025. Limited exceptions remain for qualifying military moves and, for moves in 2026 or later, certain employees and new appointees of the US intelligence community.
Review relocation benefit classifications and tax gross-up assumptions accordingly, including whether different treatment applies under relevant state or foreign tax rules.
Complete tax gross-ups and withholding reviews before year-end
When an employer covers an employee’s tax on a taxable benefit, that tax payment generally creates additional taxable wages. The tax gross-up calculation therefore needs to account for the tax on the employer-paid amount as well as the original benefit.
As part of the year-end review:
- Confirm policy coverage. Identify which benefits qualify for a company-paid tax gross-up and which taxes the policy covers.
- Reconcile calculations with payroll. Check taxable benefits, tax gross-up amounts, year-to-date wages, and taxes already withheld.
- Coordinate across jurisdictions. Review how US calculations interact with any foreign payroll or tax equalization arrangements.
Understand the limits on prior-year corrections
Form W-2c can correct previously reported wage information, but employers generally cannot use a prior-year correction simply to make up federal income tax that should have been withheld from an employee's wages.
Generally, prior-year federal income tax withholding can be corrected only for an administrative reporting error, such as reporting a different amount from what was actually withheld. A missed withholding amount or an incorrectly calculated gross-up does not become an administrative error simply because it is discovered after year-end.
Employee repayments of prior-year compensation also require separate review. Social Security and Medicare corrections may be available under applicable procedures, while any income tax deduction or credit available to the employee depends on the repayment’s facts and the relevant requirements.
Bonus tip: Use year-end findings to improve next year’s process
The year-end review can reveal where information arrived late, responsibilities were unclear, or manual work created avoidable errors. Capture those issues while they are fresh, then bring payroll, mobility, HR, finance, and relevant service providers together for a focused discussion.
Start with three questions:
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What caused the most rework? Identify recurring gaps, such as missing travel records, late relocation expense data, or equity transactions that were not shared with payroll.
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What could be addressed earlier? Consider whether more frequent compensation reconciliations, clearer submission deadlines, or updates to employee location tracking would help.
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Who will own each improvement? Choose a manageable number of changes, assign an owner and target date, and schedule a follow-up to check progress.
Use the findings to update your payroll calendar and document how information should move between teams. Even a few targeted changes can make the next year-end review more predictable and less dependent on last-minute adjustments.
Prepare for year-end with a coordinated approach
Accurate year-end payroll reporting depends on complete information, timely decisions, and coordination across the teams supporting mobile employees. Reviewing these five areas before the final payroll run can help your organization identify gaps and address outstanding questions.
If your team needs help reviewing cross-border compensation, assessing payroll reporting requirements, or coordinating year-end tax gross-ups, contact GTN to discuss your year-end payroll needs.
