By the time Q4 rolls around, most small business owners are focused on finishing the year strong—hitting revenue goals, managing holiday schedules, maybe even planning bonuses. But tucked behind all the end-of-year hustle is a quieter, less glamorous task that’s just as important: cleaning up your payroll.

It’s easy to let payroll compliance slide into autopilot. The problem is, if you’ve made a misstep earlier in the year, missed a filing, paid an employee under the wrong classification, or forgot to remit a tax payment, the IRS won’t give you a pass just because it’s December. In fact, they’ll fine you for every form that’s late, every deposit that’s short, and every day it takes to fix the issue.

So if you haven’t reviewed your payroll systems recently, now’s the time. Q4 is the perfect window to catch problems early, correct errors, and get your books in order before the deadlines hit.

Start With a Year-End Payroll Checkup

Many penalties stem from paperwork errors that could’ve been prevented with a little extra scrutiny. Now’s the time to double-check your records and confirm that everything aligns across systems.

Make sure:

• Employee names and Social Security numbers are accurate
• All taxable fringe benefits (like bonuses or gift cards) are being properly reported
• W-2 and 1099 information is current and complete
• Taxable wages match up with what’s been reported to the IRS and your state agency
  
  

Mistakes here aren’t just about accuracy. They often lead to mismatched data that triggers IRS notices. A year-end audit might take an afternoon, but it could save you thousands.

Don’t Miss the Final Deposit Deadlines

The IRS and state agencies are sticklers about timing. Late payments (even by a day) can incur penalties that compound quickly.

Federal payroll tax deposits are typically due either semiweekly or monthly depending on your deposit schedule. In Q4, holidays and year-end closures can make those deadlines easy to miss. If your last payroll lands near a federal holiday, double-check the due date and submit early if needed.

And don’t forget: the final quarterly Form 941 is due by January 31, along with W-2s and 1099s to employees and contractors. That deadline might seem far off, but if your books aren’t clean in Q4, January will be a scramble.

The Risk of Misclassifying Workers

This one trips up more businesses than you might think. Classifying someone as a contractor when they should be an employee might seem harmless—until the IRS or your state labor department decides otherwise.

Misclassification can lead to retroactive tax bills, back pay for overtime, and penalties for failing to withhold payroll taxes. And if the issue is widespread or intentional? The fines can stack up quickly.

If you’ve brought on freelancers or part-time help this year, now’s the time to revisit those arrangements. Use the IRS’s Common Law Rules to guide your decision, or talk to a tax pro who can help you avoid mistakes.

Adjust Withholdings if Needed

Big swings in employee income (like a year-end bonus or unexpected raise) can throw withholdings out of balance. If an employee ends up under-withheld, they may face a surprise tax bill, and you could face frustrated questions.

Use Q4 to review employee W-4s and make sure they still reflect the right filing status and number of dependents. It’s also a good time to check that employer contributions to benefits (like HSAs or retirement plans) are correctly reflected in your payroll system before final pay stubs go out.

Stay on Top of State-Specific Rules

State tax deadlines, wage base limits, and filing requirements can shift annually—and they don’t always align with federal guidelines. If you’re operating in multiple states (or hired remote workers this year), don’t assume your usual process applies everywhere.

Some states require electronic filing of year-end forms. Others have different thresholds for issuing 1099s or filing unemployment insurance returns. Check each state’s Department of Revenue or labor department site to confirm the rules. You might find changes you hadn’t planned for.

Final Thoughts

Payroll penalties rarely happen because of one giant mistake. More often, it’s a series of small oversights—a wrong code here, a missed form there—that quietly accumulate until the IRS sends a letter you don’t want to open.

The good news is that Q4 gives you space to catch those errors and fix them while there’s still time. Whether that means updating your payroll system, working with a provider, or asking for a second set of eyes, a little attention now can save you headaches (and dollars) down the line.

And if you’re looking for a partner to help you close the year with confidence, The Holtz Group is here. We help growing businesses take the guesswork out of payroll compliance…so you can focus on what’s ahead, not what you missed.