Payroll compliance: the 2026 checklist

Federal payroll compliance checklist

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

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.

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

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.