Year-End Payroll Checklist for Dallas Employers: New W-2 Overtime and Tip Codes, the $2,000 1099 Threshold, and the 2027 Social Security Wage Base

Closing out payroll for 2026 involves two jobs. You’ll need to check that your year-end forms reflect what you paid in 2026 and update your payroll system for checks you’ll issue in 2027.

Start by pulling a full year of payroll records and a separate report of what you paid each contractor. If the records raise questions about how to report a payment, a Dallas business lawyer can help you sort them out before you file.

How do you report overtime on a 2026 W-2?

Use code TT in box 12 to report the extra pay required under federal overtime law. If an employee’s regular rate is $20 an hour and you pay $30 an hour for five hours of federally required overtime, you’d report $50 under code TT. That’s the extra $10 an hour for five hours.

Check whether your payroll software puts holiday premiums and federally required overtime under the same pay code. If it does, review the time and pay records to see how much you were required to pay above the employee’s regular rate. Run that check for the full year, especially if you updated your software partway through 2026.

How do you report tips on a 2026 W-2?

Use code TP in box 12 to report the total cash tips reported to you. Cash tips can include voluntary tips customers leave by card and tips employees receive through a tip pool. In box 14b, enter up to two Treasury codes for the jobs in which the employee earned the tips. If any reported tips came from a job that doesn’t qualify, enter 000 as one of the occupation codes.

Keep mandatory service charges separate from voluntary tips. For example, if your restaurant adds a large-party charge that customers must pay and you pass it on to employees, treat those payments as wages. Eligible employees can claim deductions for qualified tips or overtime on their own federal returns. When you run payroll, apply the usual rules for withholding and payroll taxes.

Which payments count toward the $2,000 reporting threshold?

For payments made in 2026, you generally file Form 1099-NEC if you paid a contractor $2,000 or more for business services during the year. Add up the payments to each contractor, excluding payments covered by the Form 1099-K rules. For example, two $1,000 payments to a self-employed bookkeeper reach the threshold.

The $2,000 threshold also applies to some payments reported on Form 1099-MISC, including rent. Other payments have different rules. Royalties, for example, generally must be reported at $10 or more. If you withheld federal income tax under the backup withholding rules, file the applicable form even if the payment total falls below the usual threshold.

Check each contractor’s Form W-9 against your payment records before you file. If you’re unsure whether a worker belongs on payroll, a Dallas business lawyer can review the working arrangement and help you determine which form to use.

How does the 2027 Social Security wage base affect payroll?

For 2027, Social Security tax applies to the first $192,300 of each employee’s covered wages, up from $184,500 in 2026. You withhold 6.2% from the employee’s pay and match it with an employer contribution of 6.2%. Calculate Medicare tax separately because it also applies to wages above the Social Security limit.

Set your payroll system to apply the new limit to wages paid in 2027. If your team works the last week of December but gets paid in January, use the 2027 limit for that paycheck. Check that Social Security withholding starts again for employees who reached the cap in 2026.

What should you check before the February filing deadline?

By February 1, 2027, give employees their 2026 W-2s and file the forms with the Social Security Administration. That’s also the deadline to file 2026 Forms 1099-NEC with the IRS and give copies to contractors. Before you file, compare the W-2 totals with your payroll tax returns and check that the new codes match your pay records.

If you’re unsure how to report a payment or correct a form you’ve already filed, a Dallas business lawyer at Coleman Jackson, P.C. can help. Call (214) 599-0431 or reach out online to schedule a consultation.

This law blog is written by attorneys at Coleman Jackson, P.C., which is located at 6060 North Central Expressway, Suite 620, Dallas, Texas 75206 for educational purposes; it does not create an attorney-client relationship between this law firm and its reader. You should consult with legal counsel in your geographical area with respect to any legal issues impacting you, your family or business.