Year-End Fringe Benefits: Check Payroll’s Accounting Cutoff

With year-end approaching, payroll teams should review whether the IRS’s optional special accounting rule makes sense for certain taxable noncash fringe benefits.

The rule lets employers treat benefits provided during November and December (or a shorter period within those months) as paid in the following year. For example, personal use of a company vehicle in November and December 2026 could be included in employees’ 2027 taxable wages, giving payroll more time to gather records and calculate the benefit’s value.

How Fringe Benefit Deferral Affects 2026 and 2027 W-2s

The accounting cycle matters beyond this year. If an employer first adopts a November–December deferral in 2026, employees’ 2026 W-2s would include the affected benefits provided from January through October. If the employer continues that period, employees’ 2027 W-2s would include the deferred November–December 2026 benefits plus those provided from January through October 2027.

The rule can’t be used for cash wages, transfers of real estate or transfers of personal property normally held for investment, such as stock. Employers can select which benefits to cover, but must apply the rule to all employees receiving each selected benefit. Employees must follow their employer’s accounting period.

No IRS notification is required. Employers must notify affected employees of the accounting period used at or near the date they provide Forms W-2, but not before employees’ last paycheck of the calendar year.

Before year-end, confirm eligible benefits, set the accounting cutoff and coordinate employee notices.

More info: IRS Publication 15-B, Section 4, “Special accounting rule”