The pay period that straddles the year.
Take an example company with 40 salaried staff on a biweekly payroll of 200,000 dollars. Its pay periods run Sunday to Saturday and it pays the following Friday. The period that matters this year runs from Sunday 20 December 2026 to Saturday 2 January 2027, and it is paid on Friday 8 January. Most of that money was earned in December. None of it is in the December books unless somebody accrues it.
The usual guidance, from AccountingCoach and most other places, is correct as far as it goes: accrue the wages earned but not yet paid, add the employer taxes and benefits, and reverse it next month. Two decisions sit inside that sentence. How do you split the period, and which tax rate do you put on it?
Splitting the period: pick a method and keep it.
Inside the 20 December to 2 January period there are ten weekdays. Nine of them, Monday 21 December to Thursday 31 December, fall in 2026, and Friday 1 January falls in 2027. Salaried staff are paid for 25 December and 1 January as holidays, so both count as days. Counting calendar days instead gives 12 of 14 in December.
| Method | December share | Accrued wages | Left for January |
|---|---|---|---|
| Working days, holidays counted as paid days | 9 of 10 | 180,000.00 | 20,000.00 |
| Calendar days | 12 of 14 | 171,428.57 | 28,571.43 |
The two methods are 8,571 dollars apart. Both can be defended. Working days usually matches how salaried pay is earned, and hourly staff should come from the hours in the time system. Whichever you pick, put it in the close procedures and use it every month, so the number moves only when the business does. The rest of this example uses working days: 180,000 dollars of gross wages accrued at 31 December.
Pricing the tax: use the rates on the pay date.
This is where year end differs from every other month. Section 11 of IRS Publication 15 (2026) puts it in one line: “Your tax liability is based on the dates payments were made or wages were paid.” Wages paid on 8 January are 2027 wages for employment tax. The Social Security wage base, 184,500 dollars for 2026, and the FUTA base of 7,000 dollars per employee both start again from zero.
The habit most teams use for the employer tax is the load from the latest pay run, and in December that habit points the wrong way. In our example, eight staff earn 7,500 dollars a run, 195,000 a year, and all eight passed the Social Security base on the 11 December run. Everyone passed the FUTA base in January. So the 24 December run carried Social Security on only 140,000 dollars of its 200,000, plus Medicare on all of it, and no FUTA: 11,580 dollars of employer tax, a load of 5.79 percent. The 8 January run carries 6.2 percent Social Security and 1.45 percent Medicare on the whole 200,000 and 0.6 percent FUTA on 196,000 dollars (each of the eight high earners counts only to 7,000): 16,476 dollars, or 8.24 percent.
| Pricing method | Rate | Accrued tax | Gap |
|---|---|---|---|
| Load from the last December run | 5.79% | 10,422.00 | -4,406.40 |
| Flat Social Security and Medicare, 7.65% | 7.65% | 13,770.00 | -1,058.40 |
| January rates on the accrued wages | 8.24% | 14,828.40 | 0.00 |
The December load accrues 10,422 dollars against 14,828.40, which is 30 percent short. A flat 7.65 percent gets closer and still leaves out FUTA. State unemployment, which also restarts in January, would widen every gap. The absolute amount here is modest. The useful part is that the error always runs the same way, it recurs every year, and it sits in the balance an auditor tests against the January register.
One current accrued payroll guide makes a good point that late in the year the employer tax can be much smaller than 7.65 percent, and advises checking year to date wages. That is right for a November accrual paid in December. For December wages paid in January the year to date figure is zero, so the rule to keep is simple: price the accrual at the rates that will apply on the pay date.
The accounting standards point the same way. IAS 19 paragraph 9(a) counts social security contributions as short term employee benefits alongside the wages, and paragraph 11(a) asks for the amount expected to be paid for service already rendered. US GAAP has no payroll specific paragraph for this, and ordinary accrual accounting reaches the same answer: the liability is what you will pay.
How the entries look in Rivane.
Rivane posts payroll from your provider’s register. When a pay run is marked paid, it posts one balanced entry dated the pay date: wages and employer tax as expense, withholdings and employer tax as a liability, deductions as a liability, and net pay out of cash. It refuses the entry if the register does not tie, meaning gross must equal net plus withholdings plus deductions, and a retried run resolves to the entry already posted rather than a second one. Rivane does not calculate gross to net pay or payroll tax; that stays with the provider.
The year end share goes in as an accrual. Each accrual names an expense account and an accrued liability account, goes to a reviewer for approval, and posts on the last day of its period. Its reversal is dated the first day of the next period unless you set another date, and accruals marked to reverse automatically are picked up by a daily sweep once that date arrives. Keeping wages and employer tax as two accruals means each ties to its own line in the January register.
The three entries around one straddling pay period
# Year end payroll accrual for an example company.
# Shape only. No real company or employee.
pay_period: 2026-12-20 to 2027-01-02 # Sunday to Saturday
pay_date: 2027-01-08 # Friday, taxed at 2027 rates
gross_wages: 200,000.00
split: working days, 9 of 10 in December
31 Dec 2026 accrual, approved then posted
Dr Wages expense 180,000.00
Cr Accrued payroll 180,000.00
Dr Employer payroll tax 14,828.40
Cr Accrued payroll taxes 14,828.40
reverse_on: 2027-01-01
1 Jan 2027 reversal, posted by the daily sweep
the same lines, debits and credits swapped
8 Jan 2027 pay run marked paid, one entry
Dr Wages expense 200,000.00
Dr Employer payroll tax 16,476.00
Cr Withholding and tax payable (withholdings + 16,476.00)
Cr Deductions payable (from the register)
Cr Cash (net pay)
January expense after the reversal:
wages 200,000.00 - 180,000.00 = 20,000.00
employer 16,476.00 - 14,828.40 = 1,647.60
A year end checklist for the accrual.
- Accrue gross wages. Employee withholdings and deductions come out of gross, so they change who gets paid, and the expense stays the same.
- Pick one way to split a straddling pay period and write it down. Working days suits salaried staff, with paid holidays counted as days. For hourly staff, use the hours in the time system.
- Price employer taxes at the rates that will apply on the pay date. For a November accrual paid in December that means year to date wages and a lower rate. For December wages paid in January it means the full rate.
- Include FUTA and state unemployment in a January paid accrual. Both reset on 1 January, and both are easy to forget because they had stopped appearing on December runs.
- Add employer benefit costs that follow the payroll, such as a retirement match, on the same basis.
- Set the accrual to reverse on the first day of the new year, so the January pay run posts normally and only the January share stays in January.
- After the January run posts, compare the accrual with the real register. A small difference confirms the method. A large one is worth a note in the close file.
Where this usually goes wrong.
- Reusing the employer tax load from the most recent run. It is the right habit eleven months a year and the wrong one in December, when the most recent run is the one with the wage bases already used up.
- Accruing net pay. The liability is the gross wage plus the employer’s own costs, and net pay understates it by every withholding.
- Forgetting the accrual is there in January. Without a reversal, the January run books the full 200,000 and the year end wages land twice.
- Changing the split method from year to year. Working days one year and calendar days the next moves 8,571 dollars in this example with no change in the business.
- Booking the accrual as one combined figure. Wages and employer taxes sit in different expense lines and different liability accounts, and an auditor will want to tie each to the January register.
What the audit evidence looks like.
- The accrual worksheet: pay period dates, pay date, the split method and days, gross wages for the period, and the accrued share.
- The employer tax calculation, showing the rates used and why: the pay date falls in the new year, so the wage bases restart.
- The January pay register, which is the subsequent payment an auditor uses to test the accrual, with the December share marked.
- The posted accrual entry and its reversal, with who prepared and who approved each.
- A short reconciliation of the accrued payroll liability at 31 December to the worksheet, and of the January expense to the register less the reversal.
Two decisions, written down once.
The year end payroll accrual is a small piece of work with a clear answer. Split the pay period the same way every month, accrue gross wages, and price the employer tax at the rates that apply on the pay date, which in December means the full new year rates. Write both choices into the close procedures, and the January register will confirm them a week later.
If you would like accruals like this one to post, reverse and tie out inside the ledger, see how Rivane handles prepaids and accruals.
Sources
- IRS Publication 15 (2026), (Circular E), Employer’s Tax Guide. The PDF was downloaded and read directly. Source for the 2026 Social Security rate of 6.2 percent each for employer and employee and the 184,500 dollar wage base, the Medicare rate of 1.45 percent each with no wage base, the Additional Medicare Tax as an employee only tax with no employer share, the FUTA deposit calculation at 0.6 percent on wages up to 7,000 dollars per employee per calendar year, and section 11’s statement that tax liability is based on the dates wages were paid.
- Social Security Administration, Contribution and Benefit Base. The table of annual wage bases, including 184,500 dollars for 2026. The SSA page refused automated access during research, so the 2026 figure was confirmed in Publication 15 above.
- IAS 19 Employee Benefits, as consolidated in Commission Regulation (EU) 2023/1803 on EUR-Lex. Read in the text for paragraph 9(a), which lists wages, salaries and social security contributions as short term employee benefits, and paragraph 11(a), which requires the undiscounted amount expected to be paid for service already rendered to be recognised as a liability.
- Beancount.io, Accrued payroll month end journal entry guide (May 2026). Read as an example of what a search currently returns. It correctly notes that employer taxes shrink late in the year as employees pass the wage bases, and advises checking year to date wages. It does not separate wages paid in the same year from wages paid after 1 January.
- AccountingCoach, Accrued payroll. Read as a second example of current answers: a clear definition with a wages plus taxes and benefits example, and no guidance on which tax rate to apply.
- Rivane accruals and payroll posting, described from the product as built rather than from marketing copy. The pay run entry posted on the pay date, the check that the register ties gross to net, the one entry per pay run rule, the accrual approval and posting flow, the default reversal on the first day of the next period and the daily reversal sweep are described as they work in the product today. Rivane does not compute gross to net pay or payroll taxes; those come from your payroll provider’s register.
A note on how this was researched. IRS Publication 15 (2026) was downloaded and read as a document, and IAS 19 was read in the consolidated text of Commission Regulation (EU) 2023/1803. Paragraph numbers and the quotation come only from text we read. The company, staff and pay figures are an example, and every number in the tables is our own calculation, which you can repeat with a spreadsheet. Nothing here is tax advice.
On embedded social posts: we looked for public posts from the IRS, standard setters or payroll practitioners on pricing a year end payroll accrual and found none we could verify as current, relevant and authentic, so this article uses ordinary citations instead.