IRS fringe benefit deferral shapes 2026 and 2027 W-2 reporting

By Olivia Hart

For the 2026 tax year, U.S. employers can report certain taxable noncash fringe benefits provided in November and December 2026 on employees’ 2027 Forms W-2 under an optional IRS accounting rule.

For payroll teams, the election determines which year includes eligible benefits in taxable wages. It moves record collection and valuation work into the next reporting cycle, giving payroll more time to document company-vehicle use and other selected benefits. Affected employees must receive notice of the accounting period at or near W-2 delivery.

No IRS notification is required. IRS Publication 15-B, Section 4, labels the provision the “special accounting rule.” Employers can use all of November and December or a shorter period within those two months.

The rule addresses reporting timing, not eligibility. A payment must qualify as a taxable noncash fringe benefit before the election can apply. Employers retain discretion over the benefit menu, but they cannot apply the election selectively to individuals within an otherwise covered benefit.

What changes for 2026 and 2027 W-2s?

An employer that first adopts a November-December deferral in 2026 includes affected benefits provided from January through October on employees’ 2026 W-2s. The deferred November and December benefits move into 2027 reporting.

Personal use of a company vehicle in November and December 2026 illustrates the treatment. The employer could include that benefit in employees’ 2027 taxable wages, giving payroll more time to gather usage records and calculate its value.

If the employer continues that accounting period in 2027, employees’ 2027 W-2s include the deferred November-December 2026 benefits plus benefits provided from January through October 2027. In this example, the 2027 form carries 12 months of benefit value: two deferred months from 2026 plus 10 months from 2027.

Which payments and employees can use the rule?

The election has two linked choices: which benefits qualify for the treatment and which period within November and December to use. Payroll can choose a shorter period, but once a benefit is selected, every employee receiving it falls under the employer’s accounting period.

The IRS excludes:

• Cash wages.
• Transfers of real estate.
• Transfers of personal property normally held for investment, such as stock.

Payroll therefore cannot use this election to defer those payments into the following year’s taxable wages. The decision starts with the type of benefit and ends with the population receiving it, rather than allowing a separate election for each employee.

What notices must employers provide?

The employee notice identifies the employer’s accounting period. It cannot come before the employee’s last paycheck of the calendar year. Payroll must coordinate the communication with final-paycheck timing and W-2 delivery, while keeping the selected accounting period consistent for every employee receiving a covered benefit.

What should payroll do before year-end?

Before year-end, payroll should confirm eligible benefits, set the accounting cutoff and coordinate employee notices. A four-part control process can put those tasks in order:

1. Inventory taxable, noncash fringe benefits and screen out cash wages and excluded property transfers.
2. Select the covered benefits and choose November-December or a shorter accounting period within those months.
3. Confirm that every employee receiving each selected benefit is subject to the employer’s accounting period.
4. Schedule usage-record collection, valuation work and employee notices around the last paycheck and W-2 delivery.

For employers that continue into 2027, the immediate reporting task is concrete: carry the deferred November-December 2026 benefit values into the 2027 W-2s, then include January-October 2027 benefits in the same forms.