Timing payroll deduction

[Avs19]

Hi,

I'm working with a cash basis client. His payroll agency debited $80K from his account on 12/31/2025 to pay his employees/taxes/benefits on 01/01/2026. My research tells me that this is a deduction for the 2026 tax year but am getting a lot of push back from him. Is my thinking correct?

[BobKamman · Accepted solution]

Weren't the banks closed that day?  When did people and companies actually get the money?  For employee pay, what year will it show on W-2?  Absent some contractual evidence otherwise, I would say the payroll company is just an agent, it's no different from putting the cash under your mattress so you can buy money orders at the convenience store the next day.  

[Avs19]

It might not have been right on the 31st but within the last couple of days in 2025. The employees got paid on 01/01/2026, 401K and medical later that month. It will show on the 2026 W2. I agree with your your analogy.