Comprehensive and Detailed Explanation:
Annual payroll reconciliation ensures that payroll records match tax filings. The best practice is to
start reconciliation after completing the W-2 audit, as this verifies:
Employee earnings and tax withholdings
Federal and state tax deposits
Year-end adjustments
Option B is incorrect because quarterly reconciliation is separate from annual reconciliation.
Option C is incorrect because reconciliation should start after verifying W-2s, not just at the year-end.
Option D is incorrect because reconciliation should be based on the prior year, not the first payroll of
the new year.
Reference:
IRS – Year-End Payroll Reporting Guide
Payroll.org – Annual Reconciliation Best Practices
