This session delivers a comprehensive look at the most important payroll, tax, and benefits compliance changes taking effect in 2026, helping employers prepare for a year of significant federal and state updates. With new rules emerging from the One Big Beautiful Bill Act (OBA), SECURE 2.0, and multiple state initiatives, the discussion focuses on what organizations need to know now to avoid last‑minute compliance risk.

Designed for employers in healthcare and adjacent industries, the session breaks down complex regulatory changes into practical guidance, highlighting where 2025 offers transition relief and where enforcement tightens in 2026.

OBA changes reshaping payroll and tax reporting

A major portion of the session addresses OBA’s new federal income tax deductions for qualified overtime and qualified tips. These provisions apply beginning in 2025 and continue through 2028, but their operational impact differs significantly between years.

Key takeaways include:

• Only FLSA‑required overtime qualifies – not state overtime, union premiums, or discretionary pay
• Only the overtime premium portion is deductible, not straight‑time wages
• The deduction applies to federal income tax only and does not affect FICA taxes
• Annual deduction limits apply and are claimed as above‑the‑line deductions on personal tax returns

For 2025, employers receive transition relief. Withholding methods remain unchanged, and there are no penalties if qualified overtime or tips are not separately reported to employees, provided standard filing obligations are met. Employees, however, still need the information to claim the deduction, shifting much of the burden to individuals during the transition year.

Beginning in 2026, enforcement increases. Employers must accurately track qualified amounts and report them on Forms W‑2 and 1099, and employees may adjust withholding using updated Forms W‑4.

IRS guidance for employees during the 2025 transition year

Recent IRS guidance helps employees determine their deductible overtime and tip amounts for 2025 when employers do not provide a separate statement. The guidance outlines acceptable calculation methods, including:

• Using separately stated overtime premium amounts, if available
• Applying fractions to aggregate overtime pay
• Calculating based on regular rate and hours worked when no breakdown is provided

Employees are responsible for retaining documentation to support their calculations. Employers may choose to share IRS guidance with employees to help manage questions, particularly if no internal reporting is provided.

New W‑2 and W‑4 forms for 2026

Draft versions of the 2026 Forms W‑2 and W‑4 introduce structural changes reflecting OBA requirements.

For the W‑2:

• New Box 12 codes will report qualified overtime and cash tips
• Box 14 is split into 14A and 14B
• Box 14B will include tipped occupation codes where applicable

For the W‑4:

• An expanded deductions worksheet allows employees to estimate overtime and tip deductions in advance
• Employees who update their W‑4 can reduce federal withholding throughout the year rather than waiting for a refund

These changes increase data accuracy expectations and will likely drive higher volumes of W‑4 updates in 2026.

SECURE 2.0 requirements employers must address in 2026

The session also highlights upcoming SECURE 2.0 changes, particularly final regulations affecting catch‑up contributions for higher‑wage earners.

Beginning in 2026:

• Catch‑up contributions for higher‑wage earners must be treated as Roth contributions
• Employers that do not offer a Roth option must prohibit catch‑up contributions for those employees
• Non‑higher‑wage earners retain flexibility to choose pre‑tax or Roth catch‑ups, depending on plan design

While enforcement is delayed until 2027, employers are expected to demonstrate reasonable, good‑faith compliance efforts in 2026. Plan design decisions made now will directly affect employee participation, satisfaction, and nondiscrimination testing outcomes.

Key federal limits and payroll updates for 2026

Several federal thresholds and limits were also reviewed, including:

• Increased Social Security wage base
• Higher contribution limits for retirement plans and catch‑up contributions
• Expanded Dependent Care FSA limits under OBA
• Updated HSA contribution limits and HDHP thresholds

In addition, OBA raises the 1099 reporting threshold to $2,000 beginning in 2026, reducing reporting volume for independent contractors while maintaining existing requirements for 2025.

State compliance developments to watch closely

The session concludes with a review of major state‑level changes affecting 2026 planning:

• State income tax treatment of overtime and tips, with some states automatically conforming to federal law and others decoupling
• New York Secure Choice, requiring certain employers without retirement plans to facilitate state‑sponsored retirement savings
• Expanded New York City safe and sick time requirements, including new unpaid leave obligations
• Minnesota Paid Family and Medical Leave, introducing statewide premiums, employer contributions, and benefit entitlements

These state initiatives add another layer of compliance complexity, particularly for multi‑state employers.

Preparing now for a smoother 2026

With overlapping federal and state changes converging in 2026, employers are encouraged to:

• Review payroll systems for overtime and tip tracking accuracy
• Confirm retirement plan readiness for SECURE 2.0 requirements
• Monitor evolving state mandates affecting leave and retirement
• Coordinate early with payroll and benefits partners to avoid year‑end disruption

Advance preparation, clear communication, and proactive system updates will be essential to entering 2026 with confidence and compliance.