Tax Tip Tuesday: Payroll Reporting Changes Employers Need to Know in 2026

The One Big Beautiful Bill Act (OBBBA) introduces new and updated tax provisions that directly impact payroll and reporting obligations. Among the most significant updates are revised information return and payroll tax reporting requirements. Below is an overview of what is new in 2026, and steps employers should take to stay ahead.

Reporting Thresholds Increase

Businesses are required to report payments that meet or exceed statutory thresholds, including rents, salaries, wages, premiums, annuities, compensation, and other fixed or determinable income. This requirement also applies to payments for services rendered. These payments are reported on information returns, including Forms W-2, 1099-MISC, and 1099-NEC—making accurate tracking essential.

Under the OBBBA, the reporting threshold increases to $2,000, with inflation adjustments applying to future years. While this reduces reporting for smaller payments, payroll and accounting systems may need updates to ensure compliance.

Tracking Qualified Tip and Overtime Income

Effective for tax years 2025 through 2028, the OBBBA introduces federal income tax deductions for employees earning qualified tip or overtime income. While these amounts are deductible, they remain subject to federal payroll taxes and withholding. State and local tax treatment may differ.

Although the IRS announced that 2025 payroll forms will not change, preparation is still essential. Employers and payroll providers should begin tracking qualified income now, including retroactive amounts paid as far back as January 1, 2025, to ensure employees can claim their deductions. The IRS has indicated it will provide transition relief for 2025 to ease compliance burdens.

Proposed Regulations for Tip-Receiving Occupations

To help employers comply, the IRS has proposed regulations specifying which tip-receiving occupations qualify for the deduction. Eligible roles fall into eight categories:

1. Beverage and Food Services

2. Entertainment and Events

3. Hospitality and Guest Services

4. Home Services

5. Personal Services

6. Personal Appearance and Wellness

7. Recreation and Instruction

8. Transportation and Delivery

The IRS has assigned a three-digit occupation code to each eligible role, which employers must report on information returns. This adds a new layer of data collection and payroll reporting requirements.

Reporting Requirements Under Draft 2026 Form W-2

The IRS has released a draft 2026 Form W-2, reflecting anticipated changes under the OBBBA. While not final, it previews new reporting obligations for employers, including Box 12 updates:

• Code TP – Total qualified cash tip income

• Code TT – Total qualified overtime income

Additionally, Box 14b has been added to report the occupation of employees who receive qualified tip income.

Although the W-2 is still a draft, employers should begin updating payroll systems, setting up tracking procedures, and preparing reporting processes now. Taking action early will ensure employees can claim their eligible deductions and help keep your business fully compliant.

Here to Help with Payroll Tax Reporting

The OBBBA brings meaningful changes to information return and payroll tax reporting, and additional IRS guidance is expected. If you have any questions, we are here to help. We build value-added relationships with each client to understand their business structure and provide solid solutions. Our approach offers direct access to the firm's decision-makers. Our innovative cross-functional services help businesses address the challenges ahead.