The One Big Beautiful Bill Act (OBBBA) made changes to or introduced a number of tax laws pertaining to business. New regulations governing payroll tax reporting and information returns are among the changes that are likely to significantly affect payroll management firms and employers. Let’s examine the changes that will occur in 2026 and beyond, as well as the actions that firms should take in 2025.
In 2026, higher reporting limits will take effect.
Payments made by companies throughout the year that are at or above the reporting threshold for rents, salaries, salaries, wages, premiums, annuities, compensation, compensation, emoluments, etc., must typically be disclosed. as well as other income, profits, and gains that may be determined or set. Additionally, those who receive business services are typically required to disclose payments made during the year for services performed if they meet or exceed the legislative requirement. Data such as that on Forms W-2, 1099-MISC, and 1099-NEC are included in informational returns.
The reporting threshold is now $600. With inflation adjustments for payments made after 2026, the OBBBA raises the minimum to $2,000 for payments made after 2025.
Reporting eligible overtime and tip income
The OBBBA, which is in effect from 2025 to 2028, creates additional deductions for workers who earn qualified tip income and qualified overtime income. Federal payroll taxes continue to apply to this income because it is a deduction rather than an income exclusion. The regulations governing federal income tax withholding are similar. Additionally, overtime and tip income might still be subject to state and local income taxes in full.
The challenge for payroll management firms and employers is to accurately report the amounts of qualified tips and overtime income so that employees who qualify may take the deductions to which they are legally entitled under federal income tax legislation. The IRS stated in August that there would be no OBBBA-related adjustments to federal income tax withholding schedules, federal payroll tax returns, or federal information returns for individuals in 2025. The 2025 iterations of Forms 1099, W-2, 941, and other payroll-related forms and returns will remain the same.
Nevertheless, employers and payroll management firms should start keeping track of eligible tip and overtime income right away and put in place methods for retroactively tracking it. income sums paid since January 1, 2025. To lessen compliance challenges, the IRS will offer transition relief for 2025.
Tip-receiving jobs are listed in the suggested regulations.
The IRS published draft legislation in September listing the tip-receiving professions that qualify for the OBBBA deduction for qualified tip income. The eligible occupations are divided into eight groups:
- Beverage and food services
- Hospitality and guest services
- Home services
- Personal services
- Entertainment and events
- Recreation and instruction
- Personal appearance and wellness
- Transportation and delivery
For the purpose of information returns, the IRS assigned three-digit codes to every qualifying profession.
2026 Draft of Form W-2
A draft of the 2026 Form W-2 has been made available by the IRS. It includes modifications that support new employer reporting obligations for employee deductions for qualified tip income, qualified overtime income, and employer contributions. under the OBBBA, Trump Accounts will be accessible in 2026.
To be more precise, the draft version introduces Box 12 with the following:
- Use code TA to notify your employer contributions to Trump Accounts.
- The entire amount of an employee’s eligible cash tip income should be reported using Code TP
- Use Code TT to submit the full amount of an employee’s eligible overtime earnings
Employers can now report the profession of workers who earn qualifying tip income in box 14b.
Keep abreast of the most recent advice
Several important reforms relating to payroll tax reporting and information returns are made by the OBBBA. The IRS will probably keep publishing guidelines and rules. Any changes that will impact the reporting obligations of your company can be kept up to date with our assistance.
