What’s New

IRS Increases Mileage Rate To 76 Cents for Second Half of 2026

The IRS announced it is increasing the business standard mileage rate for transportation expenses paid or incurred beginning July 1 to 76 cents per mile [Announcement 2026-11, 2026-29 IRB 49]. The change results from recent increases in fuel prices, although the rate applies to all electric, hybrid-electric, gasoline, and diesel vehicles.

 The previous rate of 72.5 cents per mile will still apply for travel between January 1 and June 30, 2026.

 The mileage rate may be used to compute the amount to reimburse employees who use their own cars for business purposes. It may also be used by employers that elect to use the “cents-per-mile” valuation method for purposes of determining the amount that needs to be imputed to an employee’s income for personal use of certain company-owned or leased nonluxury vehicles (see The Payroll Source®, §3.2-2). However, it may not be used by employees in claiming a tax deduction for unreimbursed employee business expenses, since such deductions are permanently disallowed by Public Law 119-21, known as the One Big Beautiful Bill Act.

 In addition, beginning July 1, the standard rate for miles driven for medical or moving purposes increases to 23.5 cents per mile (from 20.5 cents per mile). The deduction for moving expenses only applies to members of the Armed Forces on active duty who move under a military order and due to a permanent change of station and certain members of the intelligence community.

 The standard mileage rate for operating a passenger car for charitable purposes remains 14 cents per mile.

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IRS Provides Penalty Relief for TY 2025 OBBBA Reporting Requirements

For tax year (TY) 2025, the IRS will provide employers with penalty relief in connection with new information reporting requirements for qualified tips and qualified overtime compensation required under Public Law 119-21, known as the One Big Beautiful Bill Act (OBBBA) [Notice 2025-62, 11-5-25].

PayrollOrg’s Government Relations staff met with the IRS this summer and requested this transition relief.

The penalty relief is under IRC §6721 for failure to file correct information returns and §6722 for failure to furnish correct payee statements. The relief is limited to returns and statements filed and provided for TY 2025.

Transition Penalty Relief for TY 2025

The notice states that employers will not face penalties for failing to provide a separate accounting of any amounts reasonably designated as cash tips or the occupation of the person receiving such tips. In addition, employers will also not face penalties for failing to separately provide the total amount of qualified overtime compensation to employees.

The notice encourages employers to provide employees, particularly those in a tipped occupation, with the occupation codes and separate accountings of cash tips. Employers also are encouraged to provide employees with separate accountings of overtime compensation.

Employers can inform employees through an online portal, written statements, or, in the case of qualified overtime compensation, in Box 14 of the employee’s Form W-2.

Courtesy of Rayna Alexander, Esq., PayrollOrg

IRS Releases 2026 Publication 15-T, Includes OBBBA Information

The IRS released the 2026 Publication 15-T, Federal Income Tax Withholding Methods, which describes how to figure federal income tax withholding using the percentage method and the wage bracket method and describes alternative methods for figuring withholding. The publication has been updated to account for changes made by H.R. 1, known as the One Big Beautiful Bill Act (OBBBA; Pub. L. 119-21), which was enacted in July.

Publication 15-T explains how to withhold income tax based on pre-2020 Forms W-4 and 2020 or later Forms W-4. The publication also provides the amounts that employers should add to the wages paid to nonresident alien employees working in the United States when figuring their income tax withholding.

Includes OBBBA Information

Publication 15-T was updated to include information about withholding on qualified tips and qualified overtime compensation to account for the new tax deductions under the OBBBA. Qualified tips and qualified overtime compensation are still generally subject to both the employer and employee share of social security and Medicare tax.

Employers must use an employee’s updated Form W-4, Employee’s Withholding Certificate, if one is submitted by the employee, and the federal income tax withholding procedures in Publication 15-T to allow the employee to account for their expected deduction and receive more money in each paycheck instead of waiting until filing their income tax return to receive the full benefit of the new deductions.

Employees and payees may use the IRS's tax withholding estimator when completing their 2026 Form W-4 and Form W-4P, which were previously released with updates to account for changes made by the OBBBA. The estimator has been updated to account for the increased standard deduction and child tax credit amounts for tax year 2025. However, as of December 12, the estimator had not been updated to account for certain provisions of the OBBBA, such as the deduction for qualified tips and qualified overtime compensation. Employees should check to see if the estimator has been updated further.

Courtesy of Rayna Alexander, Esq. PayrollOrg

ED Delays Federal Student Loan Garnishments

On January 16, the U.S. Department of Education (ED) announced it will delay involuntary collections (wage garnishments) on federal student loans while it is implementing major student loan repayment reforms [ED, U.S. Department of Education Delays Involuntary Collections Amid Ongoing Student Loan Repayment Improvements, 1-16-26].

ED said the delay in collections will give defaulted borrowers additional time to evaluate new repayment options. Although ED does not give a specific time for the wage garnishments to begin, one of the upcoming repayment plans is scheduled to begin July 1, 2026.

Courtesy of Jyme Mariani, Esq., PayrollOrg

IRS Releases 2026 Form W-2 With Changes Due to OBBBA

On January 9, the IRS released the 2026 Form W-2, Wage and Tax Statement, with changes made due to Public Law 119-21, known as the One Big Beautiful Bill Act (OBBBA). The final version incorporates the anticipated changes made on the draft Form W-2 with some additional updates. The final instructions have not been released yet. A draft of the instructions is available.

What’s New

The 2026 Form W-2 now includes:

• New Box 12 codes. Box 12 has three new codes: TA – Employer contributions to a Trump account; TP – Total amount of cash tips reported to the employer; and TT – Total amount of qualified overtime compensation.
• Box 14 split. Box 14 is now split into 14a – Other and 14b – Treasury Tipped Occupation Code(s). Employers may use Box 14a to report information such as state disability insurance taxes withheld, union dues, uniform payments, health insurance premiums deducted, nontaxable income, or educational assistance payments.

Employers will use Box 14b to report up to two Treasury Tipped Occupation Codes for an employee’s tipped occupation. These codes will be used to determine whether the employee is in an occupation eligible for the deduction for qualified tips (reported in Box 12 with Code TP).

Courtesy of Jyme Mariani, Esq. PayrollOrg