Several states have released their state unemployment insurance (SUI) taxable wage bases for 2026. Employers should be aware that due to UI trust fund balances that are lower (or higher) than anticipated and economic concerns regarding employer taxes, some states may make changes to their taxable wage bases later this year or early next year.

The list of state wage bases is from 2023 to 2026. To access from the PAYO home page select “Compliance” and then “State Unemployment Wage Bases” under “Overview.”

The Federal Unemployment Tax Act (FUTA) requires that each state’s taxable wage base must at least equal the FUTA taxable wage base of $7,000 per employee, and most states have wage bases that exceed the required amount. The states use various formulas for determining the taxable wage base, with a few tying theirs by law to the FUTA wage base and others using a percentage of the state’s average annual wage.

Courtesy of PayrollOrg – Lia Coniglio, Esq

According to the U.S. Department of Labor (DOL), California and the U.S. Virgin Islands could not pay back their federal loans by the November 10, 2025, deadline and will lose the full Federal Unemployment Tax Act (FUTA) credit for 2025 [DOL, Final 2025 Federal Unemployment Tax Act (FUTA) Credit Reductions, rev. 11-10-25].  

Courtesy of PayrollOrg – Lia Coniglio, Esq

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 PayrollOrg – Rayna Alexander, Esq.

On November 21, the IRS issued guidance to help eligible employees claim the tax deductions for tips and for overtime compensation for tax year 2025. The deductions are part of Public Law 119-21, known as the One Big Beautiful Bill Act (OBBBA) [IR-2025-114, 11-21-25].

Notice 2025-69 clarifies for employees how to determine the amount of their deduction without receiving a separate accounting from their employer for cash tips or qualified overtime on information returns such as Form W-2, Wage and Tax Statement.

2025 Is a Transition Period

The IRS is not updating Form W-2 for tax year 2025. However, the IRS said it is in the process of updating income tax forms and instructions for taxpayers to use this upcoming filing season.

Employers are not required to separately account for cash tips or qualified overtime compensation on Forms W-2 or issue written statements to individuals for 2025. The IRS has deemed tax year 2025 as a “transition period,” but it does encourage employers to help inform employees of qualified tips and qualified overtime.

For tips, the IRS said some employers may choose to provide information on an employee’s occupation or other relevant information to employees using Box 14, Other, of Form W-2. For overtime, some employers may choose to report the amount of qualified overtime compensation to employees using Box 14 of Form W-2 or on a separate statement.

The 30-page Notice 2025-69 provides examples and details on qualified tips and qualified overtime.

Courtesy of PayrollOrg – Jyme Mariani, Esq.

On November 12, President Trump signed Pub. L. 119-37, which reopened the federal government. This ended the longest shutdown in U.S. history. The new law funds the government through January 30, 2026. Some federal agencies that had been operating with limited resources are now in the process of reopening. The announcement of the pension cost-of-living adjustments (COLAs) came shortly after the government reopened.

Pension COLAs

The IRS announced the changes to the dollar limits on benefits and contributions under qualified retirement plans, as well as other items, for tax year 2026 [Notice 2025-67, 11-13-25].

IRC §415, which provides for dollar limits on benefits and contributions under qualified retirement plans, requires that the IRS annually adjust these limits for cost-of-living changes. The IRC also requires various other amounts to be adjusted at the same time and in the same manner as these dollar limits.

The limitation on the exclusion for elective deferrals under §402(g)(1) (e.g., §401(k) and §403(b) plans) increases to $24,500 (from $23,500).

Courtesy of PayrollOrg – Rayna Alexander, Esq.

The Social Security Administration announced on October 24 that the 2026 social security wage base will be $184,500, an increase of $8,400 from $176,100 in 2025. As in prior years, there is no limit to the wages subject to the Medicare tax; therefore, all covered wages are subject to the 1.45% tax. As in 2025, wages paid in excess of $200,000 in 2026 will be subject to an extra 0.9% Medicare tax that will only be withheld from employees’ wages.

The social security wage base for self-employed individuals in 2026 will also be $184,500. There is no limit on covered self-employment income subject to the Medicare tax. The self-employment tax rate will be 15.3% (combined social security tax rate of 12.4% and Medicare tax rate of 2.9%) up to the social security wage base. In 2026, the maximum social security tax for a self-employed individual will be $22,878.

Maximum social security tax. The maximum social security tax employees and employers will each pay in 2026 is $11,439, an increase of $520.80 from $10,918.20 in 2025.

Courtesy of PayrollOrg – Rayna Alexander, Esq.

On September 22, the IRS issued proposed regulations to provide guidance on the “no tax on tips” provision of Public Law 119-21, known as the One Big Beautiful Bill Act (OBBBA) [90 F.R. 45340, 9-22-25].

The OBBBA adds IRC §224, which defines the income tax deduction for qualified tips received during the taxable year by individuals in an occupation that customarily and regularly received tips on or before December 31, 2024. Employers will still withhold federal income tax and social security and Medicare taxes. To claim the deduction, a worker must both work in an occupation on the list and receive qualified tips. The deduction is retroactive to January 1, 2025, and expires on December 31, 2028.

The Proposed Regulations

The proposed regulations define “qualified tips” and list occupations that “customarily and regularly receive tips.” Qualified tips must be paid in cash or an equivalent medium (e.g., check, credit card), received from customers or through a tip-sharing agreement, and paid voluntarily by the customer and not subject to negotiation. There are nearly 70 separate occupations of tipped workers, from bartenders to water taxi operators.

The IRS has not released guidance on how employers will report tips for tax year 2025. The OBBBA denotes tax year 2025 as a transition year. For qualified tips reported prior to January 1, 2026, employers would be permitted to approximate tips “by any reasonable method specified by the Secretary” of the Treasury.

Courtesy of American Payroll Org – Jyme Mariani, Esq.

The IRS released cost-of-living-adjustments (COLAs) for 2026 reflecting any increases in excludable transportation fringes and the flexible spending arrangement (FSA) deferral limit, among other changes [Rev. Proc. 2025-32, 10-9-25].

For 2026, the amounts that may be excluded from gross income for employer-provided qualified transportation fringe benefits and qualified parking increase to $340 per month ($325 in 2025).

For plan years beginning in 2026, the dollar limitation for voluntary employee salary reductions for contributions to health FSAs increases to $3,400 ($3,300 in 2025). For cafeteria plans that permit the carryover of unused amounts, the maximum carryover amount increases to $680 ($660 in 2025).

The Revenue Procedure also addresses changes for 2025 made by Public Law 119-21, known as the One Big Beautiful Bill Act.

Courtesy of PayrollOrg – Jyme Mariani, Esq.

On Thursday, July 3, the U.S. House of Representatives passed H.R. 1, commonly referred to as the One Big Beautiful Bill Act. The vote came just two days after the Senate narrowly passed the legislation. President Trump is expected to sign the legislation soon.

Payroll-Related Provisions

There are several provisions in H.R. 1 that will affect payroll operations. Here are several from Title VII, Subtitle A, regarding taxes:

• Permanent extension of the Tax Cuts and Jobs Act (Chapter 1).
• No tax on tips (Chapter 2, §70201). The legislation provides eligible individuals a deduction “of an amount equal to the qualified tips received during the taxable year.” The deduction is retroactive to January 1, 2025, and expires on December 31, 2028.
• No tax on overtime (Chapter 2, § 70202). The legislation establishes a deduction, subject to certain limitations, equal to the “qualified overtime compensation received during the taxable year.” The legislation also includes a requirement to report overtime compensation on Form W-2, Wage and Tax Statement. This provision is retroactive to January 1, 2025, and expires on December 31, 2028.
• Increase in Form 1099-MISC and Form 1099-NEC reporting threshold from $600 to $2,000 (Chapter 4, Subchapter D, §70433). This provision is effective beginning with payments made in 2026. The threshold is also subject to inflation adjustments beginning in 2027.

For in-depth coverage of H.R. 1, see Issue 7 of Payroll Currently, which has a publication date of July 11.

To learn how this will affect your year-end processing and to prepare for changes in 2026, plan to attend one of PayrollOrg’s Preparing for Year-End programs this fall!

Curtis E. Tatum, Esq., is In-House Counsel and Senior Director of Federal Payroll Resources for PayrollOrg.

The IRS announced the changes to the dollar limits on benefits and contributions under qualified retirement plans, as well as other items, for tax year 2025 [Notice 2024-80, 11-1-24].

IRC §415, which provides for dollar limits on benefits and contributions under qualified retirement plans, requires that the IRS annually adjust these limits for cost-of-living changes. The IRC also requires various other amounts to be adjusted at the same time and in the same manner as these dollar limits.

The limitation on the exclusion for elective deferrals under §402(g)(1) (e.g., §401(k) and §403(b) plans) increases to $23,500 (from $23,000)
Courtesy of the PayrollOrg