Return & Payroll Tax Reporting Rules Require Attention
The One Big Beautiful Bill Act (OBBBA) introduced or updated numerous business-related tax provisions. The changes that are likely to have a major impact on employers and payroll management companies include new information return and payroll tax reporting rules.
Let’s take a closer look at what’s new beginning in 2026 — and what businesses need to do in 2025.
Increased reporting thresholds go into effect in 2026
Businesses generally must report payments made during the year that equal or exceed the reporting threshold for:
- rents
- salaries
- wages
- premiums
- annuities
- compensation
- remuneration
- emoluments, and
- other fixed or determinable gains, profits, and income.
Similarly, recipients of business services generally must report payments they made during the year for services rendered that equal or exceed the statutory threshold. This information is reported on information returns, including Forms W-2, Forms 1099-MISC, and Forms 1099-NEC.
Currently, the reporting threshold amount is $600. For payments made after 2025, the OBBBA increases the threshold to $2,000, with inflation adjustments for payments made after 2026.
Reporting qualified tip income and qualified overtime income.
Effective for 2025 through 2028, the OBBBA establishes new deductions for employees who receive qualified tip income and qualified overtime income. Because these are deductions as opposed to income exclusions, federal payroll taxes still apply to this income. So do federal income tax withholding rules. Also, tip income and overtime income may still be fully taxable for state and local income tax purposes.
The issue for employers and payroll management companies is reporting qualified tip and overtime income amounts so that eligible workers can claim their rightful federal income tax deductions. In August, the IRS announced that for 2025, there will be no OBBBA-related changes to federal information returns for individuals, federal payroll tax returns, or federal income tax withholding tables. The 2025 versions of Form W-2, Forms 1099, Form 941, and other payroll-related forms and returns will be unchanged.
Nevertheless, employers and payroll management companies should begin tracking qualified tip and overtime income immediately and implement procedures to retroactively track qualified tip and overtime income amounts that were paid going back to January 1, 2025. The IRS will provide transition relief for 2025 to ease compliance burdens.
Proposed regulations list tip-receiving occupations.
In September, the IRS released proposed regs that include a list of tip-receiving occupations eligible for the OBBBA deduction for qualified tip income. Eligible occupations are grouped into eight categories:
- Beverage and food services
- Entertainment and events
- Hospitality and guest services
- Home services
- Personal services
- Personal appearance and wellness
- Recreation and instruction
- Transportation and delivery
2026 Form W-2 Draft Version
The IRS has released a draft version of the 2026 Form W-2. It includes changes that support new employer reporting requirements for the employee deductions for qualified tip income and qualified overtime income, and for employer contributions to Trump Accounts, which will become available in 2026 under the OBBBA.
Specifically, Box 12 of the draft version adds:
- Code TA – Employer contributions to Trump Accounts
- Code TP – Qualified cash tip income
- Code TT – Qualified overtime income
A new Box 14b allows employers to report the occupation of employees receiving qualified tip income.
Stay on top of the latest guidance.
The OBBBA brings significant changes to reporting and payroll tax requirements. The IRS will continue issuing additional guidance and regulations. We can help you stay informed on any developments that affect your business’s reporting requirements.