The implementation of the One Big Beautiful Bill Act (OBBBA) will require employers to take immediate action in 2026. Following the end of transition relief in 2025, businesses must ensure their payroll systems, reporting workflows, and workforce policies are fully operational to comply with new regulations regarding tax deductions, immigration fees, and benefit plan adjustments. The IRS has outlined critical requirements that employers must meet to avoid penalties and enhance compliance.
Key Changes Impacting Employers in 2026
The OBBBA, which became law on July 4, 2025, introduces significant changes affecting employer operations. While some provisions took effect in 2025, 2026 marks a pivotal year for compliance, particularly concerning payroll reporting and immigration readiness. Employers are encouraged to engage legal counsel and compliance vendors proactively to navigate these adjustments effectively.
The OBBBA allows for new federal income tax deductions for qualified tips and overtime compensation, applicable from 2025 through 2028. Employers will play a crucial role in accurately capturing and reporting this compensation data, which is essential for employee claims. The deductions include a cap of $12,500 for overtime pay exceeding the regular rate and up to $25,000 for qualified tips, which must be voluntary and not subject to negotiation.
Reporting Obligations and Immigration Compliance
Beginning with the 2026 tax year, employers must report qualified tips and overtime on Form W-2. The IRS provided penalty relief for 2025, but this grace period will end, necessitating that employers update their payroll and HR systems to ensure accurate tracking of overtime and tips. Failure to comply may result in penalties, emphasizing the importance of implementing compliant reporting processes.
In addition to payroll changes, the OBBBA introduces new immigration-related fees and a climate of heightened enforcement. Employers should prepare for increased costs associated with immigration compliance, as well as ongoing scrutiny of Form I-9 completion and document retention practices. It is recommended that businesses evaluate their immigration compliance programs to ensure they are standardized and auditable.
Changes to employee benefit plans will also take effect in 2026. The OBBBA permanently extends the telehealth safe harbor for high-deductible health plans, allowing pre-deductible telehealth coverage without impacting health savings account eligibility. Furthermore, the maximum annual exclusion for dependent care assistance will rise to $7,500 in 2026.
The introduction of “Trump Accounts,” a new savings account for children, will also begin in July 2026. While employers are not mandated to contribute, the accounts could influence decisions regarding childcare benefits.
As the OBBBA provisions continue to phase in through 2028, employers are advised to stay informed and adapt their compliance frameworks accordingly. Monitoring state tax developments is also crucial, as more than 20 states have introduced legislation related to the tax treatment of tips and overtime, which may impact payroll administration.
In summary, with the end of transition relief, 2026 will require employers to be fully prepared for operational changes dictated by the OBBBA. Delays in preparation could lead to payroll errors, increased compliance costs, and potential penalties. Engaging legal and compliance experts early will be essential to navigating these challenges effectively.
