As part of the implementation of the Tax Reform Act of 2025, commonly referred to as the “One Big Beautiful Bill Act”, employers will face expanded wage reporting obligations beginning in the 2026 tax year. These changes stem from new rules that create federal income tax deductions for qualified tips and overtime compensation for certain taxpayers, as well as the introduction of Trump Accounts for eligible taxpayers.
2026 Employer Wage Reporting Changes on W-2s
To support these provisions, the Internal Revenue Service (IRS) has released a draft of the 2026 Form W-2, which includes several new reporting elements, including:
- Box 12, Code TA: Amount of a Trump Account contribution made by the employer for an employee
- Box 12, Code TP: Qualified tips received by the taxpayer
- Box 12, Code TT: Qualified overtime compensation
- Box 14b: Treasury Occupation Code for the tipped occupation
While the IRS has not yet released a draft of the 2026 Form 1099-NEC, further revisions are expected and anticipated in the coming months.
Employers should begin reviewing their payroll systems and classification procedures to ensure readiness for these changes. The Treasury has released a preliminary list of occupations for the Box 14b reporting. The final list is expected to be substantially the same as the preliminary list.
How Employers Can Prepare for New Reporting Obligations
Although employers now know that additional reporting will be required for 2026, there are many questions that have not yet been answered. For example, it is not yet clear exactly what “tip-like” payments will be included.
Watch for 2025 Reporting Transition Rules
While the tip and overtime deduction rules apply to 2025, the IRS has stated that 2025 forms will not be changed. Ideally, the IRS would provide some transition rules for the 2025 reporting. Those paying tips and overtime in 2025 may want to communicate amounts to the service providers to assist them with preparing accurate tax returns for 2025.
Keep Records
Notwithstanding the lack of guidance, employers with overtime and tipped employees should be maintaining records related to tips and overtime to aid in complying with new information reporting rules for 2025 through 2028.
Service recipients of any workers receiving tips (whether or not that worker has a social security number or has provided only an individual taxpayer identification number or ITIN) should focus on maintaining whatever records of tip income exist for the preliminary list of occupations.
An employer should keep track of all Fair Labor Standards Act-mandated overtime for all employees as the employer has no way of knowing what individuals will be able to avail themselves of this deduction. It is important for employers to determine what amounts reported as overtime pay in payroll records are Fair Labor Standards Act-mandated overtime and not other types of overtime. This can be done with codes in payroll tax records.
Update Systems and Communications
Issuance of 2026 draft forms almost 18 months before the forms are due enables payroll processors time to reprogram their software systems and prepare client communications for 2026 filings.
How Cherry Bekaert Can Help
Need help navigating the new tax rules? Cherry Bekaert’s tax advisors are here to guide employers through updated reporting requirements for qualified tips, overtime compensation and the rollout of Trump Accounts. Reach out today to take important steps towards business compliance and preparedness.
