Payroll Compliance Under the One Big Beautiful Bill Act: What Employers Need to Get Right Starting in 2026

Author: Rena Pirsos, Brightmine Legal Editor  

The One Big Beautiful Bill Act (OBBBA), which was signed into law on July 4, 2025, is reshaping payroll compliance in ways that are already causing confusion at the start of 2026 - especially around tips, overtime and reporting obligations. While employees may have heard that their tips or overtime are "no longer taxable," the reality for employers is more complex.

The OBBBA does not change withholding rules. Tips and overtime remain fully taxable and subject to income and FICA (Social Security and Medicare) tax withholding. What has changed is that certain employees may now deduct qualified tips and certain overtime pay on their individual income tax returns (i.e., Form 1040) - but only if their employer properly tracks and reports those amounts on their Forms W-2, Wage and Tax Statement.

The OBBBA also made several benefits related changes that directly affect payroll administration, including regarding dependent care assistance; educational assistance and student loans; bicycle fringe benefits and moving expense reimbursements. It also created Trump accounts - a new type of IRA that employers may choose to offer to employees.

In addition, the OBBBA provided a clear cut-off date regarding pandemic-era Employee Retention Credit (ERC) claims.

All these changes makes 2026 a critical year for compliance and coordination within and between Payroll and HR teams. It will also be beneficial for employers to clearly communicate these changes to employees.