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Big payroll changes coming in 2026 (But you’re good for 2025!)

Good news first: If you’re scrambling to figure out new tax forms for 2025, take a breath. Nothing changes this year for your W-2s or 1099s.

The catch? You need to start preparing now for 2026, when some significant reporting changes kick in.

At Padgett, we’re already tracking these changes so you don’t have to stress about them.

What’s Changing and When

For Your 2025 Taxes (Due Early 2026): Nothing New

You’ll file the same forms you’re used to. The IRS isn’t changing W-2s, 1099s, or any payroll forms for the 2025 tax year.

However, your employees who earned tips or overtime in 2025 can claim new federal tax deductions. They’ll need to calculate this themselves since you’re not required to break it out separately on their W-2s (though you can voluntarily include it in Box 14 if you want to be helpful).

Starting in 2026: New Reporting Requirements

Beginning with the 2026 tax year, you’ll need to report three new things on employee W-2s:

1. Qualified tips income – Goes in Box 12 with code “TP”
2. Qualified overtime income – Goes in Box 12 with code “TT”
3. Occupation code for tipped employees – Goes in the new Box 14b (a three-digit code)

These changes help employees claim their rightful deductions without doing complex calculations themselves.

Good News: Higher 1099 Thresholds!

Here’s a change that will actually make your life easier: Starting in 2026, you only need to issue 1099-MISC and 1099-NEC forms to contractors and vendors you paid $2,000 or more (up from the old $600 threshold).

That means fewer forms to track and file. The threshold will also increase with inflation in future years.

Who Qualifies for the Tips Deduction?

The IRS released a list of eligible occupations for the tips deduction, grouped into eight categories:

• Beverage and food service
• Entertainment and events
• Hospitality and guest services
• Home services
• Personal services
• Personal appearance and wellness
• Recreation and instruction
• Transportation and delivery

Each occupation has a three-digit code you’ll use for reporting purposes.

What You Should Do Now

For 2025:

• Continue your normal payroll and reporting processes
• Be ready to answer employee questions about whether they qualify for tips/overtime deductions
• Consider voluntarily noting qualified tips in Box 14 of W-2s to help your employees

For 2026:

• Make sure your payroll system can track and report qualified tips and overtime separately
• Get familiar with occupation codes for any tipped employees
• Enjoy the higher 1099 threshold and simplified reporting

Let Us Handle the Details

Tax law changes like these are exactly why Padgett exists. While you focus on running your business, we stay on top of every reporting requirement, threshold change, and new form code.

We’re already preparing for these 2026 changes so when the time comes, your payroll reporting will be seamless and compliant.

Have questions about how these changes affect your specific business? That’s what we’re here for. Reach out to your Padgett advisor, and let’s make sure you’re set up for success.

The post Big payroll changes coming in 2026 (But you’re good for 2025!) appeared first on Padgett.