OBBBA: Preparing for 2026 Tax Year

Beginning with the 2026 tax year, employers will be required to separately report qualified tips and qualified overtime compensation on Form W-2. Although the IRS provided penalty relief for 2025 and did not require revised forms for that year, this transition period ends in 2026. 

Employers should be prepared to update payroll, timekeeping, and HR systems to accurately track and report:

– FLSA-required overtime pay (distinct from other pay); and 
– Qualified tips and occupation codes for tipped employees

Failure to implement compliant reporting processes for 2026 may result in penalties once transition relief expires.

Jackson Lewis:
OBBBA in 2026: Immediate Action Required for Employers

California employers might be surprised by some important nuances in the “No Tax on Overtime” rules that rolled out nationwide last year and may create especially challenging obligations for employers in the Golden State. This Insight will focus on one of the key nuances that will be especially challenging for California employers: Overtime pay that is required by state – but not federal – law is not “qualified overtime compensation” under the OBBBA.

Fisher & Phillips LLP:
California Employer Guide to Federal “No Tax on Overtime” Law: Key Takeaways That May Surprise and Challenge Your Workplace