What’s New

Social security and Medicare taxes for 2026. The rate of social security tax on taxable wages is 6.2% each for the employer and employee. The social security wage base limit is $184,500.The Medicare tax rate is 1.45% each for the employee and employer, unchanged from 2025. There is no wage base limit for Medicare tax.Social security and Medicare taxes apply to the wages of household workers you pay $3,000 or more in cash wages in 2026. Social security and Medicare taxes apply to election workers who are paid $2,500 or more in cash or an equivalent form of compensation in 2026.

Permanent extension of individual tax rates. P.L. 119-21, commonly known as the One Big Beautiful Bill Act, permanently extends the individual income tax rates enacted by the Tax Cuts and Jobs Act (P.L. 115-97). Employers will continue to use Pub. 15-T, Federal Income Tax Withholding Methods, to figure federal income tax withholding.

Withholding on supplemental wages. The withholding rate on supplemental wages remains 22% (37% if supplemental wages paid to an employee during the calendar year exceed $1 million) because P.L. 119-21 permanently extended the individual tax rates enacted in P.L. 115-97. See section 7 for more information about supplemental wages.

Backup withholding. The backup withholding rate remains 24% because P.L. 119-21 permanently extended the individual tax rates enacted in P.L. 115-97. For reportable payments made under section 6041(a) or 6041A(a) that are made in calendar year 2026 and subject to backup withholding, P.L. 119-21 increases the aggregate reportable payment threshold from $600 to $2,000. This threshold will be adjusted for inflation for each calendar year after 2026. For more information on backup withholding, see Backup withholding , later.

Information reporting threshold increased for certain payments. For payments made after calendar year 2025, P.L. 119-21 increases the information reporting (for example, Forms 1099-MISC and Forms 1099-NEC) payment threshold from $600 to $2,000 in a calendar year for certain payments to persons engaged in a trade or business and payments for services. The threshold also increases to $2,000 for wage reporting (Forms W-2, Wage and Tax Statement) if no federal income, social security, or Medicare tax was withheld. This threshold will be adjusted for inflation for each calendar year after 2026. For more information, see the General Instructions for Forms W-2 and W-3 and the General Instructions for Certain Information Returns.

Withholding on qualified tips. For tax years beginning after 2024 and ending before 2029, P.L. 119-21 allows employees and self-employed individuals to deduct up to $25,000 of qualified tips received in occupations that customarily and regularly received tips on or before December 31, 2024, on their income tax returns. Qualified tips are cash tips, which include voluntary cash or charged tips received from customers or, in the case of employees, through tip-sharing arrangements. Mandatory service charges added to the bill are not qualified tips. Employers must use an employee’s updated Form W-4, Employee’s Withholding Certificate, if one is submitted by the employee, and the federal income tax withholding procedures in Pub. 15-T to allow the employee to account for their expected deduction and receive more money in each paycheck instead of waiting until filing their income tax return to receive the full benefit of this deduction. Tips are still generally subject to both the employer share and employee share of social security tax and Medicare tax if the tips received are $20 or more per month.Employers and other payers must file information returns (for example, Forms W-2, 1099-MISC, and 1099-NEC) with the Social Security Administration (SSA) or IRS, as applicable, and furnish statements to tip recipients showing cash tips received and the Treasury Tipped Occupation Code(s) of the tip recipient. However, the IRS has provided transition relief to employers and payers for the tax year 2025 reporting requirements. For more information, see Notice 2025-62, 2025-48 I.R.B. 740, available at IRS.gov/irb/2025-48_IRB#NOT-2025-62 .

Withholding on qualified overtime compensation. For tax years beginning after 2024 and ending before 2029, P.L. 119-21 allows individuals (employees and other workers not treated as employees) to deduct up to $12,500 ($25,000 if married filing jointly) of qualified overtime compensation from their income subject to federal income tax on their income tax returns. Qualified overtime is compensation that exceeds the regular rate of pay (such as the “half” portion of time-and-a-half compensation) that is required to be paid to an individual under section 7 of the Fair Labor Standards Act (FLSA) of 1938. The FLSA provides that employers must generally pay covered, nonexempt employees at least one-and-a-half times their regular rate of pay for hours worked over 40 hours per week. For more information about overtime compensation, go to dol.gov/agencies/whd/overtime . Employers must use an employee’s updated Form W-4, if one is submitted by the employee, and the federal income tax withholding procedures in Pub. 15-T to allow the employee to account for their expected deduction and receive more money in each paycheck instead of waiting until filing their income tax return to receive the full benefit of this deduction. Overtime compensation is still generally subject to both the employer share and employee share of social security tax and Medicare tax.Employers and other payers must file information returns (for example, Forms W-2, 1099-MISC, and 1099-NEC) with the SSA or IRS, as applicable, and furnish statements to overtime recipients showing qualified overtime compensation paid during the year. However, the IRS has provided transition relief to employers and payers for the tax year 2025 reporting requirements. For more information, see Notice 2025-62 .

Moving expense reimbursement. P.L. 119-21 permanently eliminates the exclusion for qualified moving expense reimbursements from your employee’s income. However, the exclusion is available in the case of a member of the U.S. Armed Forces on active duty who moves because of a permanent change of station due to a military order. The exclusion applies only to reimbursement of moving expenses that the member could deduct if they had paid or incurred them without reimbursement. See Moving Expenses in Pub. 3, Armed Forces’ Tax Guide, for the definition of what constitutes a permanent change of station and to learn which moving expenses are deductible.P.L. 119-21 also makes the exclusion available to an employee or new appointee of the intelligence community (as defined in section 3 of the National Security Act of 1947 (50 U.S.C. 3003)) (other than a member of the Armed Forces of the United States) who moves pursuant to a change in assignment which requires relocation. The exclusion applies only to reimbursement of moving expenses that an intelligence community employee or appointee could deduct if they had paid or incurred them without reimbursement.

Employer contributions to Trump accounts. P.L. 119-21 allows for a new type of traditional individual retirement account to be established for a child who has not attained age 18 at the end of year the account is established, known as a Trump account. This account has an annual contribution limit of $5,000 (other than exempt contributions), which will be indexed for inflation after tax year 2027. Beginning July 4, 2026, employers may contribute up to $2,500 a year, which will be indexed for inflation after tax year 2027, toward the $5,000 contribution limit to the Trump account of an employee or of a dependent of an employee, and the amount will be excluded from the gross income of the employee if paid pursuant to a Trump account contribution program. For more information about employer contributions to Trump accounts, see Pub. 15-A, Employer’s Supplemental Tax Guide.

Direct deposit of employment tax refunds now available. Executive Order (EO) 14247 , Modernizing Payments To and From America’s Bank Account, issued on March 25, 2025, promotes operational efficiency by mandating the transition to electronic payments for all federal disbursements. Accordingly, the IRS will now issue employment tax return refunds by direct deposit. Direct deposit is a fast, simple, safe, and secure way to have your refund deposited automatically to your checking or savings account. Instead of a direct deposit refund, you can still choose to have your overpayment applied to your next return by checking the appropriate box on your employment tax return. For more information, see the instructions for your employment tax return.

Make balance due payments electronically. EO 14247 also promotes operational efficiency by mandating the transition to electronic payments for all payments made to the federal government. Therefore, pay your balance due on your employment tax return electronically. There are several easy, safe, and secure ways to pay your balance due electronically. For more information, see the instructions for your employment tax return.

Employment tax return transcripts are now available electronically. You can now access Form 940, Form 941, Form 943, Form 944, and Form 945 return transcripts for tax years 2023 and later using your IRS business tax account. For more information, go to IRS.gov/BusinessTranscript . To access your IRS business tax account, go to IRS.gov/BusinessAccount .