04:05 AMERICAS
The Impact of the “Big Beautiful Bill” The One Big Beautiful Bill Act (P.L. 119-21), signed 4 July, added two major tasks to payroll: the need to report potentially qualified amounts to employees for portions of overtime pay and tips that could be used to reduce individual taxes. Easily overlooked is that the OBBBA also made permanent or extended several payroll-related provisions such as the retention of existing general individual tax rates and the elimination of withholding allowances. Set by the 2017 Tax Cut and Jobs Act, if those provisions had expired at the end of 2025, U.S. payrolls for 2026 could have been much more complicated as many figures and tax provisions would have reverted to 2017 levels— including tax rates. The manner of calculating federal tax withholding would have changed dramatically. All that potential hardship was spared. The First Payroll of the Year Most employees in the U.S. are not paid on a monthly schedule, and many will have their first pay of 2026 the beginning of the month. So, it is important pay systems are timely updated with the changes so accurate payments are made.
The key figures to use for 2026 are broken into categories below. While the basic tax rates listed have not changed, the withholding methods are adjusted to account
for an increased standard deduction individuals apply against their tax liabilities.
Starting in 2025 and listed below, employers also need to consider amounts for qualified overtime and tip wages that could be used by employees to deduct from their individual adjusted gross income for 2025. This information should be provided to those eligible in the beginning of 2026. These amounts are scheduled to sunset after 2028. When these critical pieces are not included with calculating gross-to- net and developing accumulators at the very beginning of the year, payroll plays catch-up to fix the anomalies. As the year rolls on, there will be enough changes and adjustments that can impact the ability to process accurate pay, tax obligations, and reporting; the figures below are a great start to getting it right for the first pay, at least. Note: Changes to state taxes and other state requirements for 2026 are not included.
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GLOBAL PAYROLL MAGAZINE ISSUE 18
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