2026 Payroll Tax Updates: What Employers Need to Know

By Michael Reis, Vice President of Sales

Employers are facing another year of regulatory changes that will shape payroll operations, HR compliance, benefits administration, and long-term financial planning. Staying ahead of these updates is essential for meeting federal and state requirements as well as ensuring smooth operations and a positive employee experience.

Below is a clear breakdown of the key payroll tax changes expected in 2026, along with insights on how they may impact your business.

Federal Payroll Tax Bracket Adjustments

Every year, the IRS adjusts payroll-related tax brackets to account for inflation. For employers, this means updates to withholding tables and employee pay calculations. Even small shifts can affect net pay, benefit contributions, and payroll processing accuracy. It is important that businesses ensure W-4 processing is updated as well as withholding calculations.

Social Security Wage Base Increases

The Social Security wage base typically rises annually, increasing the maximum amount of wages subject to Social Security tax. The impact to employers includes:

• Higher employer Social Security tax liability for high-earning employees.
• Necessary updates to payroll and year-end wage limit tables.
• Possible adjustments to benefit caps tied to annual wage limits.

Potential Changes to Federal Unemployment Tax (FUTA) Credits

States with outstanding federal unemployment loans may trigger FUTA credit reductions, increasing employer tax liabilities. If your state is affected, you may see a higher effective FUTA rate for 2026. It’s important to plan ahead for the additional year-end tax burden.

• California currently has a significant outstanding federal loan balance (expected to be around $22.9 billion by the end of 2026) and employers in the state are subject to a 1.2% FUTA credit reduction for the 2025 tax year (payable in early 2026). The state received a waiver for an additional “Benefit Cost Rate” (BCR) add-on for 2025, but the risk of this and further credit reductions remains for 2026 and beyond if the loans are not repaid.
• New York and Connecticut had been potential credit reduction states but successfully repaid their federal loans in mid-2025, thus avoiding FUTA credit reductions for the 2025 tax year.

State and Local Payroll Tax Expansions

More states are introducing or expanding payroll-related programs such as:

• Paid family and medical leave insurance (PFML).
• State-sponsored retirement plan mandates.
• Local payroll taxes or surcharges.

Monitor new requirements in states where you have employees, particularly if your workforce is remote and/or multi-state.

Affordable Care Act (ACA) Affordability and Reporting Updates

As health insurance costs rise, ACA affordability percentages and reporting requirements continue to evolve. Key employer considerations include:

• Updated affordability thresholds may require adjustments to employee premium contributions.
• ACA 1094/1095 reporting remains mandatory for applicable large employers.
• Employers offering health insurance should prepare for new annual adjustments.

Retirement Plan Contribution and Compliance Changes

Inflation adjustments and legislative updates, such as SECURE Act enhancements, continue to shape retirement plan administration. Possible 2026 updates may include:

• Higher contribution limits for 401(k) and IRA plans.
• Adjusted catch-up contribution thresholds.
• Expanded eligibility rules for part-time employees.
• New compliance requirements for employers offering workplace retirement plans.

Increased Focus on Payroll Compliance & Worker Classification

Regulators continue tightening rules on worker classification, gig work, and wage-and-hour compliance. Employers should prepare for 2026 including:

• Updated definitions of employee versus contractor.
• Higher penalties for wage-and-hour violations.
• Enhanced audit activity aimed at payroll accuracy and recordkeeping.

How We Help Employers Stay Ahead

Managing payroll changes alongside HR, insurance, and retirement plan responsibilities can be overwhelming. That’s where we excel.

Our services help organizations of every size:

• Stay compliant with every payroll tax update.
• Streamline HR and onboarding processes.
• Manage benefits and insurance with ease.
• Offer competitive, compliant retirement plans.
• Reduce risk, eliminate manual tasks, and improve accuracy.

Payroll tax laws consistently evolve and 2026 is no exception. By preparing early, updating internal processes, and leveraging our expert support, employers can avoid compliance issues and keep operations running smoothly.

As regulations shift, we work to keep you informed, compliant, and confident every step of the way.

Let’s Talk. Our personnel management professionals provide expert support in payroll, workforce management, human resources, benefits administration, and retirement planning services.

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Learn more about how we can help you achieve your goals, address challenges, and resolve issues with speed and precision by conveniently scheduling an appointment with our team. And to speak directly with an experienced payroll professional, please contact us at 704.632.2940 or simply Click Here and Let’s Talk.

* MPAY LLC dba Payentry (Company), is not a law firm. This article is intended for informational purposes only and should not be relied upon in reaching a conclusion in a particular area of law. Applicability of the legal principles discussed may differ substantially in individual situations. Receipt of this or any other Company materials does not create an attorney-client relationship. The Company is not responsible for any inadvertent errors that may occur in the publishing process.