2026 Tax Changes: What Individuals and Employers Must Know

Major tax legislation rarely affects just accountants. It affects payroll teams, HR leaders, business owners, and employees alike. The One Big Beautiful Bill Act (OBBBA) introduces structural tax changes beginning in 2025 and 2026, and several provisions require operational adjustments long before they take effect.

For employers, this is not just a tax planning issue. It is a payroll configuration issue, a withholding issue, and in some cases a workforce communication issue.

Below is a structured breakdown of what is changing, what remains uncertain, and what your business should prepare for now.

Table of Contents

• Filing Rule Changes That Impact Timely Tax Submissions
• Individual Income Tax Adjustments Beginning in 2026
• New Payroll-Related Deductions for Tips and Overtime
• Charitable Contribution Deduction Updates
• Estate and Wealth Transfer Threshold Changes
• Qualified Small Business Stock Expansion
• Energy Credit Phaseouts and Compliance Deadlines
• SALT Deduction Cap Adjustments
• What Employers Should Do Now
• Final Thoughts
• Frequently Asked Questions (FAQs) on 2026 Tax Changes

Filing Rule Changes That Impact Timely Tax Submissions

Beginning December 24, 2025, the United States Postal Service will no longer treat standard postmarks as valid proof of mailing for time-sensitive tax documents unless the envelope is hand-stamped.

This matters for employers who file paper returns or correspondence, including:

• Payroll tax returns
• Information returns
• Amended filings
• Extension requests

If your business relies on an April 15th postmark to demonstrate timely filing, you will need to obtain a hand-stamped postmark during postal business hours.

Most federal payroll and information returns can be filed electronically through IRS-approved e-file systems. Employers that rely on electronic filing are not affected by the postmark change. 

Operational recommendation: move toward electronic filing wherever possible to reduce procedural risk. If your team is still filing certain forms manually, this is the year to reassess. 

Individual Income Tax Adjustments Beginning in 2026

Several individual income tax provisions become permanent or are modified starting in 2026.

Top Federal Income Tax Rate

The 37 percent top individual federal income tax rate is permanently extended.

For updated federal tax bracket information, reference the IRS tax tables published annually at irs.gov.

Standard Deduction Increase

Beginning in 2026:

• $16,100 for single filers
• $32,200 for married filing jointly and surviving spouses
• Additional $6,000 standard deduction for taxpayers age 65 and older through 2028

This change affects paycheck withholding accuracy and employee net pay projections.

If you are managing payroll internally, ensure your system reflects updated standard deduction tables once IRS withholding tables are revised. 

You Might Be Interested In: Payroll Compliance Checklist

New Payroll-Related Deductions for Tips and Overtime

Two new deductions directly affect wage earners.

Tip Income Deduction

Taxpayers may deduct up to $25,000 of qualifying tip income. Tip income is not exempt from tax, but a deduction is available within defined limits and subject to income phaseouts.

For employers in hospitality, healthcare support roles, and service industries, tip tracking accuracy becomes even more important.

If your organization employs tipped workers, review reporting systems and Form W-2 accuracy procedures.

You can review IRS guidance on tip reporting.

Read more about tip income deduction on our blog here.

Overtime Compensation Deduction

Overtime pay is deductible up to the following limits and is subject to income phaseouts.

• $12,500 for single filers
• $25,000 for joint filers

This creates additional payroll complexity. Employers must ensure overtime is clearly categorized and reported accurately.

You can review IRS guidance on overtime compensation tax deduction. Read more about the overtime income deduction on our blog here.

If your team struggles with overtime tracking, automated time capture reduces reporting errors. Explore Excelforce's Time and Labor tools. 

Charitable Contribution Deduction Updates

Beginning in 2026, charitable deductions for itemizers are limited to the amount exceeding 0.5 percent of adjusted gross income.

Key points:

• Contributions below 0.5 percent of AGI are generally not deductible
• The 60 percent AGI cap for cash contributions remains
• New above-the-line charitable deduction of up to $1,000 for single filers and $2,000 for joint filers
• Deduction value capped at 35 percent for those in the 37 percent bracket

For businesses that promote charitable giving programs, communicate these changes to employees so expectations align with new rules.

Estate and Wealth Transfer Threshold Changes

Effective January 1, 2026:

• Federal estate, gift, and generation-skipping transfer tax exclusion increases to $15 million per individual
• $30 million for married couples

This has implications for closely held businesses, succession planning, and equity transfers.

If you operate a family-owned organization or plan an ownership transition, coordinate with estate counsel early.

Qualified Small Business Stock Expansion

For shares issued after July 4, 2025:

• Tiered exclusion system if the five-year holding period is not met
• Exclusion cap increases from $10 million to $15 million or 10 times basis
• Gross assets threshold increases from $50 million to $75 million

 If your business anticipates raising capital or issuing stock, consult with tax counsel to understand how these changes could impact new equity rounds.

Energy Credit Phaseouts and Deadlines

The One Big Beautiful Bill Act significantly narrows or phases out several federal clean energy incentives that businesses have relied on for capital planning and infrastructure upgrades. If your organization is considering renewable energy investments or facility improvements, timing matters more than ever. 

Wind and Solar Projects

Under the new rules:

• Construction must begin on or before July 4, 2026 to qualify
• Projects starting after that date must be placed in service by end of 2027

For official program guidance, reference the U.S. Department of Energy at energy.gov and IRS clean energy credit pages.

Zero-Emission Nuclear Power Production Credit

The Act maintains through 2032 the zero-emission nuclear power production credit for electricity generated at qualifying nuclear facilities placed in service before early August 2022. 

Energy producers operating eligible facilities should confirm ongoing qualification requirements under IRS guidance.

Clean Production Fuel Credit

The clean production fuel credit, which applies to certain transportation fuels including sustainable aviation fuel, remains available through 2029. However, eligibility rules have tightened, including stricter sourcing and supply chain requirements.

Given the complexity of fuel sourcing standards and lifecycle emissions calculations, affected businesses should monitor regulations closely.

Energy-Efficient Commercial Building Deduction

The Act terminates the deduction for energy-efficient commercial building improvements for construction that begins after June 30, 2026.

This deduction historically allowed building owners to deduct qualifying upgrades, such as:

• High-efficiency lighting systems
• HVAC system improvements

Organizations planning facility renovations or new construction should review project timelines carefully if they intend to rely on this deduction.

New Restrictions on Foreign Involvement

The legislation introduces new limitations affecting clean energy projects involving certain foreign entities, foreign-influenced entities, or projects receiving material assistance from prohibited foreign sources. The Treasury Department is required to issue additional guidance by December 31, 2026 to clarify how these restrictions apply. 

SALT Deduction Cap Adjustments

The state and local tax deduction cap increases:

• From $10,000 to $40,000
• Applies for tax years 2025 through 2029

Phaseout begins at:

• $250,000 AGI for single filers
• $500,000 AGI for joint filers

Unless extended, the cap reverts to $10,000 after 2029.

What Employers Should Do Now

1. Audit payroll systems for future withholding updates
2. Confirm tip and overtime reporting processes
3. Review electronic filing adoption to avoid postmark issues
4. Communicate key changes to employees during open enrollment or annual planning
5. Coordinate with tax advisors 

Excelforce provides integrated solutions that connect:

• Payroll
• Time and Labor
• HR Software
• Recruitment
• HR Compliance Services
• Benefits Administration
• Advanced Scheduling

Final Thoughts

The One Big Beautiful Bill Act creates both certainty and complexity. Some provisions are permanent. Others include sunset dates and phased eligibility rules.

This overview highlights selected provisions of the One Big Beautiful Bill Act but does not include every amendment, extension, or technical clarification contained in the legislation. Certain provisions of the Tax Cuts and Jobs Act of 2017 were not extended, and additional Treasury regulations and IRS guidance are expected. Future legislative action could also modify provisions currently described as permanent.

Individuals and businesses should consult a qualified tax professional to evaluate how these changes apply to their specific circumstances and to ensure planning strategies remain aligned with current law.

Payroll accuracy, reporting clarity, and proactive planning will determine whether these changes are disruptive or manageable.

You Might Also Enjoy

• Payroll Compliance Checklist 
• The Overtime Deduction Act: Tax Break for Overtime Workers
• A Closer Look At The Federal Tax Deduction for Tipped Workers

Frequently Asked Questions (FAQs) on 2026 Tax Changes

 ©2026 - Content on this blog is intended to provide helpful, general information. Because laws and regulations evolve, please consult an HR professional or legal expert for guidance specific to your situation.