--- title: "OBBBA: What Employers Need to Know for 2026 and 2027" description: Learn how OBBBA impacts 2026 payroll and W-2 reporting, including qualified tips, overtime deductions, state tax differences and 2027 requirements. image: https://blog.b2esolutionsinc.com/hubfs/payroll%20is%20about%20people%20first.%20(4).png --- [UKG Ready Login](https://secure2.yourpayrollhr.com/ta/default.login)    |    [(262)-563-5200](tel:262-563-5200) [![B2E Solutions](https://blog.b2esolutionsinc.com/hs-fs/hubfs/raw_assets/public/B2Esolutions_September2020/images/b2e-logo-full-color-100px.png?width=163&height=100&name=b2e-logo-full-color-100px.png "B2E Solutions")](https://b2esolutionsinc.com/) - Solutions - [UKG Ready Suite](https://b2esolutionsinc.com/workforce-management/) - [Payroll](https://b2esolutionsinc.com/workforce-management/payroll/) - [Time & Labor](https://b2esolutionsinc.com/workforce-management/time-labor/) - [Human Resources](https://b2esolutionsinc.com/workforce-management/human-resources/) - [Talent Management](https://b2esolutionsinc.com/workforce-management/talent-management/) - Resources - [Webinars](https://b2esolutionsinc.com/webinars/) - [Forms](https://b2esolutionsinc.com/forms/) - [State Payroll Tax Registration Links](https://b2esolutionsinc.com/registration-links/) - [Client Bulletin Board](https://b2esolutionsinc.com/bulletin-board/) - [Pricing](https://info.b2esolutionsinc.com/hcm-pricing) - [Blog](https://blog.b2esolutionsinc.com/) - [About Us](https://b2esolutionsinc.com/about/) - [Contact](https://b2esolutionsinc.com/contact/) - [Request a Demo](https://blog.b2esolutionsinc.com/obbba#request-demo) [Workforce Ready Login](https://secure2.yourpayrollhr.com/ta/default.login)    |    [(262)-563-5200](tel:262-563-5200) [![B2E Solutions](https://blog.b2esolutionsinc.com/hs-fs/hubfs/raw_assets/public/B2Esolutions_September2020/images/b2e-logo-small.png?width=82&height=100&name=b2e-logo-small.png "B2E Solutions")](https://b2esolutionsinc.com/) - Solutions - [UKG Ready Suite](https://b2esolutionsinc.com/workforce-management/) - [Payroll](https://b2esolutionsinc.com/workforce-management/payroll/) - [Time & Labor](https://b2esolutionsinc.com/workforce-management/time-labor/) - [Human Resources](https://b2esolutionsinc.com/workforce-management/human-resources/) - [Talent Management](https://b2esolutionsinc.com/workforce-management/talent-management/) - Resources - [Webinars](https://b2esolutionsinc.com/webinars/) - [Forms](https://b2esolutionsinc.com/forms/) - [State Payroll Tax Registration Links](https://b2esolutionsinc.com/registration-links/) - [Client Bulletin Board](https://b2esolutionsinc.com/bulletin-board/) - [Pricing](https://info.b2esolutionsinc.com/hcm-pricing) - [Blog](https://blog.b2esolutionsinc.com/) - [About Us](https://b2esolutionsinc.com/about/) - [Contact](https://b2esolutionsinc.com/contact/) - [Request a Demo](https://blog.b2esolutionsinc.com/obbba#request-demo) [(262) 563-5200](tel:262-563-5200) [Facebook page opens in new window](https://www.facebook.com/b2esolutions)[Linkedin page opens in new window](https://www.linkedin.com/company/b2e-solutions/)[YouTube page opens in new window](https://www.youtube.com/channel/UCRHbSTKrX_F2gWlKZ3IR8HA/) ## Please provide the following information to help us prepare your demo: # OBBBA: What Employers Need to Know for 2026 and 2027 November 04, 2026 By B2E Solutions ![OBBBA: What Employers Need to Know for 2026 and 2027](https://blog.b2esolutionsinc.com/hubfs/payroll%20is%20about%20people%20first.%20(4).png) Nov 04 2026 OBBBA: What Employers Need to Know for 2026 and 2027 11:35 The One Big Beautiful Bill Act (OBBBA), signed into law on July 4, 2025, introduced several federal tax changes that affect payroll and year-end reporting. As you wrap up 2026 and prepare for 2027, there are important reporting requirements, employee eligibility considerations and state tax differences to keep in mind. **2026 W-2 Reporting: New Codes for Tips and Overtime** For 2026, employers must separately report qualified tips and qualified overtime compensation on Form W-2. These reporting requirements help employees determine whether they qualify for the new federal income tax deductions when filing their individual income tax returns. **The new reporting requirements include:** - **Box 12, Code TT**: Total qualified overtime compensation. - **Box 12, Code TP**: Total cash tips reported to the employer. - **Box 14b:** Applicable Treasury Tipped Occupation Code(s) (TTOCs). The amounts reported are used to determine potential deductions. Reporting an amount on Form W-2 does not automatically mean the employee qualifies for the deduction or can deduct the full amount reported. **Temporary Deduction: Qualified Overtime Compensation** The OBBBA created a temporary federal income tax deduction for qualified overtime compensation for tax years 2025 through 2028. The deduction is limited to $12,500 for single filers and $25,000 for married couples filing jointly. Income-based phaseouts and other eligibility requirements apply. **What qualifies?** Qualified overtime generally includes the premium portion of overtime compensation required under Section 7 of the Fair Labor Standards Act (FLSA) that exceeds the employee's regular rate of pay. For example, when an employee earns $20 per hour and receives $30 per hour for FLSA-required overtime, the additional $10 premium — not the entire $30 payment — is generally the qualified overtime amount. For 2026, employers must report qualified overtime compensation in Form W-2, Box 12, Code TT. The amount reported may exceed the employee's allowable deduction because the deduction limits and other eligibility requirements apply when the employee files their tax return. Qualified overtime compensation generally remains subject to applicable federal income tax withholding and Social Security and Medicare taxes. Overtime paid solely because of state law, an employment agreement, or a collective bargaining agreement generally does not qualify unless it also meets the applicable FLSA requirements. **Employees who may not qualify** Not all overtime payments qualify for the deduction. Eligibility depends on the employee's specific FLSA coverage and exemption status, not simply the employee's industry or job title. **Employee groups that may require additional review include:** - **Railroad employees**: Certain employees may be subject to separate railroad labor and tax rules. - **Airline employees:** Certain employees may be subject to different federal overtime requirements. - **Truck drivers, motorcoach drivers and intercity bus drivers:** Certain transportation employees may be exempt from FLSA overtime requirements. - **Other FLSA-exempt employees:** Certain executive, administrative, professional, outside sales and computer employees may be exempt from FLSA overtime requirements. These employee groups may require additional review; they are not automatically excluded. Confirm each employee's applicable FLSA coverage and exemption status before identifying compensation as qualified overtime. **IMPORTANT Year-end reminder: Review overtime reporting** Before year-end, review your overtime setup and reporting process. - **Overtime eligibility**: Verify that overtime-eligible employees have the required information in UKG Ready and that employees who are not eligible are not incorrectly identified as eligible. - **TLM and Payroll clients:** Overtime is calculated per payment, and year-to-date adjustments have been made. Review calculations and reporting to confirm accuracy. - **Payroll-only clients:** Maintain a process to track qualified overtime by workweek and complete the required 2026 uploads. **Client action:** Review overtime eligibility, calculations and reporting before finalizing year-end payroll. Do not assume that all overtime payments qualify or that the full overtime payment is deductible. **For additional information, see the** [**IRS guidance on qualified overtime compensation**](https://www.irs.gov/pub/taxpros/fs-2026-13.pdf)**.** --- **Temporary Deduction: Qualified Tips** The OBBBA also created a temporary federal income tax deduction for qualified tips for tax years 2025 through 2028. The deduction is limited to $25,000 per year, subject to income-based phaseouts and other eligibility requirements. **What qualifies?** Qualified tips generally include voluntary cash and charged tips received by employees in occupations identified by the IRS as customarily and regularly receiving tips on or before Dec. 31, 2024. Qualifying tips received through tip-sharing arrangements may also be included. Mandatory service charges and automatic gratuities do not qualify as tips simply because they are distributed to employees. **For 2026, employers must report:** - **Form W-2, Box 12, Code TP:** Total qualified tips reported to the employer. - **Form W-2, Box 14b:** Applicable Treasury Tipped Occupation Code(s). The amount reported in Box 12, Code TP, is a reporting amount. It does not necessarily equal the amount the employee can deduct. - For the IRS list of eligible occupations, visit [https://www.irs.gov/forms-pubs/occupations-that-customarily-and-regularly-received-tips-on-or-before-dec-31-2024](https://www.irs.gov/forms-pubs/occupations-that-customarily-and-regularly-received-tips-on-or-before-dec-31-2024) **IMPORTANT Year-end reminder**: Tipped occupation codes require attention If you have not already reviewed and entered the required Treasury Tipped Occupation Codes, address this now rather than waiting until year-end. - **Confirm** that employees receiving tips have the appropriate occupation information in UKG Ready. - **Verify** that tip amounts are linked to the correct reporting code and that the reported amounts are accurate. - **Review** UKG Ready payroll processing warnings and address them promptly. Do not ignore warnings or assume missing information can be corrected at year-end. The IRS requires employers to report the total cash tips reported to the employer in Box 12, Code TP, and applicable TTOCs in Box 14b. Accurate reporting is important to help employees determine whether they qualify for the deduction. **Client action:** Review tipped employee setup and reporting throughout the year. Correct missing or inaccurate information promptly and follow applicable IRS requirements. For additional information, visit [IRS Tax Topic 761 – Tips](https://www.irs.gov/taxtopics/tc761). --- **Federal Does Not Always Mean State** One important OBBBA reminder: Federal tax treatment does not automatically determine state tax treatment. States are not required to follow every federal tax change. Each state has its own rules for conforming to the Internal Revenue Code, and a state may adopt, modify, delay or reject individual federal provisions. Employers should review applicable state rules when setting up payroll, calculating taxable wages and preparing year-end reporting. Wisconsin example: Dependent Care Assistance Program (DCAP) Effective Jan. 1, 2026, the federal DCAP exclusion limit increased from $5,000 to $7,500 ($3,750 for married employees filing separately). Wisconsin did not adopt the federal increase and continues to allow an exclusion of $5,000 ($2,500 for married employees filing separately). Consider an employee who receives $7,500 in qualifying DCAP benefits during 2026: | Item | Federal | Wisconsin | | --- | --- | --- | | DCAP benefits | $7,500 | $7,500 | | Exclusion limit | $7,500 | $5,000 | | Taxable excess | $0 | $2,500 | In this example, the employee has no federal taxable excess, but $2,500 is taxable for Wisconsin purposes. As a result, Wisconsin wages reported in Form W-2, Box 16, may be $2,500 higher than federal wages in Box 1, assuming there are no other differences in taxable wages. Remember that Form W-2, Box 10, reports total dependent care benefits, including amounts exceeding the applicable exclusion limit. Any taxable excess must also be included in the appropriate taxable wage boxes. **UKG update** At the time this guide was printed, B2E Solutions was still working with UKG to determine how differences would be handled at the state level. We are monitoring the applicable limits and evaluating the available approach if a system adjustment or workaround is needed. **Client action:** No action is needed for this item at this time. We will provide updates if any changes or additional steps are required. --- **Looking Ahead to 2027** OBBBA is not a one-year change. Several provisions continue into 2027, and employers should include them in their ongoing payroll and year-end planning. Qualified tips and overtime continue. The federal deductions for qualified tips and qualified overtime continue through 2028. Employers should maintain processes for tracking and reporting qualifying amounts in 2027. The 2026 reporting requirements are not a one-time obligation. **1099 reporting threshold changes** The OBBBA increased the federal information-reporting threshold for certain Forms 1099 from $600 to $2,000 for payments made after Dec. 31, 2025. Beginning with payments made after Dec. 31, 2026, the $2,000 threshold will be adjusted annually for inflation. Employers and other payers should confirm the applicable threshold and reporting requirements when preparing 2027 Forms 1099. State reporting requirements may differ from federal requirements, so do not assume the federal threshold automatically applies at the state level. **Continue reviewing state tax treatment** A federal provision may continue into 2027 while a particular state treats that provision differently. As you prepare for the new year, review state conformity and applicable tax rules for the jurisdictions where your employees work. Pay particular attention to differences that may affect taxable wages, withholding and year-end forms. --- **The Bottom Line** OBBBA is not a “set-it-and-forget-it” change. As you close out 2026 and prepare for 2027: - Review qualified tip and overtime reporting. - Address missing information and payroll warnings promptly. - Verify employee eligibility and applicable reporting codes. - Review state tax treatment, including DCAP differences. - Prepare for continuing federal reporting requirements and changing 1099 thresholds. **Federal may be the starting point, but it isn't always the finish line**. Accurate payroll setup, ongoing review and attention to state-specific requirements will help you prepare for a smoother year-end. Share this Post [Tweet](https://twitter.com/share?url=https://blog.b2esolutionsinc.com/obbba&text=%3Cspan+id%3D%22hs_cos_wrapper_name%22+class%3D%22hs_cos_wrapper+hs_cos_wrapper_meta_field+hs_cos_wrapper_type_text%22+style%3D%22%22+data-hs-cos-general-type%3D%22meta_field%22+data-hs-cos-type%3D%22text%22+%3EOBBBA%3A+What+Employers+Need+to+Know+for+2026+and+2027%3C%2Fspan%3E) [Share on LinkedIn](https://www.linkedin.com/shareArticle?mini=true&url=https://blog.b2esolutionsinc.com/obbba&title=%3Cspan+id%3D%22hs_cos_wrapper_name%22+class%3D%22hs_cos_wrapper+hs_cos_wrapper_meta_field+hs_cos_wrapper_type_text%22+style%3D%22%22+data-hs-cos-general-type%3D%22meta_field%22+data-hs-cos-type%3D%22text%22+%3EOBBBA%3A+What+Employers+Need+to+Know+for+2026+and+2027%3C%2Fspan%3E) [Share on Facebook](https://www.facebook.com/sharer.php?u=https://blog.b2esolutionsinc.com/obbba) [← Previous Why It's Time To Say Goodbye to Paper Paychecks](https://blog.b2esolutionsinc.com/benefits-of-electronic-pay-and-paperless-pay-types) [Next → Did You Catch the “Super Catch-Up”? SECURE 2.0 in 2026](https://blog.b2esolutionsinc.com/super-catch-up-2026) ### Categories - [Best Practices (44)](https://blog.b2esolutionsinc.com/topic/best-practices) - [Human Resources (42)](https://blog.b2esolutionsinc.com/topic/human-resources) - [Payroll (19)](https://blog.b2esolutionsinc.com/topic/payroll) - [UKG Ready (19)](https://blog.b2esolutionsinc.com/topic/ukg-ready) - [Compliance (14)](https://blog.b2esolutionsinc.com/topic/compliance) - [Industry News (10)](https://blog.b2esolutionsinc.com/topic/industry-news) - [Time & Labor (9)](https://blog.b2esolutionsinc.com/topic/time-labor) - [Year End (7)](https://blog.b2esolutionsinc.com/topic/year-end) - [Talent Management (6)](https://blog.b2esolutionsinc.com/topic/talent-management) - [Company News (2)](https://blog.b2esolutionsinc.com/topic/company-news) ### Connect With Us! Get the latest B2E Solutions blogs, news, tips, and trends right to your inbox. ### Latest Posts - [![Did You Catch the “Super Catch-Up”? SECURE 2.0 in 2026](https://blog.b2esolutionsinc.com/hubfs/payroll%20is%20about%20people%20first.%20(3).png)](https://blog.b2esolutionsinc.com/super-catch-up-2026) [Did You Catch the “Super Catch-Up”? SECURE 2.0 in 2026](https://blog.b2esolutionsinc.com/super-catch-up-2026) November 04, 2026 - [![Why It's Time To Say Goodbye to Paper Paychecks](https://blog.b2esolutionsinc.com/hubfs/paycheck%20icon.png)](https://blog.b2esolutionsinc.com/benefits-of-electronic-pay-and-paperless-pay-types) [Why It's Time To Say Goodbye to Paper Paychecks](https://blog.b2esolutionsinc.com/benefits-of-electronic-pay-and-paperless-pay-types) October 01, 2026 - [![What To Do Before Running the Last Payroll of 2026](https://blog.b2esolutionsinc.com/hubfs/Imported_Blog_Media/Payroll-Crop-3-1.jpg)](https://blog.b2esolutionsinc.com/checklist-what-to-do-before-running-the-last-payroll-of-the-year) [What To Do Before Running the Last Payroll of 2026](https://blog.b2esolutionsinc.com/checklist-what-to-do-before-running-the-last-payroll-of-the-year) September 23, 2026 - [![11 Strategies To Help You Work More Efficiently](https://blog.b2esolutionsinc.com/hubfs/Resizing%20for%20Blog%20Images%20(3).png)](https://blog.b2esolutionsinc.com/how-to-work-more-efficiently) [11 Strategies To Help You Work More Efficiently](https://blog.b2esolutionsinc.com/how-to-work-more-efficiently) August 18, 2026 - [![10 Tips for a Successful Open Enrollment Season With B2E Solutions](https://blog.b2esolutionsinc.com/hubfs/Blog%20Images.png)](https://blog.b2esolutionsinc.com/10-tips-for-a-successful-open-enrollment-season-with-b2e-solutions) [10 Tips for a Successful Open Enrollment Season With B2E Solutions](https://blog.b2esolutionsinc.com/10-tips-for-a-successful-open-enrollment-season-with-b2e-solutions) August 04, 2026 ![B2E Solutions](https://blog.b2esolutionsinc.com/hubfs/b2e-reversed.png) ![UKG Partner Reseller](https://blog.b2esolutionsinc.com/hubfs/UKG%20Partner%20Reseller%20Logo%20-%20Stacked%20White.png) [![B2E Solutions, Inc. BBB Business Review](https://seal-wisconsin.bbb.org/seals/blue-seal-200-42-whitetxt-bbb-1000055585.png)](https://www.bbb.org/us/wi/hartland/profile/payroll-services/b2e-solutions-inc-0694-1000055585/#sealclick) Headquarters 1020 James Drive, Suite O Hartland, WI 53029 [262-563-5200](tel:2625635200) [Request Demo](https://b2esolutionsinc.com/demo) [Subscribe to Email](https://b2esolutionsinc.com/subscribe) - [UKG Ready Suite](https://b2esolutionsinc.com/workforce-management/) - [– Payroll](https://b2esolutionsinc.com/payroll/) - [– Time & Labor](https://b2esolutionsinc.com/time-labor/) - [– Human Resources](https://b2esolutionsinc.com/human-resources/) - [– Talent Management](https://b2esolutionsinc.com/talent-management/) - [Forms](https://b2esolutionsinc.com/forms/) - [State Resources & Downloads](https://b2esolutionsinc.com/downloads/) - [Blog](https://b2esolutionsinc.com/blog/) - [About Us](https://b2esolutionsinc.com/about/) - [Careers](https://b2esolutionsinc.com/about/#careers) - [Contact](https://b2esolutionsinc.com/contact/) - [Client Referral Program](https://info.b2esolutionsinc.com/client-referral) ©2026 B2E Solutions, Inc. All rights reserved | Formerly Payroll Data Services - Est. 1993 ```json { "@context" : "https://schema.org", "@type" : "BlogPosting", "author" : { "@type" : "Person", "name" : "B2E Solutions", "url" : "https://blog.b2esolutionsinc.com/author/b2e-solutions" }, "dateModified" : "2026-11-05T03:11:24.380Z", "datePublished" : "2026-11-05T03:11:09.000Z", "headline" : "OBBBA: What Employers Need to Know for 2026 and 2027", "image" : [ "https://blog.b2esolutionsinc.com/hubfs/payroll%20is%20about%20people%20first.%20(4).png" ], "mainEntityOfPage" : { "@id" : "https://blog.b2esolutionsinc.com/obbba", "@type" : "WebPage" }, "publisher" : { "@type" : "Organization", "logo" : { "@type" : "ImageObject", "url" : "https://blog.b2esolutionsinc.com/hubfs/b2e-logo-full-color-100px.png" }, "name" : "B2E Solutions, Inc." } } ```