Risk

Strategies for Surviving Year-End Reporting: FAQs for Employers

Spark Team

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As businesses prepare for the challenges of year-end reporting, understanding the latest tax updates, compliance requirements, and legislative changes is crucial.

The webinar "Strategies for Surviving Year-End Reporting," hosted by ADP's Government Affairs team, shed light on essential topics including the One Big Beautiful Bill Act, updates on unemployment insurance, and changes in paid family and medical leave programs. This article summarizes key takeaways and provides valuable answers to pressing questions, helping equip human resources teams, business owners and finance teams for a smooth reporting process.

Key takeaways from the webinar

• Become familiar with the new requirements of the One Big Beautiful Bill Act: The most impactful items for employers - the new deduction for qualified overtime and the new deduction for qualified tips.
• Update online accounts: Maintaining accurate state online accounts and TPA client portals is critical to avoid filing complications and payment issues.
• Electronic payment transition: Federal agencies are moving towards electronic payments, and employers/payors should be prepared to provide their banking information.
• PFML program expansion: With upcoming taxes for paid family and medical leave (PFML) programs in Minnesota and Maryland, employers must familiarize themselves with state-specific requirements.
• New PFML obligations: IRS Revenue Ruling 2025-4 introduced new reporting responsibilities for certain PFML benefits effective January 2026.

Frequently asked questions

Q: What should employers know about the new deductions for qualified overtime and qualified tips?

A: The Act allows individuals to claim a deduction for qualified tips and qualified overtime compensation. For tax year 2025, employers and payors are not required to report qualified tips or qualified overtime amounts on Forms W-2 or Forms 1099. Beginning with the 2026 tax year, qualified overtime and qualified tips will need to be reported on Forms W-2 and Forms 1099.

"Qualified overtime" compensation refers to overtime that must be paid under Section 7 of the Fair Labor Standards Act (FLSA). Overtime not required by the FLSA (such as potentially more generous overtime requirements under state laws or a collective bargaining agreement) is not eligible for deduction. In addition, only the premium portion of overtime can be deducted.

"Qualified tips" means cash tips received by an individual in an occupation that customarily and regularly receives tips on or before December 31, 2024. "Cash tips" for purposes of the Act include tips received from customers that are paid in cash or charged and tips received under any tip-sharing arrangement.

Q: How does the One Big Beautiful Bill Act affect state withholding?

A: States with rolling conformity will follow federal treatment for overtime wages and tips, whereas states with static conformity require legislative changes to align.

At the federal level, qualified overtime and qualified tip amounts are subject to tax withholding as they were not specifically exempted. Beginning in 2026, employees may submit an updated Form W-4 to adjust their withholding to account for expected deductions in 2026. To do this, employees will use Worksheet 4(b) attached to Form W-4.

Q: What is the new e-filing mandate starting in tax year 2024?

A. Beginning in tax year 2024, if an entity files more than 10 returns annually—including payroll returns, Affordable Care Act (ACA) filings, and income tax returns—it is subject to the e-filing mandate.

Q: What are the new Social Security and Medicare tax limits for 2026?

A. The Social Security income limit will increase to $184,500 in 2026 with a tax rate of 6.2%. The Medicare tax rate will remain at 1.45% for earnings below $200,000 and will rise to 2.35% for wages exceeding that threshold.

Q: What is the status of state unemployment insurance trust fund solvency?

A: As of October 2025, states can be categorized by their average high cost model (AHCM) solvency levels, with states exhibiting stronger economic growth typically maintaining greater solvency.

Conclusion

Understanding the evolving landscape of year-end reporting is essential for businesses to navigate the complexities of tax regulations and compliance obligations effectively. By absorbing these insights and preparing accordingly, employers can ensure a smoother reporting process in the upcoming year.

To dive deeper into these strategies and gain more valuable insights, we invite you to replay the webinar on demand. Equip yourself with the knowledge needed to navigate year-end reporting successfully!