Two Key 2026 Compliance Shifts Every Business Owner Should Have on Their Radar

If you’re running a business today, you already know the pace of regulatory change can feel relentless. Just as you get one update under control, another one appears. But 2026 brings two shifts that are especially important because they affect your day‑to‑day operations and require action early in the year, not later.

Even though January is nearly behind us, there’s still time to get ahead of these changes. Here’s what you need to know.

1. New Federal Reporting Rules for Overtime and Tips

Last summer’s One Big Beautiful Bill Act (H.R.1) introduced a new federal tax deduction for qualified overtime and qualified tips. That part is good news. The more challenging part is what comes next.

Starting with the 2026 tax year, employers must track and separately report qualified overtime premiums and qualified tip amounts on each employee’s W‑2.  It is a new federal requirement that applies to any business with eligible workers.  The IRS states that for tipped workers, the maximum annual deduction is $25,000, which phases out for taxpayers with modified adjusted gross income over $150,000 ($300,000 for joint filers).

Employees who earn qualified overtime will be able to take a new federal tax deduction. That part is straightforward for them, but it creates an important responsibility for you as the employer. The deduction applies to the extra portion of overtime pay, the “half” in “time and a half,” as long as the overtime is required under the Fair Labor Standards Act and properly reported on a W‑2, 1099, or similar year‑end form. For example, if an employee earns $10 per hour normally and is paid $15 per hour when working overtime, only the extra $5 per hour they receive for overtime qualifies for the new tax deduction.

If you are using a third-party payroll processor, confirm they are compliant.  If you are processing payroll in house, to make this work, your payroll system must accurately track qualified overtime throughout the year. Employees can deduct up to $12,500 annually, or up to $25,000 for joint filers, with the benefit phasing out for higher‑income taxpayers.

If the data isn’t captured correctly throughout the year, you risk inaccurate W‑2s and potential compliance issues. A little preparation now will save a lot of headaches later.

2. SECURE 2.0’s Roth Catch‑Up Requirement for High Earners

The second major shift affects the retirement plans of your highest‑earning employees. Beginning in 2026, anyone earning more than $150,000 who wants to make catch‑up contributions will have to make them as Roth contributions rather than pre‑tax. This applies to employees aged 50 and older and represents a meaningful change in how contributions are taxed and processed.

While it may sound like a small technical adjustment, it touches several parts of your organization. Payroll systems must be able to handle Roth catch‑up withholding. Your recordkeeper needs to be aligned so contributions are coded correctly. And your employees, especially those who have always contributed pre‑tax, will need some clear communication so they are not surprised when their take‑home pay looks different.

Plan documents will need updates as well, and if your organization uses auto‑enrollment or has newly eligible part‑time employees, those processes may need attention, too. For companies with a large population of high earners, this change can create confusion if it isn’t explained early on.

A Quick Word on State‑Level Changes

While these two federal shifts are big, it’s worth remembering that there are many updates at the state level. If you operate in more than one state, you may already be feeling the whirlwind of information. Picture this: your Arizona location needs a new paid‑leave policy, your California team is adjusting to updated crime‑victim leave protections, and your Colorado office is suddenly required to disclose salary ranges in every job posting. None of these changes are that hard to understand by themselves, but when you put them all together, they turn into a confusing mix of rules that can be totally different from one state to another, and sometimes even from one city to the next.

That is why 2026 is turning into a year where the rules can be very different depending on where you do business. The devil is in the details.  Staying ahead means paying closer attention to what each state is doing and being willing to update your policies before small issues turn into bigger problems.  A trusted strategic business advisor can make all the difference and save you countless hours of frustration when faced with a department of labor audit.

Helping You Navigate 2026 

Regulatory changes don’t have to distract you from running your business. As a B2B CFO^® Partner, I work with business owners and CEOs to help them stay on top of financial and compliance requirements without getting overwhelmed. If you need support or have questions dealing with these updates, I am here to make things easier with clear answers and hands‑on help.