Tax and Payroll Changes Under the “Big Beautiful Bill”

What Employers and Individuals Need to Know

As Congress finalizes the sweeping “Big Beautiful Bill,” businesses and individuals alike should prepare for several key changes to the U.S. tax and payroll landscape. While the bill covers a broad range of initiatives, this post highlights only the tax-related and payroll-specific updates that could directly impact your bottom line and compliance responsibilities.

  1. Updated Federal Income Tax Brackets

Beginning January 1, 2026, the bill adjusts the federal income tax brackets, expanding the thresholds for lower tax rates. This shift is designed to offer relief for middle-income households while slightly increasing rates on ultra-high earners:

  • The 10% and 12% brackets are consolidated into a new 11% bracket.
  • The top marginal rate increases from 37% to 39.6% for individuals earning over $500,000 and joint filers earning over $600,000.
  • Bracket thresholds will continue to be indexed for inflation, but the inflation measure used will revert to the CPI-U, which generally grows faster than the chained CPI.
  1. Standard Deduction Increase

The standard deduction will see another boost:

  • $15,000 for single filers (up from $14,600 in 2025)
  • $30,000 for joint filers (up from $29,200)

This change is intended to simplify filing for most households and further reduce taxable income.

  1. Child Tax Credit Expansion

The bill significantly increases the Child Tax Credit to:

  • $2,500 per child under 18 (currently $2,000)
  • Fully refundable up to the maximum amount, rather than partially

This change will impact both individual filers and employers managing dependent-related benefits and payroll tax adjustments.

  1. Payroll Tax Cap Expansion for Social Security

To address long-term funding for Social Security, the bill introduces a new payroll tax “donut hole” structure:

  • The current wage cap ($168,600 in 2025) remains in place.
  • Wages over $250,000 (individual) or $400,000 (joint) will once again be subject to 6.2% Social Security tax, paid by both employers and employees.

Employers will need to update payroll systems to accommodate this tiered wage reporting and deduction starting in Q1 of 2026.

  1. New Payroll Reporting Requirements

The bill adds several employer compliance measures:

  • Quarterly wage reconciliation reports to be filed with both the IRS and Social Security Administration
  • A standardized digital payroll format for businesses with over 25 employees
  • Penalties increase for late W-2 and 1099 filings, up to $300 per form
  1. Employer Credits and Deductions Adjustments

While several business deductions are being phased out, some remain or expand:

  • The Work Opportunity Tax Credit (WOTC) is extended and expanded to include long-term unemployed workers hired between 2026 and 2028.
  • A new Payroll Technology Credit offers up to $1,200 in tax credits for small businesses that adopt certified digital payroll systems by 2027.

What This Means for You

Now is the time to review your current payroll systems and withholding schedules. Employers may need to budget for higher payroll tax liabilities at the upper-income levels, and employees may want to revisit W-4 forms to reflect the new bracket structure. Our team is here to help you prepare for these changes and ensure compliance every step of the way. Schedule a tax strategy session today to protect your earnings and streamline your reporting processes using this link or you can contact us at the office 504-525-7245.