As we move into 2026, new federal tax and payroll rules are taking effect that will directly impact how employers report payments and manage employee benefits. Staying informed about these changes is essential for maintaining compliance, controlling costs, and taking advantage of available tax credits. Continental Business Solutions’ Payroll Services is here to help employers understand what’s changing—and what it means for their business.
Key Payroll and Tax Changes for 2026
Several updates under federal legislation introduce higher thresholds, expanded benefits, and new opportunities for employer tax credits. Below are the most impactful changes employers should be aware of this year.
Increased 1099 Reporting Threshold
- The reporting threshold for 1099-MISC and 1099-NEC has increased from $600 to $2,000 per year.
This change reduces reporting requirements for smaller payments made to independent contractors and vendors. Employers should review their vendor payment processes and update internal tracking systems to reflect the new threshold.
Higher Dependent Care FSA Limits
- The annual Dependent Care Flexible Spending Account (FSA) contribution limit has increased from $5,000 to $7,500.
This increase allows employees to set aside more pre-tax dollars for qualifying dependent care expenses, offering meaningful tax savings for families and enhancing the value of your benefits package.
Expanded Employer-Provided Childcare Credit
- The employer-provided childcare tax credit now ranges from 40% to 50%, depending on company size.
Eligible employers may receive a larger credit for expenses related to providing or supporting childcare benefits. This expansion creates new opportunities for organizations looking to attract and retain talent while offsetting benefit costs.
Paid Family Leave Tax Credit Becomes Permanent
- The paid family leave tax credit is now permanent.
- Employers who pay at least 50% of an employee’s wages during qualifying leave may continue to claim this credit.
Making this credit permanent provides long-term certainty for employers who offer paid family and medical leave, encouraging continued investment in employee well-being.
What Employers Should Do Now
With these changes in effect, employers should review payroll systems, benefit plans, and reporting procedures to ensure they align with updated requirements. Clear communication with employees and proper system configuration are key to maximizing benefits while avoiding compliance issues.
How Continental Business Solutions Can Help
Continental Business Solutions’ Payroll Services helps employers navigate changing tax laws with confidence. From updating payroll systems and reporting thresholds to supporting benefit administration and tax credit tracking, our team ensures your payroll processes stay compliant and optimized.
February is the perfect time to assess how these new rules affect your organization. With the right guidance and support, payroll changes can become opportunities—not obstacles.
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