IRS Payroll Bulletin: Paid Leave Credit Expanded, Overtime W-2 Rules Clarified, and Two Retirement Programs on the Way

The IRS released its September 2026 payroll bulletin covering four separate guidance items that affect employers directly: an expanded paid family and medical leave tax credit, updated rules for the “no tax on overtime” deduction, proposed regulations on employer contributions to Trump Accounts, and an advance notice on upcoming Saver’s Match regulations. If you have employees on payroll, at least one of these applies to you now.

Paid Family and Medical Leave Credit Is Now Permanent

Treasury and the IRS issued guidance to help employers claim the federal tax credit for paid family and medical leave under the Working Families Tax Cuts. The credit is now permanent, and the rules have gotten more favorable for small businesses.

Key changes:

The credit is permanently expanded, not a temporary provision.
Eligibility is broader. Employers can now claim the credit for part-time workers and employees who have at least six months of service, which was not previously allowed.
Employers can now claim the credit for insurance premiums paid during leave, in addition to wages paid during leave.
The credit covers leave programs that provide up to 12 weeks of paid family and medical leave.

For small businesses that have been reluctant to offer paid leave because of cost, the permanent credit and the expanded premium reimbursement option change the math. If you currently offer paid leave or are considering it, now is the time to review whether your program qualifies for the credit and whether you are claiming it correctly.

Overtime Deduction FAQs Updated for 2026 and Beyond

The IRS updated the frequently asked questions on the “No Tax on Overtime” deduction. The update removes information that was specific to the 2025 tax year and adds clarification on how the deduction works on a continuing basis.

What changed in the FAQs (per Fact Sheet 2026-13):

Clearer rules on the limits and timing of the qualified overtime compensation deduction.
Additional detail on which workers are covered and which are exempt under the Fair Labor Standards Act (FLSA).
Employer and payor requirements for Form W-2, Form 1099-MISC, and Form 1099-NEC when reporting qualified overtime compensation.
Guidance on federal income tax withholding procedures for overtime pay that qualifies.
A critical reporting requirement: qualified overtime compensation must be reported separately on Form W-2 for the employee to claim the deduction.

That last point is the one most likely to cause problems. If overtime is buried in the regular wages box on W-2s at year-end, employees who qualify for the deduction will not be able to claim it. Payroll processors and anyone running payroll in-house should confirm their setup now, well before W-2 season.

Proposed Regulations: Employer Contributions to Trump Accounts

Treasury and the IRS proposed regulations for employer programs that contribute to Trump Accounts on behalf of employees or their dependents. These are tax-free contributions under the proposed rules.

The proposed rules cover:

Employers may contribute up to $2,500 per year.
Contributions must be offered on a fair basis and cannot favor highly compensated employees.

These are proposed regulations, not final rules. The public comment period runs through September 25, 2026, and a public hearing is scheduled for October 15, 2026. Employers interested in establishing a Trump Account contribution program should watch for the final regulations before building out a formal program.

Saver’s Match Regulations Are Coming

Treasury and the IRS announced they will propose regulations for the federal Saver’s Match program, which replaces the existing Saver’s Credit beginning in 2027. This affects employees at the lower end of the income scale who save for retirement.

How the Saver’s Match works:

Eligible taxpayers receive a 50% match on the first $2,000 of qualified retirement savings contributions, for a maximum match of $1,000 per year.
Contributions must go to an employer-sponsored retirement plan or an IRA.
The program begins for contributions made in the 2027 tax year.
Payments to eligible taxpayers start in 2028.
It replaces the Saver’s Credit entirely.

Regulations are not yet proposed, but comments on the anticipated rules can be submitted at Regulations.gov by October 5, 2026. For employers who sponsor retirement plans, this is worth tracking. The Saver’s Match may increase employee participation in plans among lower-income workers, which can affect your plan’s nondiscrimination testing.

What Employers Should Do Now

Paid leave credit: If you offer paid family and medical leave, confirm your plan meets the current credit requirements and that you are capturing the insurance premium option if applicable. If you do not offer paid leave, review whether the expanded credit makes it financially viable.
Overtime deduction: Audit your payroll system to make sure qualified overtime compensation will be reported separately on Form W-2. Do not wait until December. Talk to your payroll service or tax advisor about whether any system changes are needed.
Trump Accounts: No action required yet. Monitor the final regulations if you are considering adding an employer contribution program.
Saver’s Match: No action required for 2026. Plan sponsors should watch for the proposed regulations and assess nondiscrimination testing implications for 2027.

BCA monitors IRS guidance releases and can help you assess how changes like these apply to your specific payroll and benefits setup. If the W-2 reporting change for overtime or the paid leave credit expansion raises questions about your current practices, reach out.

This article is for general informational purposes only and does not constitute tax, legal, or financial advice. Tax rules change frequently and may vary based on your individual circumstances. Consult a qualified tax advisor before making decisions based on this information. BCA content reflects publicly available IRS guidance; it is not a substitute for professional advice tailored to your situation.

Educational information only, not licensed legal, tax, or financial advice. We refer to and partner with licensed professionals when personalized advice is needed. Laws change; no warranty of accuracy or timeliness.

Sources

IRS e-News for Payroll Professionals, Issue 2026-08, September 1, 2026: https://content.govdelivery.com/accounts/USIRS/bulletins/427db51