Monday, August 31, 2026
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Federal Compliance Update
Key Takeaways
Impacted Employers: All employers.
Effective Dates: Immediate
Summary: The Treasury Department and IRS have issued Fact Sheet 2026-13 (FAQs) and Notice 2026-28, providing guidance on the new deduction for qualified overtime compensation and changes made to the employer tax credit for paid family and medical leave (PFML). The One Big Beautiful Act (the “Act”) created the qualified overtime deduction and made permanent and expanded the PFML credit. Review the details here.
Next Steps:
FAQs
The FAQs provide clarity for employers, payors, and individuals on a number of issues related to eligibility for the qualified overtime deduction and the calculation and reporting of qualified overtime amounts. Employers and payors should continue to monitor for additional guidance and work with their payroll service providers to prepare for reporting qualified overtime on 2026 year-end tax forms.
In addition, employers and payors should communicate with their employees and payees regarding the limits of the deduction – specifically, that it is available almost exclusively to employees, rather than independent contractors, applies to only FLSA overtime and includes only the premium portion of that overtime – to avoid confusion and questions at year-end and during the 2026 tax filing season.
Notice 2026-28
Treasury and the IRS indicated that additional regulations are forthcoming and that Notice 2026-28 is intended to provide interim rules while broader implementation guidance is developed. Future guidance is expected to address additional operational, reporting, and compliance questions associated with the permanent expansion of the PFML credit.
As implementation of the expanded credit continues, employers should monitor future developments and evaluate any potential impact on their paid leave programs. As always, ADP will continue to keep you informed regarding additional guidance and regulatory developments in this area.