2026 Compliance Updates You Need to Know: A State-by-State Guide
As 2025 comes to a close, HR professionals are bracing for a fresh round of payroll and tax changes. From federal cost-of-living adjustments to new Paid Family and Medical Leave (PFML) taxability rules in states like Colorado, Massachusetts, and Maine, these year-end updates bring meaningful shifts that can affect compliance, payroll accuracy, and employee communication.
This post breaks down the most important updates for 2026—including new withholding tables, unemployment insurance wage bases, and tax guidance on benefits—so your team can head into the new year prepared, compliant, and confident.
Federal updates
- The IRS released 2026 federal income tax brackets, standard deductions, and cost-of-living-adjustments. Cost-of-living adjustments include an increase in FSA contributions from $3,300 to $3,400.
- The Social Security taxable wage base will increase from $176,100 to $184,500 for 2026.
- The IRS provided guidance to eligible taxpayers for deductions on tips or overtime in 2025.
- Individuals may use a “reasonable method” to calculate what should be deducted. For example, for overtime that is paid at 1.5 times the regular rate of pay, they may use one-third of that amount to determine the amount of overtime compensation that can be deducted. For overtime paid at double the regular rate of pay, one-quarter of that amount can be used.
- The IRS released updates and instructions to the 2025 Form 940.
- In response to the IRS’s announcement in IRS Ruling 2025-04, Colorado, Massachusetts, and Maine developed updated state-level PFML information for 2026 (more on this below).
For a closer look at key federal updates for 2026, check out our guide to the top three federal tax updates you need to know.
State-specific updates
To help your team stay ahead, the following section breaks down key developments in state-specific compliance updates, including new rules for Paid Family and Medical Leave (PFML) taxability in states like Colorado, Massachusetts, and Maine, alongside premium rate adjustments in Washington, New York, and New Jersey.
You’ll also find a wave of new state income tax withholding tables and formulas across California, Montana, Nebraska, and more—many featuring reduced top tax rates and increased standard deductions—plus vital updates like UI wage base adjustments, amended pay data reporting in California, and Texas's new TxUS login process.
California
2026 withholding tables
California EDD has unveiled its 2026 Withholding tables, with several key updates:
- The standard deduction has increased for all filing statuses. For individuals filing as single and those filing as married with no dependents or with one dependent, the amount increases from $5,540 in 2025 to $5,706 in 2026. For those who are married with two or more dependents and head of household, the amount rises from $11,080 in 2025 to $11,412 in 2026.
- The highest tax rate remains 14.63%.
- The exemption allowance has increased from $163.90 to $168.30.
Meals and lodging values have also seen an increase from 2025 values.
For more detailed information, please review the California EDD website.
Amended pay data reporting requirements
On October 13, 2025, the governor of California signed into law major changes to California’s annual pay data reporting obligations.
California’s amendments make two significant changes:
- First, it now requires employers to maintain demographic information separately from their personnel records.
- The bill also requires employers to classify employees from the 23 job categories from the Standard Occupational Classification (SOC) system, instead of the previously used EEO-1 job categories. This change means that employers reevaluate how they categorize both their direct employees and third-party labor contractors.
Under existing California law, employers with more than 100 employees must submit annual payroll employee reports to the California Civil Rights Department. These reports must include specific pay and demographic information about their California-based employees. Employers who have 100 or more third-party labor contractor employees are also required to file a Labor Contractor Employee Report each year.
Failure to file the pay data report will result in civil penalties.
For more detailed information, you can read the full text of the bill here.
Colorado
Upcoming changes to PFML benefit payment taxability
Beginning in 2026, certain Family and Medical Leave Insurance (FAMLI) benefit payments for Colorado employees working for employers with more than 10 employees will be subject to Federal Insurance Contributions Act (FICA) and Federal Unemployment Tax Act (FUTA) taxes.
FAMLI will manage the withholding of the employee portion of FICA taxes. Employers will receive semi-weekly notifications from FAMLI via mail, email, and the MyFAMLI+ Employer portal. Additionally, comprehensive year-end statements will be provided, detailing all relevant information.
For more information, see Colorado’s IRS tax guidance newsletter.
2026 rates and wage base adjustments
The Colorado Unemployment Insurance (UI) program has unveiled the updated rates and wage base for 2026, bringing important changes for employers across the state.
Increased wage base: The wage base for 2026 has been raised to $30,600, reflecting a $3,400 increase from 2025.
Updated tax rates:
- For positive-rated employers: The tax rates for 2026 will range from 0.72% to 4.58%.
- For negative-rated employers: The tax rates for 2026 will range from 5.895% to 10.85%.
Continued solvency surcharge: Because the 2025 reserve ratio fell below the 0.7% benchmark at 0.649%, the solvency surcharge will remain in effect for 2026. This measure is crucial for maintaining the health of the unemployment insurance trust fund.
Further information about this can be found on the official Colorado UI website.
SIT updated, 2026 Employee Withholding Certificate and Withholding Formula
Colorado has unveiled its updated 2026 Employee Withholding Certificate and Withholding Formula, introducing several key changes:
Updates to the Employee Withholding Certificate (DR 0004) and Withholding Formula:
- The standard allowance has increased, reflecting the federal filing status for employees who have not submitted Form DR 0004.
- Additionally, Worksheet 1 now includes new lines to incorporate certain federal deductions that need to be added back for Colorado tax purposes, such as the new overtime deduction.
- Existing employees are not required to update their Form DR 0004 for the year 2026.
2026 Standard Allowance* overview:
- Single or married filing separately: $14,000, an increase of $1,500
- Head of household: $22,000, an increase of $2,000
- Married filing jointly or qualified surviving spouse: $30,000, an increase of $2,500
In addition, a revised Withholding Worksheet for Employers (DR 1098) has been released. This worksheet includes increased amounts for employers to use when an employee has not submitted Form DR 0004. The instructions emphasize that employers should adhere strictly to the prescribed calculation for Colorado withholding and not make adjustments outside of it.
Employees wishing to account for federal deductions must use Form DR 0004. Employers are required to implement the updated calculation for pay periods starting on or after January 1, 2026.
*Allowance for one job; refer to DR 0004 for further details.
Kentucky
2026 withholding tax updates
On October 15, 2025, Kentucky released its updated withholding tax formula for the year 2026. Importantly, the flat income tax rate has been set at 3.5%. In addition, the standard deduction has been increased to $3,360 annually.
The full document can be reviewed here.
Maine
PFML rule clarifications
Maine recently updated its PFML FAQs, adding several important clarifications:
- Family leave benefits are taxable income and will be reported on Form 1099-G.
- Medical leave benefit taxability depends on who pays the premiums.
- If the employee pays the full premium, benefits are not taxable.
- If the employer contributes towards the premium, only the employer-funded portion is taxable wages and will be reported on a Form W-2.
- Maine clarified that small employers (<15 employees), whose workers pay the entire 0.5% premium, will see non-taxable medical leave benefits.
- Large employers (15+ employees) where premiums are split 50/50 will have half of the medical leave benefits treated as taxable wages.
Massachusetts
Upcoming changes to PFML benefit payment taxability
Starting January 1, 2026, the Department of Family and Medical Leave (DFML) and employers participating in state-run PFML programs will need to adhere to new IRS tax and reporting requirements.
Key changes:
- Taxability of medical leave benefit payments: DFML will assess the taxability of medical leave benefits based on several factors, including the size of an employer’s workforce. The portion of PFML contributions that an employer is mandated to pay for medical leave benefits will influence the extent to which these benefits are subject to federal income tax, state income tax, and employment taxes.
- FICA tax withholding: DFML will withhold the employee portion of FICA taxes on taxable medical benefit payments, unless the employer qualifies for an exemption from Social Security and/or Medicare taxes. Employers with 25 or more employees must pay their share of FICA and FUTA taxes on these benefit payments.
- Employer notifications: DFML will issue notifications to employers detailing the medical benefit payments paid and the taxes withheld, ensuring compliance with the Ruling and other relevant tax guidelines.
- Reporting requirements: Employers with 25 or more employees will be required to report taxable medical leave payments on employee Form W-2, Wage and Tax Statements.
Please note, there are no changes to the family leave benefit payments.
For the complete ruling and additional information, please see the full memo.
Retention bonuses not classified as wages
Massachusetts’ Supreme Judicial Court recently ruled retention bonuses do not fall under the definition of wages according to Massachusetts law and are not required to be paid on the last day of employment.
In 2021, a Massachusetts employee filed a lawsuit against his former employer following his termination, alleging a delay in receiving the second half of his retention bonus.
Upon hiring, the employee entered into a retention bonus agreement with his employer. This agreement stipulated that the bonus would be paid out in two equal installments, contingent upon meeting specific conditions: maintaining employment, no reduction to a regular work schedule, and remaining in good standing throughout the retention period.
The employee argued that the Massachusetts Wage Act was violated because the second installment of the bonus was not paid promptly on his last day of employment, but rather more than a week after his termination.
For the Wage Act to apply, the retention bonus must qualify as wages. Under the Act, wages are defined as regular compensation for an employee's typical work duties.
The court determined that the retention bonus was contingent upon the employee fulfilling certain conditions beyond ordinary job duties, such as remaining employed for a specified period. Therefore, it was not considered typical compensation for regular work.
Read the full ruling here.
Montana
2026 withholding tables
Montana DOR has released its 2026 withholding tables and employee withholding certificate, with several key changes:
- Reduced tax rate: The highest tax rate has been lowered from 5.9% to 5.65%.
- Inflation-adjusted withholding tables: The withholding tables have been updated to reflect inflation and changes in federal tax parameters.
- Alignment with federal methods: The calculation method for Montana wage withholding now closely aligns with the federal approach. Employees will no longer use Montana-specific allowances, such as personal and dependent exemptions or standard/itemized deductions, to determine their withholding. Instead, the calculation will be based on the federal standard deduction amount corresponding to the employee’s federal filing status.
- Updated Form MW-4: Employers are encouraged to provide the revised Form MW-4 to employees, allowing them to adjust their wage withholding for 2026.
- Employee Withholding Certificate (MW-4):
- Line 3 is now used only to designate additional amounts an employee would like to have withheld from their paycheck.
- Line 4 is now used to designate a specific amount a taxpayer would like withheld from a payment or paycheck.
For more detailed information, please review the Montana withholding tables and employee withholding certificate.
Nebraska
2026 withholding tables
Nebraska DOR has unveiled its 2026 withholding tables, with several key updates:
- The annual withholding allowance has increased to $2,440.
- The maximum tax rate has been reduced from 5.37% in 2025 to 4.6% in 2026, marking a 0.77% decrease.
- The special income tax withholding rate remains 1.5%.
For more detailed information, please review the 2026 Nebraska withholding tables.
New Jersey
2026 Family Leave and Disability Insurance rates
The state of New Jersey has recently announced the 2026 rates for its Family Leave Insurance (FLI) and Disability Insurance (DI) programs. The FLI rate for employees has been set at 0.23%, while the DI rate for employees is now 0.19%. Both rates reflect a decrease from the 2025 figures.
For a detailed breakdown of the new rates and a comparison with previous years, click here.
New York
2026 Family Leave Insurance rate
New York has recently announced its 2026 contribution rate, with employees set to contribute 0.432% of their gross wages. This marks an increase of 0.044% from the 2025 rate.
For further information, please visit the official website.
2026 withholding tables (Yonkers)
New York state has recently published its updated Yonkers withholding tables for 2026, detailed in form NYS-T-Y. Notably, the supplemental wage payment withholding rates for both residents and non-residents will remain unchanged for the upcoming year.
Oklahoma
2026 withholding tables
Oklahoma SIT has unveiled its 2026 withholding tables, with several key updates:
- The withholding allowance will remain $1,000.
- The maximum tax rate has been reduced from 4.75% in 2025 to 4.5% in 2026, marking a 0.25% decrease.
- For 2026, the tax structure will consist of only four brackets, including the zero bracket.
For more detailed information, please review the 2026 Oklahoma withholding tables.
Oregon
STT rate change for 2026 and 2027
Oregon STT (State Transit Tax) rate will experience a temporary increase from 0.1% to 0.2%, effective January 1, 2026, through December 31, 2027. In 2028, the rate will return to its current level of 0.1%.
For further information, go to the Oregon STT website.
2026 UI and PFML rates
Oregon has released the 2026 rates for its PFML and UI programs, with some key updates for employers and employees to note.
PFML:
- The 2026 rate remains the same, at 1%.
UI:
- The minimum rate, maximum rate, and new employer rate for UI remain unchanged.
- Special payroll tax offset rate: This rate has increased slightly to 0.139% in the first quarter of 2026, marking a small rise of 0.004%.
- Wage base: The wage base for UI contributions has increased to $56,700.
For more detailed information, please review the official website.
South Carolina
SIT 2026 withholding formulas and tables
The South Carolina Department of Revenue (SCDOR) has announced the updated withholding formulas and tables for 2026. Here are the key changes you need to know:
- Increased personal allowance: The personal allowance for 2026 is set at $5,000, reflecting an increase of $140 from 2025.
- Higher standard deduction: The standard deduction for 2026 is now $7,500, up $200 compared to the previous year.
- Reduced highest tax rate: The highest tax rate for 2026 has been lowered to 6%, a decrease of 0.2% from 2025.
In the coming weeks, the SCDOR will release the annual updates to the SC W-4 form. Employers are advised to start using the 2026 SC W-4 beginning January 1, 2026. Taxpayers should complete a new SC W-4 when starting a new job or if they need to adjust their withholding.
Further information about this can be found on the official SCDOR website.
Texas
Workforce Commission modernization update and new TxUS login process
The Texas Workforce Commission (TWC) is launching a new Unemployment Insurance System (TxUS) to replace its legacy systems, including UI Tax Registration (UTR) and UI Tax Services (UTS).
TxUS will provide a streamlined, single platform for employers, third-party administrators (TPAs), and service agents to manage unemployment tax accounts, file wage reports, and submit amendments.
Note: When TxUS goes live in 2026, a new login and authentication process will be required for all users. BambooHR® Payroll customers will receive more detailed information closer to Texas’s go-live date.
Washington
2026 PFML rate increase
The Washington Paid Family and Medical Leave (PFML) program’s premium rate is increasing for 2026. These premiums (shared between employers and employees) fund the state’s Paid Leave benefits program.
- Total Premium Rate: 1.13% of each employee’s gross wages (up from 0.92% in 2025)
- Employer Share: 28.57% of the total premium
- Employee Share: 71.43% of the total premium
Employers with fewer than 50 employees are not required to pay the employer portion of the premium. However, they must still collect the employee portion or may choose to cover it on the employees’ behalf.