Tax Alert: 2026 Mid-Year Preview
July 01, 2026
To help you stay ahead of new tax laws and requirements that will become effective in the second half of 2026, we’ve compiled a list of what to expect starting July 1, 2026, through December 31, 2026, including some retroactive changes.
For states with overtime-related tax changes, "qualified overtime pay" refers to the overtime compensation required under the federal Fair Labor Standards Act (FLSA) that exceeds the regular rate at which the individual is employed.
Withholding Payroll Tax Changes
Alabama
- Effective January 1, 2026 (retroactive)
- Employers don’t need to report on the deduction of qualified overtime pay, up to $1,000, on an employee’s Form W-2.
- Employees may claim this deduction when filing their personal tax return.
- Learn more here.
Arkansas
- Effective January 1, 2026 (retroactive)
- Arkansas reduced the top income tax rate from 3.9% to 3.7%, removed the bottom two tax brackets, and updated minus adjustments (amounts subtracted from wages when calculating state income tax withholding) to better align withholding with employees’ expected tax liability.
- Learn more here.
- Effective January 1, 2026 (retroactive)
- Georgia reduced the income tax rate from 5.19% to 4.99%.
- Employees may deduct $1,750 of qualified overtime pay and tips from their personal income tax return.
- Employers must report information on overtime compensation and cash tips that qualify for exclusion from taxation.
- Learn more here.
West Virginia
- Effective January 1, 2026
- West Virginia reduced each marginal tax rate but did not change the structure of the income tax brackets.
- The state also created a mechanism for future reductions if state revenue growth exceeds inflation-adjusted benchmarks.
- Learn more here.
Local Payroll Taxes
Springfield, Oregon
- Effective January 1, 2027
- Employers must pay a 0.1% tax on employee wages.
- Employees must pay a 0.1% tax on earned wages, which employers must withhold through payroll.
- Learn more here.
Falmouth, Kentucky
- Effective July 1, 2026
- Employers must withhold a 1.5% payroll tax from employee wages earned in the city.
- Learn more here.
State Minimum Wage Updates
| State | Effective Date | Minimum Wage | Minimum Cash Wage | Tipped Credit |
|---|---|---|---|---|
| Alaska | July 1, 2026 | $14 | - | - |
| District of Columbia | July 1, 2026 | $18.40 | $10.30 | $8.10 |
| Florida | September 30, 2026 | $15 | $11.98 | $3.02 |
| Oregon | July 1, 2026 | $15.55 | - | - |
Local Minimum Wage Updates (Effective July 1, 2026)
| State | Local Jurisdiction | Minimum Wage | Tipped Minimum Wage | Tipped Credit |
|---|---|---|---|---|
| California* | Alameda | $17.76 | - | - |
| Berkeley | $19.61 | - | - | |
| Emeryville | $20.34 | - | - | |
| Fremont | $18.05 | - | - | |
| Los Angeles - City | $18.47 | - | - | |
| Malibu | $17.91 | - | - | |
| Milpitas | $18.50 | - | - | |
| Pasadena | $18.57 | - | - | |
| San Francisco | $19.61 | - | - | |
| Santa Monica | $18.47 | - | - | |
| Illinois | Chicago | $17.05 | $12.96 | $4.09 |
| Cook County | $15.40 | $9.25 | $6.15 | |
| Maryland | Montgomery County | $18.00 - employers with 51+ employees | $4.00 | $14.00 |
| $16.50 - employers with 11-50 employees | $4.00 | $12.50 | ||
| $15.95 - employers with 10 or fewer employees | $4.00 | $11.95 | ||
| Minnesota* | St. Paul | $16.37 - employers with 6+ employees | - | - |
| $14.25 - employers with 5 or fewer employees | - | - | ||
| Oregon* | Portland Metro | $16.80 | - | - |
| Non-Urban Counties | $14.55 | - | - | |
| Washington* | Everett | $20.77 - employers with 500+ employees | - | - |
| $19.77 - employers with 15-499 employees | - | - | ||
| Renton | $21.57 - employers with 15-500 employees | - | - |
*This state doesn’t allow tip credits.
Thank you for choosing Paylocity as your valued service partner. This information is provided as a courtesy, may change, and is not intended as legal or tax guidance. Employers with questions or concerns outside the scope of a Payroll Service Provider are encouraged to seek the advice of a qualified CPA, Tax Attorney, or Advisor.
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