Compliance Spotlight

Keeping you informed of regulatory changes for you and your clients is as important as it gets, and following all the changes in 2025, 2026 will, again, be a significant year for state and federal updates. This blog aims to highlight key changes and developments you may want to monitor.

Please note, regulations can change rapidly. This blog is for informational purposes only. For legal advice, consult your legal representative directly.

---

March/April 2026

April Showers Bring … New Tax Reporting Requirements

Spring has a way of surfacing what the winter hid. In payroll tax compliance, that means first-quarter filing modifications with updated forms, new platforms and specification changes.

For HR outsourcers (HROs) operating at scale, technology platforms enable streamlined and repeatable processes. But reliability still depends on upstream payroll configurations and clean data handoffs between payroll and tax-filing engines. Volume will expose even edge-case issues based on a single missed setting or misalignment, which means oversight is still needed for any automation.

Keeping up can be very taxing.

Here are some key first-quarter updates and what’s coming next.

Federal

What’s New: Form 941 Modifications

On March 25, 2025, President Donald Trump signed Executive Order 14247, mandating a transition to electronic payment for all disbursements made to and from the federal government. To align with this requirement, the IRS released a new Form 941 and accompanying instructions this past March. Notably:

•  All tax filers can now enter their banking information in boxes 15 c-e to facilitate direct deposit refunds.
• Schedule R “Aggregate Return Filers,” including Certified Professional Employer Organizations (CPEOs), must also indicate the type of aggregate return being submitted via a checkbox that is directly part of the Form 941. This designation was previously only listed on the Schedule R itself.

For the most part, however, the form remains unchanged with the same wage and tax-data structure as prior Form 941 iterations.

What’s Next: 1099 Reporting Platform Change

The IRS is approaching the end of a multiyear transition away from the legacy Filing Information Returns Electronically (FIRE) system and onto the modern Information Returns Intake System (IRIS). FIRE is set to be fully retired on Dec. 31, 2026, making IRIS the sole platform for tax year 2026 returns filed in early 2027. With the change:

• New filers must register for an IRIS transmitter control code (TCC).
• Streamlined Comma-Separated Values (CSV) files replace the complex FIRE structure outlined in Publication 1220 and allow for the submission of up to 100 records at a time
• An Extensible Markup Language (XML)-based Application Programming Interface (API) option exists for submissions of up to 1,000 records at a time.

What to Watch: OBBBA E-file Updates

On March 27, the IRS released its latest draft version of the 1099-NEC for 2026 returns, after previously releasing a finalized 2026 W-2 format in January. Both forms contain structural changes with new boxes to accommodate qualified tip reporting and, in the case of the 1099, qualified overtime. The existing Box 12 will be used for qualified overtime on the W-2. These changes will, in turn, necessitate modifications to the 2026 IRIS 1099-NEC and the SSA W-2 e-file structures. However, no file changes have been released to date.

HRO Considerations: Technology Integrations

HROs are accustomed to blending platforms, leveraging a mix of payroll, reporting and printing solutions to customize their offering. These customizations are often a service offering differentiator, but also may require upkeep as reporting obligations change. When extending beyond vetted platform partnerships and native integrations, self-validation becomes even more critical to confirm data moves appropriately from one platform to another.

State Reporting

What’s New:

Michigan MiUI Platform

Michigan first-quarter State Unemployment Tax Act (SUTA) returns must now be filed through the state’s new MiUI platform. As part of the transition off the prior Michigan Web Account Manager (MiWAM) system, Michigan has also retired its unique MiWAM file structure as the legacy format will trigger submission errors in the new system. Instead, the MiUI platform supports four different file structures, including variants of the standardized Interstate Conference of Employment Security Agencies (ICESA), Electronic Filing Format W-2 (EFW2) and XML formats leveraged in other jurisdictions.

Delaware PFML Grace Period End

Delaware Paid Family and Medical Leave (PFML) filers encountered numerous system and operational challenges through the first year of reporting in 2025. In response, the state provided all employers with a grace period through March 31, 2026, to file or amend any 2025 quarterly return after deadline without penalty. As of April 1, late returns are now subject to penalties and interest.

What’s Next:

Texas TxUS Platform

Texas is transitioning to the Texas Unemployment System (TxUS) from the Texas Unemployment Tax Services (TXUTS) system as part of a longstanding effort to modernize and standardize the Lone Star State’s quarterly reporting process. TxUS is currently expected to launch by June 1, 2026, at which point the legacy system may no longer be available for tax filings. Once live, TxUS will introduce several operational changes, including:

• Wage reports must be submitted using one of four accepted file formats (ICESA, EFW2, XML or CSV).
• New user accounts and credentials must be established, as existing TXUTS logins will not carry forward.

Before the transition, the Texas Workforce Commission has already released updated file specifications and advised employers to begin the registration process once TxUS is available.

Florida Reemployment System Updates

The Florida Revenue Department has been progressively migrating various taxes to a new, underlying e-File and payment platform. Reemployment Tax (i.e., unemployment) is next, with a transition to the new system scheduled for June 1.

As part of the move, filers should expect some operational changes, including:

• Reregistration to enter the new portal.
• Batch submissions to be zipped prior to upload.

While the Revenue Department has indicated that no changes to the underlying file structure are planned, it has also advised software developers that testing information will be forthcoming. As with any system migration, filers should watch for nuanced changes, which may surface during the testing window and early production use.

What To Watch:

Nebraska SUTA Reporting Fee

On April 7, 2026, Nebraska enacted LB 847, establishing a new SUTA “annual administrative and support fee.” The statute calls for a graduated fee structure based on each employers’ prior-year reported wages, but otherwise delegates implementation rules to the Nebraska Labor Department. Future guidance or rulemaking will be necessary to establish the administrative mechanics, including any downstream reporting modifications.

Maryland PFML PEO Reporting

The Maryland Labor Department released final PFML regulations on March 30, ahead of the program’s long-delayed contribution start date in 2027. However, neither the underlying Time to Care Act nor the final regulations address how PFML obligations apply in the PEO context.

If a PEO is treated as the PFML employer, small and medium-sized business (SMB) clients could be at a disadvantage because of the relationship: smaller clients may be subject to contribution rates based on the PEO’s size, and all clients—treated as a single employer—would lose the ability to independently elect private plan coverage.

As a PEO reporting jurisdiction, the lack of clarity in Maryland introduces potential friction, particularly if PFML and SUTA reporting are ultimately integrated. Further guidance or a statutory amendment will be necessary to resolve this ambiguity.

HRO Considerations:

Maine & Oregon Client-level Reporting

The first quarter of 2026 marks the start of mandated client level SUTA reporting in Maine and optional client reporting in Oregon. But while these are changes in reporting, necessary system adjustments may reside upstream in payroll. Reporting engines often report data as presented, while payroll engines—either automatically or via setting—control how the data is broken out and presented.

Minnesota PFML Transition

Minnesota PFML wage detail reporting obligations went into effect in October 2024, over a year before contributions began this January. But since the state’s PFML reporting aligns with pre-existing SUTA reporting, this requirement was a nonissue for most SMB employers.

A small subset of in-state employers, however, are subject to PFML and not SUTA, creating a distinct PFML-only obligation. To accommodate these employers during the precontribution period, some HROs automated estimated wage reporting based on assumed taxable wages.

Now that PFML contributions are in effect, those interim approaches should be revisited. Reporting processes for PFML-only employers should be updated to ensure actual taxable wages, rather than hypothetical amounts, are being reported going forward.

With all these tax updates, there’s no better time to spring into action to help simplify tax management for you and your clients.

---

February 2026

The Pay Data Patchwork

As the EEOC has stepped back, states have stepped in …

For decades, the EEO-1 survey had been the bedrock of workforce demographic reporting. It established a singular, largely stable federal framework for employers across the U.S.

And then came “Component 2” … Introduced under the Obama administration in 2016, Component 2 incorporated pay data into the three traditional demographic reporting elements: race/ethnicity, gender and job category. Though seemingly simple, this addition ballooned the existing survey from 140 possible data combinations to 1,680 related to race, sex, job category and pay.

Ultimately, Component 2 survived just one delayed reporting cycle: in 2019, for both the 2017 and 2018 reporting years. It ended with the arrival of the first Trump administration. But the impact reverberated across the country. As the U.S. Equal Employment Opportunity Commission retreated, California sprinted forward, adopting pay data reporting in 2020, and it expanded its requirements every year thereafter. Illinois, Massachusetts and New York City have all followed suit as part of broader pay transparency initiatives.

The result? HR outsourcers must contend with an ever-evolving, growing patchwork of reporting requirements across jurisdictions, which may also carry distinct underlying data collection obligations.

Here is an overview of the state and local requirements impacting private employers.

California

Next Submission Deadline: May 13, 2026

Subject Employers: Employers with 100 or more employees or 100 or more laborer contractors must file an annual report. The count is based on a self-determined, fourth-quarter snapshot pay-reporting period; however, employers who regularly meet the threshold during the year are also subject. Active and on-leave employees and contractors anywhere in the world are included in the count, but only data for those working from or reporting to a California establishment need to be included in the report.

Unique Features:

• Reporting Structure: Similar to the short-lived EEO-1 Component 2, employees are reported in aggregate without identifying information, and they are grouped by their:
  • Establishment (the location an employee works from or reports to)
  • Race/Ethnicity
  • Sex
  • Job Category
  • Pay Band

Total employee counts, remote employee counts, aggregate hours worked, and mean and median hourly rates are reported for each unique grouping combination.

• Labor Contractor Reporting: California has a distinct reporting obligation for subject employers with contract workers. Demographic and payroll data must be obtained from third-party staffing agencies, as necessary, to complete the reporting. Employers who meet both the employee count and contractor thresholds must file both reports.
• Self-Identification: Similar to EEO-1 reporting, but distinct from Illinois, employers must attribute an applicable race/ethnicity and sex category to all employees. For employees who choose not to self-identify, employers must make a reasonable determination. Unlike the federal survey, sex includes nonbinary.

What’s New?

Beginning with 2025 reporting, due this May, employees must now also be grouped by overtime exemption status and employment type (full time, part time and intermittent). Aggregate weeks worked, including paid time off, must also be reported for each grouping. Finally, the new “Middle Eastern or North African” (MENA) race/ethnicity category, which was optional last year, is now required.

What’s Next?

SB 464, enacted Oct. 13, 2025, replaces the existing set of job categories, which align with EEO-1 reporting, with 23 new categories that align with Standard Occupational Code (SOC) groupings. This change is effective Jan. 1, 2027, impacting next year’s reporting cycle and positioning California even further from the federal framework.

Illinois

Next Submission Deadline: Illinois has a staggered, biennial filing requirement, as part of the Equal Pay Registration Certificate process. The Illinois Labor Department provides newly subject employers with an initial filing deadline. Thereafter, employers must recertify within two years of the date that its last certificate was issued.

Subject Employers: Employers with 100 or more Illinois-based employees. This includes employees physically working at a worksite located in state and remote employees reporting to management located in state. The count for the current year is determined on Dec. 31 of the prior year.

Unique Features:

• Reporting Structure: The report includes all “Illinois employees” who worked at any time during the year. Employees are reported individually, by name and partial Social Security number, with demographic and wage data listed for each. Employees may be listed multiple times, with hire and termination dates, to reflect rehires and job classification changes during the year.
• Self-Identification: “Prefers not to identify” is a valid reporting option for both race and gender, although employers may still make a reasonable determination for employees who decline to self-identify. Unlike the federal survey, gender includes nonbinary. And unlike both the federal and California report, ethnicity is reported separately from race.

What’s New?

In 2025, Illinois added MENA to the list of racial categories and expanded the file structure to include indicators for:

• Collective bargaining agreement coverage
• Salary or hourly pay basis
• Hourly pay rate

Additionally, on June 30, 2025, Illinois amended its underlying Equal Pay Act, removing any references to or association with EEO-1 reporting.

What’s Next?

The inaugural certification deadline for subject employers was March 23, 2024, and almost 80% of initial certifications were approved that year. As a result, the first biennial recertification deadline for most subject employers is quickly approaching.

Massachusetts

Next Submission Deadline: Feb. 1, 2027

Subject Employers: Employers with 100 or more in-state employees at any time during the prior year, who are also subject to EEOC reporting requirements, namely the EEO-1 and EEO-4. Employers subject to EEO-1 reporting must file annually while EEO-4 filers are biennial.

Unique Features:

• Reporting Structure: Although billed as a “wage data” report, Massachusetts simply requires employers to upload a PDF copy of their EEO-1 report, which, as currently designed, does not include pay data.
• Self-Identification: The MENA race classification has yet to be implemented federally, and a nonbinary sex option has never formally been incorporated into the report structure. Prior guidance permitting nonbinary employees to be reported in the comments section of the EEO-1 was removed in 2025.

What’s New?

February 2026 marked just the second Massachusetts reporting cycle for EEO‑1 employers and the first for EEO‑4 filers (state and local government entities). During the inaugural year, misaligned federal and state timelines created practical challenges for some HROs and employers. The federal EEO‑1 portal closed in June, before Massachusetts finalized its own upload process, leaving employers without access to a retrievable copy of their federal report when state filing became available.

With the Massachusetts submission process now firmly established, HROs are better positioned to coordinate federal and state reporting. As the federal EEO‑1 portal reopens, this year’s filings can be planned and executed with greater alignment.

What’s Next?

When Massachusetts adopted its reporting requirement, the EEOC under the Biden administration was signaling a potential return of pay data to EEO-1 reporting. That development now appears highly unlikely to materialize under the Trump administration. However, this highlights the inherent tension in a state’s reliance on federal reporting structures: alignment offers simplicity at the cost of control. While no amendments are currently pending in Massachusetts, federal changes—or a prolonged lack thereof—could spark future state activity.

New York City

Next Submission Deadline: To be determined. NYC Local Law 173 (2025), recently enacted on Dec. 4, 2025, establishes a basic pay-data reporting framework. It directs the mayor to designate an agency to design the reporting structure and mechanics. Inaugural submissions will be due within a year after the program is fully established by the city.

Subject Employers: Employers with over 200 employees in New York City at any point during the reporting year.

Unique Features:

• Reporting Structure: The agency designing the report is instructed to include EEO-1 Component 2 reporting data and exclude employee personal information. However, it is also empowered to adopt modifications and craft a distinctly New York City format, instead of merely copying the old Component 2 structure.
• Self-Identification: Local Law 173 specifically acknowledges the possibility for additional “reporting options accounting for different gender identities.” Whether this equates simply to three options (male, female and nonbinary) or an even more expansive approach, remains to be seen.

What’s New?

New York City is now the first municipal government to adopt stand-alone pay-data reporting for nonpublic employers. However, its law currently serves more as a legislative roadmap for the city rather than an operational compliance obligation for employers.

What’s Next?

Forthcoming reporting details, processes and infrastructure will ultimately guide HROs’ approach to managing this new requirement.

---

January 2026

With President Donald Trump’s return to office and increasingly assertive state legislatures, 2025 promised—and swiftly delivered—regulatory fireworks, which forced employers and HROs to navigate a wide spectrum of complex developments.

Throughout the year, PrismHR’s Compliance Spotlight tracked and unpacked many of the key HR and payroll compliance themes shaping the HR outsourcer landscape.

So what’s ahead for 2026? Early signs suggest a year of evolution rather than revolution. Previously enacted requirements will take effect, rules and processes will solidify around 2025’s headlining changes, and states will continue to build off each other’s regulatory frameworks.

As year-end processing for 2025 wraps up, here’s a look back at five major themes we spotlighted last year and critical updates HROs need to know for 2026.

5 Compliance Areas to Continue to Keep an Eye on in 2026

1. Immigration Enforcement

Recap: January 2025’s Legal Forecast highlighted the incoming administration’s forthcoming ramp up on immigration enforcement and increase in I-9 audits. As detailed in the forecast, this surge not only reinforced the continued need for compliant I-9 practices in and of themselves, but also signaled the potential for state-level countermeasures to protect workers—particularly in California.

What’s New: On Oct. 12, 2025, California enacted SB 294, the Workplace Know Your Rights Act, which, per the legislative summary, is designed to educate workers “in the event there is an immigration raid at the workplace.” By Feb. 1, 2026, and annually thereafter, employers must disseminate a standardized informational notice to all employees and subsequent new hires. By March 30, 2026, employers must also facilitate employee designation of an emergency contact in the event of arrest or detainment.

HRO Considerations: Service providers play a critical role in client compliance through the technology platforms they deploy. Ensure your system supports the new contact designation requirements and revisit the longstanding federal electronic I-9 regulations as we discussed in the April 2025 Blog Post “6 Ways You Can Help Your Clients Stay in I-9 Compliance.”

2. OBBBA

Recap: July 2025’s Compliance Spotlight summarized the numerous payroll, benefits and tax-related provisions of the One Big Beautiful Bill Act (OBBBA), which was probably the most impactful legislative development in the United States last year. This included a review of “No Tax on Tips,” “No Tax on Overtime,” “Trump Accounts” and more. December’s edition explored the late-breaking transitional relief for 2025 tips and overtime reporting via IRS Notice 2025-62 and IRS Notice 2025-69.

What’s New: The IRS continues to refine its approach on various provisions while slowly releasing new guidance.

• Notice 2025-68, released on Dec. 2, 2025, in part clarifies the $2,500 employer Trump Account contribution, is an annual (not lifetime), per employee (not dependent) limit.
• Draft 2026 W-2 Instructions, released on Jan. 16, 2026, allows employers to report up to two occupation codes for tipped employees, which was a change from the original draft.
• Fact Sheet FS-2026-01, released Jan. 23, 2026, reiterates prior guidance on “no tax on overtime,” including that only Fair Labor Standards Act (FLSA) overtime eligible (nonexempt) employees may claim the deduction.

HRO Considerations: With most transitory relief for “no tax” reporting extending only to 2025, details and precision begin to matter more in 2026. As the IRS releases additional updates and guidance, watch for both time and labor and payroll providers to expand their functionality to meet the heightened need.

3. Sick and Safe Time

Recap: August 2025’s Compliance Spotlight reviewed a series of state and local sick-leave amendments recently enacted throughout the U.S. While most of these changes took effect in 2025, notably, as of Jan. 1, 2026:

• Pittsburgh increased its accrual rate and annual accrual limit.
• Connecticut reduced its employee count threshold to 11 from 25, subjecting more in-state employers to the sick-leave mandate.

What’s New: In October 2025, New York City amended its Earned Sick and Safe Time Act (ESSTA), via Int 0780-2024, with changes set to take effect Feb. 22, 2026. The amendments not only expand the list of permissible reasons to use sick and safe time, but also entitle employees to 32 hours of unpaid leave annually. This unpaid time must be frontloaded upon hire and at the start of each year as defined by the employer, and must be provided in addition to existing paid sick and safe time required in New York City.

HRO Considerations: New York City ESSTA requires employers to provide accrual, use and balance information to employees each pay period, either on wage statements or electronically. While most HR and payroll platforms already support this disclosure, unpaid time may be displayed under a generic “Paid Time Off” heading by default. But, language matters. To avoid employee confusion and mitigate unintended risk, ensure all unpaid time is accurately identified as unpaid.

4. Federal Rulemaking & Administrative Guidance

Recap: A major development in 2024 was the U.S. Supreme Court’s dismantling of the Chevron Doctrine, which long afforded federal agencies broad deference in statutory interpretation. In its wake, the current deregulation-oriented administration further throttled agency output. However, in 2025, a steady stream of significant rulemaking, guidance and executive orders still continued to address gaps left by congressional inaction and ambiguity. September 2025’s Compliance Spotlight explored this trend and examined the IRS’s finalized rules on Secure 2.0’s mandatory Roth Catchup requirements.

What’s New: On Jan. 5, 2026, the U.S. Labor Department issued four new FLSA and two new Family and Medical Leave Act (FMLA) opinion letters. Notably:

• FLSA 2026-1 explains that the FLSA “does not require an employer to classify as exempt an employee who meets the requirements of an exemption.” If the employer does not claim the exemption, the employee must be paid overtime and compensated at or above the minimum wage under the FLSA.
• FLSA 2026-2 reiterates that performance bonuses that are not in the sole discretion of an employer must be included in an employee’s regular-rate overtime premium calculation. This includes bonuses with some modicum of employer discretion if they are tied to pre-established criteria.
• FLSA 2026-4 explains that, when determining whether more than 50% of an employee’s compensation comes from commissions (for purposes of the FLSA Section 7(i) overtime exemption), tips are only counted as compensation to the extent an employer claims a tip credit. The opinion letter distinguishes mandatory service charges, which classify as commission, from bona fide tips, which do not.

HRO Considerations: The highlighted opinion letters come on the heels of other related state and federal guidance, broadening the narrative on each topic:

• Employee FLSA classification is central to the IRS position on no tax on overtime, which seemingly prohibits the deduction for employees voluntarily classified as nonexempt.
• The Illinois Supreme Court ruled last year that, under state law, performance bonuses do not need to be tied to hours worked to be included in an employee’s regular rate of pay.
• In light of the OBBBA’s No Tax On Tips requirement, the IRS has also regularly reminded employers that service charges are not tips, despite industry practices.

5. Paid Family Medical Leave

Recap: October 2025’s Compliance Spotlight examined the state and federal PFML requirements taking effect Jan. 1, 2026, and beyond. This includes IRS Rev. Rul. 2025-4, which, in part:

• Classifies employer pickup contributions of the employee portion of state PFML premiums as wages subject to federal income and employment taxes.
• Designates a portion of state payments of medical-leave benefits as third-party sick pay, which thereby imposes new tax and reporting requirements on both states and employers.

Other significant PFML developments include the kickoff of Minnesota’s new program and Oregon’s pivot to Professional Employer Organization (PEO) reporting flexibility as detailed in June 2025’s “PEO Regulatory Push-Pull by the Numbers” blog post.

What’s New: To accommodate state implementation concerns, the IRS issued Notice 2026-6 on Dec. 19, 2025, delaying third-party sick pay tax and reporting obligations until 2027. In response, Colorado and Massachusetts have already indicated they will defer any related administrative changes until next year.

HRO Considerations: Third-party sick pay reporting will likely require enhanced coordination between HROs, employers and state agencies. Accordingly, the delayed implementation provides service providers with valuable lead time to clarify roles and responsibilities and assess process and platform needs once state guidance is finalized.

What regulatory changes occurred last year? See what we were tracking in 2025.

---

Chris Babigian is PrismHR’s compliance strategy manager. He earned his J.D. from Boston University School of Law with a concentration in tax law and spent five years in private practice before joining PrismHR in 2014. Since then, he has focused on translating complex payroll and HR regulatory requirements into practical software solutions.