Federal Payroll Tax Changes Employers Must Prepare For in 2026

Federal payroll tax changes occur every year, and they affect every employer that runs payroll in the United States. These changes are not optional, and they take effect with the first payroll of the new year. For many employers, the impact shows up quietly in payroll costs and employee net pay before anyone realizes something changed. 

As of January 1, 2026, employers must apply updated federal payroll tax limits and withholding rules issued by the IRS and the Social Security Administration. 

What this is

This is a set of federally mandated payroll tax updates that affect Social Security taxes, Medicare taxes, and federal income tax withholding. 

What this is not 

This is not optional guidance. This is not a proposed rule. These changes apply regardless of company size, industry, or payroll provider. 

Who it applies to 

• All employers with W-2 employees 

• All payroll systems processing U.S. wages 

• All employers subject to FICA taxes 

Who it does not apply to 

• Independent contractors paid exclusively on 1099 forms 

• Employers with no U.S.-based employees 

Why it exists 

Federal payroll tax thresholds are indexed for inflation under federal law. The Social Security wage base is adjusted annually under 42 U.S.C. § 430. Federal withholding tables are updated under Internal Revenue Code § 3402. 

Key facts and figures 

• Social Security tax rate remains 6.2% for employers and 6.2% for employees 

• Medicare tax rate remains 1.45% for employers and employees 

• An additional 0.9% Medicare surtax applies to employee wages above $200,000 

• The Social Security wage base for 2025 was $168,600 

Common misunderstandings 

• Social Security tax increases only affect employees. Employers pay a matching amount. 

• Medicare tax has a wage cap. It does not. 

• Payroll software updates remove employer responsibility. They do not. 

Real-world examples 

If the Social Security wage base increases, an employee earning $180,000 will have Social Security withheld on a larger portion of wages, increasing employer payroll tax expense. 

What employers should do 

• Review SSA wage base announcements when released 

• Confirm payroll tax limits are updated before the first payroll 

• Budget for increased employer FICA costs 

What employees should know 

• Social Security withholding resets every January 

• Net pay may change even without a raise 

Source: – Social Security Administration, https://www.ssa.gov/oact/cola/cbb.html – IRS Publication 15-T, https://www.irs.gov/forms-pubs/about-publication-15-t

How Journey Payroll & HR Helps: 

Journey Payroll & HR monitors federal payroll updates annually and ensures payroll systems are configured correctly before the first payroll of the year.