Your monthly roundup of the tax and payroll updates that matter — plus a little something for the kitchen.
In This Issue
- 2026 Social Security & Medicare Update
- New Deduction for Qualified Tips
- Recipe Corner: Herb-Baked Salmon
2026 Social Security & Medicare Tax Update: What Employers Need to Know
Every new tax year brings adjustments that directly affect your payroll calculations and your bottom line. As we move into 2026, the IRS has released updated Social Security and Medicare tax figures that every employer should have on file. Here is a clear breakdown of what has changed, what has stayed the same, and who is affected.
Social Security Tax for 2026
- Rate: 6.2% — paid by both the employer and the employee (12.4% combined).
- Wage base limit: $184,500. Wages earned above this threshold are not subject to Social Security tax.
What this means for you: The maximum Social Security tax withheld from any single employee in 2026 is $11,439 (6.2% × $184,500). Once an employee’s year-to-date wages exceed the wage base, you stop withholding Social Security tax for the remainder of the year.
Medicare Tax for 2026
- Rate: 1.45% — paid by both the employee and the employer (2.9% combined). Unchanged from 2025.
- Wage base limit: None. Medicare tax applies to all covered wages, with no upper cap.
Reminder: An Additional Medicare Tax of 0.9% applies to an employee’s wages that exceed $200,000 in a calendar year. This additional amount is withheld from the employee only — there is no matching employer portion.
Who These Taxes Apply To
| Worker Type | 2026 Threshold | What It Means |
|---|---|---|
| Household workers | $3,000 or more in cash wages | Social Security and Medicare taxes apply once cash wages reach this amount for the year. |
| Election workers | $2,500 or more in cash (or equivalent compensation) | Social Security and Medicare taxes apply at or above this threshold. |
New Deduction for Qualified Tips: A Payroll Guide for 2026
If you run a restaurant, salon, hotel, or any business where employees earn tips, there is an important new tax provision you need to understand. Under Public Law 119-21, eligible workers can now deduct a significant portion of their tip income — and as an employer, you have a role to play in helping them benefit from it correctly.
The New Qualified Tips Deduction
For tax years beginning after 2024 and ending before 2029, P.L. 119-21 allows both employees and self-employed individuals to deduct up to $25,000 of qualified tips on their income tax returns. The deduction applies to tips earned in occupations that customarily and regularly received tips on or before December 31, 2024 — think servers, bartenders, hairstylists, delivery drivers, and similar roles.
What Counts as a “Qualified Tip”
| ✅ Qualifies | ❌ Does Not Qualify |
|---|---|
| Voluntary cash tips from customers | Mandatory service charges added to the bill |
| Charged tips (credit/debit card) | Automatic gratuities (e.g., “18% added for parties of 6+”) |
| Tips received through tip-sharing or tip-pooling arrangements |
The key word is voluntary. If the customer chooses to give it, it generally qualifies. If it is automatically imposed, it does not.
Your Responsibilities as an Employer
- Honor updated Form W-4 requests. If an employee submits an updated Form W-4 to account for this deduction, use it along with the federal income tax withholding procedures in IRS Publication 15-T. This lets the employee receive more take-home pay in each paycheck throughout the year.
- Keep withholding Social Security & Medicare on tips. The new deduction does not exempt tips from payroll taxes. Tips remain subject to both shares of Social Security and Medicare tax whenever an employee’s reported tips are $20 or more in a calendar month.
- File the correct information returns. Continue filing Forms W-2, 1099-MISC, and 1099-NEC with the SSA or IRS, and furnish statements to tip recipients showing cash tips received and the recipient’s Treasury Tipped Occupation Code(s).
Important: Transition Relief for 2025
The IRS has granted transition relief to employers and payers for the tax year 2025 reporting requirements. This gives businesses time to update their systems and processes before the full reporting rules take effect.
Recipe Corner: Easy Herb-Baked Salmon
Tax updates keep your business running — but a good meal keeps you running. To close out this month’s brief, here is a simple, restaurant-quality salmon recipe you can put on the table in under 20 minutes. It is light, flaky, and packed with fresh herb-and-lemon flavor. Perfect for a busy weeknight after the payroll is filed.
Prep time: 5 minutes · Cook time: 12–15 minutes · Serves: 4
Ingredients
- Salmon fillets (4) — Fresh fillets should be pink, moist, and firm. If using frozen, choose vacuum-sealed fillets with no freezer burn, and thaw fully before cooking.
- Olive oil — Extra virgin is ideal, but any variety works.
- Salt — Kosher salt works great; Himalayan pink salt is a lovely alternative.
- Cracked black pepper — Start light and taste as you go.
- Minced garlic — Store-bought minced garlic in oil is convenient, or mince your own.
- Italian herb seasoning blend (or Herbes de Provence) — Any trusted brand will do.
- Lemon (1 medium) — Use a larger one if you love an extra tangy finish.
Directions
- Preheat & prep. Heat the oven to 400°F (205°C) and lightly grease a large baking pan. Arrange the salmon fillets and season generously with salt and pepper.
- Make the herb sauce. Stir together the olive oil, minced garlic, herb seasoning, and the juice of half the lemon. Spoon over the fillets, rubbing across the tops and sides. Thinly slice the remaining half-lemon and lay a slice on each fillet.
- Bake. Cook for 12–15 minutes, until the salmon is opaque and flakes easily with a fork. Broil the final 1–2 minutes for a lightly caramelized top.
- Garnish & serve. Finish with fresh thyme or parsley, and serve warm.
Pair with roasted asparagus, a simple green salad, or rice pilaf for a complete meal.
How Green60 Helps
Our self-service payroll platform applies these updated 2026 rates automatically and generates the required filings — so your payroll stays accurate and compliant without the manual work. Have a question about a specific pay run? Get in touch; we’re glad to help.
This brief is provided for general informational purposes and does not constitute tax or legal advice. Consult a qualified tax professional regarding your specific situation.