SOCIAL SECURITY WAGE BASE
Wages will be taxed up to $184,500 for FICA in year 2026. The 2026 rates for FICA (6.2%) and Medicare (1.45%) remain unchanged.
FUNDING 2026 RETIREMENT PLANS
Minor changes were made to retirement plan funding for 2026. Once again, employees working for employers with 25 or fewer employees are able to make “enhanced” contributions to SIMPLE IRA plans. Funding limits for employee payroll contributions to various types of “qualified” retirement plans during 2026 are as follows:
- 401k, 403b, 457 govt. plans – maximum employee elective deferral of $24,500 with additional catch-up of $8,000 for employees 50 and over.
- “Super catch-up” for those ages 60-63 in 2026 is an additonal $3,250 in employee funding. So, employees ages 60-63 may contribute up to $35,750. (The total catch-up between the 50 and over plus the “super catch-up” is capped at the same amount as 2025 – $11,250 in total.) (See our blog post about the Secure Act 2.0.)
- “Super catch-up” for those ages 60-63 in 2026 is an additonal $3,250 in employee funding. So, employees ages 60-63 may contribute up to $35,750. (The total catch-up between the 50 and over plus the “super catch-up” is capped at the same amount as 2025 – $11,250 in total.) (See our blog post about the Secure Act 2.0.)
- SIMPLE IRA – For employers with 26 or more employees, maximum employee elective deferral of $17,000 with additional catch-up of $4,000 for employees 50 and over. For employers with 25 or fewer employees, the maximum employee deferral is $18,100 with additional catch-up of $3,850 for employees 50 and over.
- “Super catch-up” for those ages 60-63 of an additional $1,250 in employee funding for employers with 26+ employees, and an additional $1,400 for employers with 25 or fewer employees.. So, employees ages 60-63 may contribute up to $22,250 to SIMPLE IRA’s in 2026, or $23,350 if working for an employer with 25 or fewer employees.
*An employee must be at least age 50 by 12/31/26 to contribute the “catch-up” contributions, and ages 60-63 by 12/31/26 to participate in the “super catch-up.”
NOTE – The maximum compensation which can be “counted” for defined contribution retirement plans is $360,000 for 2026 (which produces a funding “cap” of $72,000 in 2026).
HEALTH SAVINGS ACCOUNTS
The 2026 annual funding limits to health savings accounts (HSA’s) are $4,400 for self-only and $8,750 for family. Employees age 55 – 65 can fund additional “catch-up” amounts of $1,000 to HSA’s (to $5,400 for self-only and $9,750 for family HSA accounts).
These 2026 annual funding limits are the combined contribution amounts between employee and employer funding. Be sure to let AccuPay know if you fund employee HSA’s outside of payroll, as this information must be reported on the employee W-2.
NOTE — It is always smart to include employee HSA contributions as an “includable benefit” in a written Section 125 cafeteria plan document, in order to save FICA/Medicare taxes.
FLEXIBLE SPENDING ACCOUNTS
The maximum amount an employee can contribute to a health flexible spending account (FSA) during 2026 is $3,400. Contributions to “dependent care” FSA accounts (for childcare) increased significantly from $5,000 in 2025 to $7,500 in 2026 (OR $3,750 if “married filing separately” as your tax filing status.)
NOTE – Make sure you have a written Section 125 plan document if you sponsor FSA’s.
EMPLOYER-PAID PARKING
An employer may reimburse or directly pay employees for up to $340 per month during 2026 for parking as a non-taxable fringe benefit. The parking must be job-related and on or near the employer’s business location.
NOTE — “Downtown” employers may want to consider providing non-taxable parking benefits in lieu of taxable employee wages.
VEHICLE REIMBURSEMENTS
The 2025 business mileage tax deduction rate is 70 cents per mile. As of this writing, the 2026 rate has not been released.
An employer may choose to reimburse employees at the IRS rate for business miles driven on their personal vehicle, without the reimbursement being reported as taxable wages to the employee. Reimbursements above the IRS mileage rate must be treated as taxable wages.
NOTE — An employer is not required to use the IRS mileage rate for employee reimbursements, and therefore can reimburse more (taxable on excess) or less than the IRS rate.
HOW MUCH CAN STUDENTS EARN IN 2026?
Students/children of business owners could earn up to $16,100 in wages during 2026 without paying any Federal income tax. (This amount is equal to the standard deduction for single taxpayers in 2026.) As always, the wages paid to the owner’s children/grandchildren must be reasonable amounts based on the actual work completed. Maintain records to prove that wages paid to family members are “reasonable.”
Call your AccuPay Payroll Specialist at 317-885-7600 or email payroll@accupay.com with questions about your payroll or suggestions about how we can serve you better during 2026!
This PayDay is for educational purposes only and does not constitute tax and/or legal advice. Any links to external resources are for educational purposes only. AccuPay is not affiliated with nor receives any renumeration from any outside sources. Please consult with your tax and/or legal advisor before applying any suggestions made here or through external links.