Year-End Information for 2025

For even more related information, see this guide about importing Box 12DD amounts for employee Form W-2s and this guide about specifying delivery options for W-2s in AllPay.

W-2 Drafts

• From your AllPay home screen, you can run and view drafts of your W-2s, as well as any issues identified, such as missing information (address, SSN, etc.) or negative Form W-2 box values. Please correct any issues before releasing your W-2 hold. If you need assistance correcting issues, please reach out to your Customer Service Rep.
• Friendly reminder to elect to receive W-2s electronically to lower delivery cost and reduce administrative burden! See this guide about specifying delivery options for W-2s in AllPay
• All W-2s will be processed and shipped by Friday, January 16.

Form W-2 Hold Requests

• Without a “Hold Request,” we will begin scheduling your Form W-2s for processing and printing following your final scheduled check date of 2025.
• To hold your W-2 processing for any reason, log in to AllPay and go to Configuration>>Utilities>>W-2 Status / 1095C Status. Click on “Add Hold,” complete the information requested and then choose “Submit Hold Request.”
• If you do not have access to AllPay, please contact your customer service representative to request a W-2 hold.
• Please release any holds on your W-2s by Monday, January 5 so we can promptly process and print them. All W-2 holds will be released on Tuesday, January 6 and W-2 forms will be printed afterward.
• All W-2s will be processed and shipped by Friday, January 16.

Key Deadlines by Form

• Form W-2s: Must be delivered to individual employees on or before January 31. AllianceHCM will submit your W-2 files to the Social Security Administration (SSA). NOTE: The deadline for file submission to the SSA and the majority of states is also January 31. See more about how to specify W-2 delivery options in AllPay
• Form 1099s: Must be delivered to individual contractors on or before January 31. The 1099s and your IRS filing copies will be prepared and delivered to you for your convenience. NOTE: AllianceHCM does not file your 1099s. It is your responsibility to file your IRS paper copies by January 31. If you have more than 10 forms you must file electronically with the IRS.
• ACA Form 1095-C: Must be delivered to subject employees by March 3, and the deadline for electronically filing employer data is March 31.

Holds: Because of a significantly reduced time frame for us to submit your W-2 files and deliver employer copies of your 1099s, please release any W-2 or 1099 holds by Friday, January 2.

Form 1095-C Processing

This section applies to clients using AllianceHCM’s Affordable Care Act (ACA) year-end filing service.

• Scheduling & Processing: Unless you submit a “Hold Request,” your Forms 1095-C will be scheduled for processing after your final scheduled check date of 2025. Each client is responsible for delivering Forms 1095-C to their employees.
• Printing: AllianceHCM will not be printing and shipping Forms 1095-C this year. Should employees require a paper copy, the forms will be available for employers to print by accessing the PDF via AllPay.
• For additional details on employer compliance responsibilities, along with step-by-step instructions for updating your preference, please consult our detailed guide.
• Errors & Warnings: You should have already received emails regarding ACA errors and warnings that require attention. These can also be accessed from your AllPay home page.
  
  To ensure timely processing, errors and warnings must be corrected by you (the Employer) according to the following schedule:
  
• Errors identified January 1 – October 31, 2025 must be corrected by December 31, 2025.
  
• Errors identified November 1 – December 31, 2025 must be corrected by January 15, 2026.
  
• Important: AllianceHCM will not process 1095-Cs for any company with unresolved Errors. While we will process 1095-Cs with unresolved Warnings, you are strongly encouraged to review and resolve them. For an FAQ on cleaning up your errors, please consult our detailed guide.
• IRS Filing: AllianceHCM will electronically file all 1094-C/1095-C forms with the IRS.
  

For additional information, visit your AllPay home page or the IRS website.

Year-end Adjustment Runs and Bonus Payrolls

• Make sure to process any 2025 adjustment runs by Tuesday, December 30, for timely tax deposits.
• 2025 adjustment runs processed after January 1 will be subject to late tax deposits and penalties. AllianceHCM is not responsible for these late deposit penalties.

Form 1099 Processing

This applies to clients who paid 1099 wages during 2025.

• We will begin processing Form 1099s on Monday, January 5. and will deliver them to your office by Wednesday, January 21.
• AllianceHCM will provide you with the following paper forms:
• Employee copies to distribute accordingly.
• IRS “Red” copy of Form 1096 and 1099-MISC for you to file with the IRS.
• Employer copies for your records.
• NOTE: AllianceHCM does not file 1099-NEC forms as part of our tax filing service. It is your responsibility to file the 1099s and Form 1096s with the appropriate agencies.

Estimated Tax Deposits

If you anticipate an adjustment will need to be processed after January 1, AllianceHCM can collect and deposit an estimated tax amount to avoid a penalty situation. Contact our tax department before January 1 to discuss this option.

Void or Manual Checks

Any 2025 void or manual checks that need to be posted must be processed along with or before your final scheduled 2025 payroll. NOTE: Please review your final payroll upon receipt and notify your customer service representative immediately regarding any changes or corrections!

Review Employee Demographics

• Encourage current employees to review the demographic information on their checks, which matches how it will appear on their W-2s and 1095-Cs. You may print a complete “W-2 Edit” report in AllPay.
• AllPay clients can make demographic corrections before submitting your final 2025 payroll.
• NOTE: Your company could face substantial penalties for filing W-2s or 1095-Cs with missing SSN or address information. AllianceHCM is not responsible for these penalties. Please review your employee demographic information thoroughly.

Additional Review Items for December 2025

• Third-Party Sick Pay: These amounts should have been received as your provider paid them. Please ensure all amounts are entered before January 1.

NOTE: If this information will not be entered until after January 1, please submit a W-2 hold request.

• Group-Term Life: If you paid more than $50,000 for group-term life insurance for an employee, you must report the cost of the excess coverage. See IRS Pub 15-B for more information.
• 12DD Premiums Paid on Behalf of >2% S-Corp Shareholder: These amounts must be included in Box 1 of the W-2 but are not subject to Social Security or Medicare.
• Fringe Benefits: You may have additional fringe benefit amounts that need to be included as taxable wages. See IRS Pub 15-B for more information.

Employer-Sponsored Health Coverage - Reported in W-2 Box 12DD

Requirements are the same as 2025 W-2 reporting.

If your company issued 250 or more W-2s in 2025, you must report the cost of employer-sponsored health premiums on employee 2025 W-2s (issued in January 2026). This requirement is optional if you filed fewer than 250 in 2025.

Medicare Withholding Rates Are Unchanged

Medicare tax withholdings are 1.45% on employee Medicare wages paid up to $200,000. Employee wages that exceed $200,000 will continue to be subject to the additional .9% withholding (for a total of 2.35%). The employer portion is not affected by these limits and will continue at 1.45% on all Medicare wages.

Social Security Wage Base for 2026 (mid-October announcement)

Please note that the Social Security Administration (SSA) has not yet announced the Social Security wage base for 2026. We will provide you with this information as soon as it becomes available.

Potential FUTA Credit Reduction States – California, Connecticut New York, Virgin Islands

NOTE: Additional FUTA tax may be due if you have employees in California, Connecticut, New York, or the Virgin Islands.

The Department of Labor has not yet released its final listing of 2025 FUTA credit reduction states. If you pay wages in California, Connecticut, New York, or the Virgin Islands, your company may be subject to additional FUTA taxes when you file Form 940 for 2025 (in January 2026). NOTE: The states are not known until November of each year. As a result, each payroll tax calculation does not include the additional tax. Any additional taxes due will be calculated and collected in January 2026.

2026 State Unemployment Rates and Filing/Deposit Frequency Notices

In the coming months, all employers will receive state unemployment rate notices and filing frequency changes.

Federal and state agencies, not AllianceHCM, determine a business's specific tax rates. While some rates are standard across all businesses in a given jurisdiction, others, most notably the SUI rate, are experience-rated. This means the rate is unique to each business, based on its history of unemployment claims.

Clients will receive official correspondence directly from the state's workforce or unemployment agency. This notice will clearly state their SUI tax rate for the upcoming period, typically annually. It is the client's absolute responsibility to:

• Monitor official mail and online portals from state tax agencies for any notices regarding their tax rates.
• Promptly and carefully review these notices to identify their new SUI rate and its effective date.
• Immediately upload documents in Allpay in the SUI Rates tab.

To help us provide you and the tax agencies with accurate and timely payroll tax information, please upload these documents through the SUI Rates tab in Allpay.

See our SUI tax rates guide for more information.

Appendix A: W-2 Reporting of Employer-Sponsored Health Coverage

Employers are required to report the cost of employer-sponsored health premiums on the employee’s 2025 Form W-2 (issued in January 2026). However, relief continues for employers that filed fewer than 250 W-2s for 2025. This relief will continue until the IRS provides further guidance.

Here are some of the key points and helpful information:

• Amounts are reported on Form W-2 in Box 12 using code DD.
• The IRS has stressed that these reported amounts are informational only and are not taxable.
• In general, the amount reported would include the portion the employee pays and the employer portion. Calculate the reportable cost using one of the following methods: 1. COBRA applicable premium method 2. Premium charged method (the premium amounts charged by your insurance carrier) 3. Modified COBRA premium method NOTE: These methods are discussed in IRS Notice 2012-9 (see Q&A #24-27). Please consult your benefits advisor for more information about the value of coverage reportable for your plan or calculation method to choose.
• You must report the cost of group health plans. However, you can exclude the cost of benefits such as stand-alone vision, stand-alone dental, or long-term care benefits.
• You are not required to include employer contributions to a Medical Savings Account, Health Savings Account, or Health Reimbursement Account in the reported coverage amount.
• You do not need to report contributions to Flexible Spending Accounts unless the contribution amount exceeds the amount of the employee’s payroll deductions.
• The IRS provides guidance on this topic, along with a Q&A covering various scenarios, in IRS Notice 2011-28 and IRS Notice 2012-9. The IRS also has a more general Q&A and a helpful chart showing what should and should not be reported. Below are the links to these items:
• IRS Info & Chart
• General IRS Q&A

Form W-2 Box 12DD: FAQ

1. What must be done in the payroll system to allow the entry of the 12DD health care premiums amounts?

• You must have a memo earning code(s) set up and mapped to W-2 Box 12DD. NOTE: Box 12DD must include the total premium (employee and employer portion) as mentioned above.
• Amounts may be entered with payrolls throughout the year or you may choose to enter one annual amount for each employee on a payroll processed prior to 12/31/2025. We can also import amounts from an Excel spreadsheet. See more about importing Box 12DD amounts in this guide.
• Please send any questions regarding the memo code(s) setup or spreadsheet questions to 12DD@alliancehcm.com.

2. How can I review the codes and amounts that are mapped to Box 12DD?

There is a report in AllPay with the Report ID “Box 12DD” titled “Healthcare Reporting Codes.” Run this report for a given date range to generate a listing of employees with their amounts sorted and totaled by memo code. NOTE: If the amount/memo code does not appear on this report, it will not be recorded on the employee’s W-2.

3. What if I am also using the AllPay Benefit Module?

Some clients have already had memo codes set up and linked to amounts recorded in the Benefits Module. If so, you should review the report mentioned in Question 2 to ensure all expected amounts are reported in Box 12DD.

Appendix B: Potential FUTA Credit Reduction States for 2025 (November 2025)

Please review as additional FUTA taxes may be due at year end.

The Department of Labor has not yet released the final list of 2025 FUTA “credit reduction” states. Employers paying wages in these states will be subject to additional FUTA taxes when the Form 940 is filed for 2025 (in January 2026). NOTE: If you pay wages in one or more of the listed states, the additional tax could be significant depending on the number of employees you have in those states. See below for more information and a report in AllPay to assist in calculating the additional tax.

Which states are affected for 2025?

The following are proposed subject to the additional tax:

• California: 4.6%
• Connecticut: 2%
• New York: 2.3%
• Virgin Islands: 4.5 %

What is a “credit reduction” state?

A “credit reduction” state borrowed money from the federal government to pay unemployment benefits and still has an outstanding loan balance as of November 10. As an employer in one of the applicable states, this has been an issue for the past several years. More information can be found on the IRS website.

Can I calculate an estimate based on payrolls processed this year?

AllPay has an export available that will calculate the additional amount due based on the applicable states. Go to Reports>>Exports to run the export with Report ID “FUTACredRed” titled “FUTA Credit Reduction.” If the export is not listed please select “Add New” and add the export to your company. Enter the date range for the current year to calculate the additional tax based on the payrolls processed.

When will the additional amount be collected and paid?

The additional tax is calculated and paid when we prepare your annual Form 940 as part of your Q4 tax package. The additional tax is not included in each payroll’s tax calculation, but will be calculated and collected in January 2026. If you use our tax filing services, we will send you a notice regarding the collection of the additional taxes and draft your account in mid-January 2026.

We hope this information will help you budget for the additional FUTA tax. If you have additional questions about this notification or need help running the export, please feel free to contact the AllianceHCM Tax Department at 800-789-7655.

One Big Beautiful Bill Act (OBBBA) - 2025 No Tax on Tips or Overtime

The "One Big Beautiful Bill Act" (OBBBA) was signed into law earlier this year, introducing two significant federal tax deductions that will benefit many of your employees beginning with the 2025 tax year. These provisions, often referred to as "No Tax on Tips" and "No Tax on Overtime," allow eligible workers to reduce their federal taxable income when they file their returns in early 2026.

Resources for you and your team:

• Employer Overview: a summary of the specific types of pay that qualify (e.g., overtime required by federal FLSA vs. state law, tips, etc) and recommended to-do's. Download the guide HERE (in Spanish, HERE)
• Employee Calculation Guide: A step-by-step "how-to" for your staff to help them identify their deductible overtime premium and qualified tips from their pay stub(s). Download the guide HERE (in Spanish, HERE)

Should you have any questions about this information, please reach out to your Customer Service Rep.

2026 W-2 Overtime Premium Reporting (Box 12, Code TT)

There's a new federal requirement that impacts how certain types of overtime premium pay must be reported on employee W-2 forms beginning with the 2026 tax year. This requirement will necessitate changes in how you categorize and track overtime earnings.

AllianceHCM is proactively updating our systems and developing tools to ensure your compliance with this new reporting standard.

**Please Note That Section #3 Below Requires Your Attention and Involvement

1. Requirement Summary: Reporting Qualified Overtime Premium

The total amount of Qualified Overtime Premium paid to an employee during the 2026 calendar year must be reported in Box 12, Code TT on the employee's 2026 Form W-2.

What is Qualified Overtime Premium?
Qualified Overtime Premium refers to the portion of an employee's total overtime earnings that is in excess of the straight-time rate of pay. This is the "premium" portion of the overtime.

• Calculation Example: If an employee's regular rate of pay is $15.00/hour and they work one hour of overtime (paid at time-and-a-half), their overtime rate is $22.50/hour.
• Straight-Time Portion: $15.00
• Qualified Overtime Premium Portion (the part to be reported in Box 12, TT): $7.50 (calculated as $22.50 - $15.00)

This new reporting requirement applies primarily to overtime that is paid due to the Fair Labor Standards Act (FLSA) or similar state/local requirements.

2. Payroll Processing and System Updates

AllianceHCM is implementing specific changes to our platform to help you track and report these amounts correctly.

A. Tipped Employees (FLSA Overtime)
For clients utilizing an existing AllianceHCM payroll calculation to adjust the rate on tipped employee overtime (due to tip credit rules), we have modified the payroll script.

• New Earning Code: A new, memo-only earning code, W2OTP – W2 Overtime Premium, will be automatically created and recorded on each paycheck that includes tipped overtime.
• Impact: This is a memo-only code and has no effect on net pay calculations. It will not appear on check stubs or be visible to the employee in any way. It serves solely to correctly track the Qualified Overtime Premium amount for end-of-year W-2 reporting. AllianceHCM has taken steps to ensure that this code does not affect any of your ACA, 401k, GL or other calculations.

B. Bonus Overtime (FLSA Overtime)
Overtime calculated on non-discretionary bonuses (the "bonus overtime premium") is considered Qualified Overtime Premium.

• Action Plan: AllianceHCM will be working with you later in 2026 to ensure these specific amounts are properly identified and recorded for inclusion in Box 12, Code TT. We will provide detailed guidance well in advance of the year-end processing deadlines.

C. Normal FLSA Non-Tipped Overtime
For standard, non-tipped overtime (time-and-a-half), the Qualified Overtime Premium will be tracked and recorded at the end of the year.

• End-of-Year Process: This process will be similar to how W-2 Box 12 items (like Code DD for employer-sponsored health coverage) are currently recorded.
• Future Tools: AllianceHCM will provide reporting tools and a streamlined year-end process to help clients easily identify and record the aggregated premium overtime amounts into the required Box 12, Code TT at the end of the 2026 tax year.

3. What You Need to Do – Critical Requirement: Categorizing Non-FLSA Overtime*

The most immediate action required from you is to help us distinguish between FLSA Overtime and Non-FLSA Overtime (or other premium pay).

• The Challenge: AllianceHCM cannot automatically determine if the overtime you are paying falls under the federal FLSA mandate or is the result of a special state, local, or union agreement that may not be subject to this W-2 reporting requirement.
• Required Action:
• Immediate Contact: Please contact your dedicated Customer Support Agent immediately if you pay any overtime that is NOT standard FLSA time-and-a-half (e.g., California double-time, daily overtime, or specific union rates).
• Splitting Overtime Codes: If you are able to split out the FLSA vs. Non-FLSA overtime in your payroll time import/entry process, we will help you set up an additional, separate overtime earning code for the Non-FLSA amounts. This allows us to ensure the amounts subject to Box 12, Code TT are correctly categorized and tracked from the start of the year.
• Alternative: If a separate code is not feasible for your recurring payroll process, we will work with you individually to help identify and record the qualified premium overtime amounts at the end of the year, but establishing a separate code is the most accurate approach.

Next Steps for Compliance

• FLSA Overtime: No immediate action is required beyond reviewing this notification. We will provide year-end tools.
• Non-FLSA Overtime: Contact your Customer Support Agent as soon as possible to discuss your current overtime earning codes and ensure proper setup for 2026.

We appreciate your partnership and are committed to facilitating the tools to help keep you compliant with regulatory changes. Please do not hesitate to reach out if you have any questions.

Thank You!

Thank you for your prompt attention to these items. If you have any questions about year end, please contact your customer service representative. And from all of us at AllianceHCM, we wish you the happiest of holiday seasons!