Which 2026 Federal Tax Changes Affect Small Businesses?
Most tax headlines never reach the desk of a business owner in Los Angeles. A committee vote, a nomination hearing, a proposed rule sitting at the Office of Information and Regulatory Affairs — none of it changes what you file. But a handful of the 2026 federal tax changes moving through Washington this summer do carry dates, and those dates fall inside your current planning window.
This is our read of what actually matters between now and year-end, written from the perspective of the small and mid-sized businesses we work with every day — restaurants, dental practices, professional services firms and Korean-American companies operating on both sides of the Pacific. We have skipped the political theater and kept the items with a deadline.
What did Treasury and the IRS just clarify? 📋
In early August 2026, Treasury and the IRS released a guidance package implementing several provisions of the 2025 reconciliation law, covering the employer credit for paid family and medical leave, foreign tax allocation, backup withholding on third-party network transactions, and saver’s match contributions.
That is four unrelated topics in one release, which is typical of implementation guidance — it follows the statute’s structure, not yours. For a typical operating business, two of the four matter: the paid leave credit, which can put money back, and backup withholding, which can take money out before you ever see it.
The other two are narrower. Foreign tax allocation matters if you have foreign operations or a foreign parent, which we cover separately in our international roundup. Saver’s match contributions affect retirement plan design and will matter more in 2027 than in 2026. Current releases are posted to the IRS newsroom as they are issued.
Does backup withholding now apply to my payment-app income? 💳
It applies when a payee’s taxpayer identification number is missing or does not match IRS records. The platform is required to withhold at the source, so the money never reaches your bank account in the first place.
This is the single item on the list most likely to surprise a restaurant or retail operator. Card processors, delivery platforms and marketplace apps are third-party settlement organizations. When their records and the IRS’s records disagree about who you are, the withholding switch flips — and it flips on gross settlements, not on profit.
The mismatch is almost never fraud. It is a legal name that reads one way on the corporate return and another way on the merchant account: a d/b/a instead of the corporate name, a personal SSN on an account that should carry the entity’s EIN, a name that changed at incorporation but not at the processor. See the IRS Form 1099-K guidance for how these settlements are reported.
- Pull up every payment platform your business receives money through — including the ones a manager set up years ago
- Compare the legal name and TIN on each against your IRS records exactly, character for character
- Fix mismatches now; a correction takes days, a withheld settlement takes a filing season to recover
- If you have received a B-notice from a processor, treat it as urgent rather than as spam
In our practice
The businesses that get caught by backup withholding are rarely the disorganized ones. They are usually the ones that grew — a sole proprietorship that incorporated, a single location that became three, an owner who added a delivery platform during a busy quarter and never revisited the account setup. The paperwork was right when it was created and nobody updated it. A fifteen-minute audit of platform names and TINs is the cheapest insurance on this list.
Can my business claim the paid family and medical leave credit? 🧾
Yes, if you have a written leave policy in place before the leave is taken. That timing requirement is what disqualifies most employers who try to claim it after the fact.
The employer credit for paid family and medical leave rewards employers who pay employees while they are on qualifying family or medical leave. The credit is a percentage of wages paid during the leave, and it scales with how generous the payment rate is. Treasury and the IRS addressed it in the August 2026 guidance package.
The mechanical trap is sequencing. The credit is available for leave taken under a written policy that already exists. An employer who paid an employee generously through a medical leave in March, then adopts a policy in December, has done a kind thing and lost the credit. If you expect any qualifying leave in the next twelve months, the policy is a year-end task, not a filing-season task. Current credit guidance for employers is collected on the IRS business credits page.
What happens to IRS service if funding lapses on September 30? ⚠️
Filing deadlines do not move, but service capacity does. Federal funding for fiscal year 2026 expires September 30, 2026, and both chambers have passed different short-term extensions that still have to be reconciled.
The Senate voted 90-6 for a measure extending current funding through December 11. The House had already passed a separate stopgap running through December 4. Two different end dates means the chambers must reconcile before anything reaches the president, and the House left for its district work period before doing so. Legislative status for any bill is tracked on Congress.gov.
For taxpayers the funding number matters more than the calendar politics. A stopgap at current levels would hold the IRS near $11.2 billion for fiscal 2026 — roughly nine percent below the prior fiscal year. Agencies absorb that in the places taxpayers feel: correspondence backlogs, hold times, and how long a manual review sits before a human opens it.
Start anything IRS-dependent before the end of September
Deadlines are statutory and will not move — third-quarter estimated payments are still due September 15, 2026. What can move is how long the IRS takes to respond to you. If you need a transcript, an installment agreement, a penalty abatement, an EIN correction or a response to a notice, open it now rather than in October. Anything already in the queue keeps its place; anything not yet filed joins a longer line.
What is the TAS Act, and would it change how I deal with the IRS?
It is a bipartisan tax administration bill that cleared the Senate Finance Committee 26-1 on July 30, 2026. It is not law, so nothing changes on your 2026 return yet.
The Taxpayer Assistance and Service Act (S.3931) is sponsored by the Senate Finance Committee chairman and ranking member, and several of its provisions began as National Taxpayer Advocate recommendations. Its stated aims are improving IRS-taxpayer communication, streamlining compliance, and expanding access to timely expert assistance.
We mention it not because it changes anything today but because a 26-1 committee vote on a tax administration bill is unusual, and it signals where procedural rules are heading. If it becomes law, the practical effects would land on dispute resolution and correspondence — the exact areas that a constrained IRS budget is straining right now.
What else is in the pipeline for 2026 federal tax changes? 🔭
Several rules implementing the 2025 reconciliation law are still in the regulatory pipeline, and two sets of final regulations landed in July 2026.
Regulatory guidance implementing the reconciliation law is moving in stages. Items in review have included reporting rules for the new savings accounts, credits for contributions to scholarship granting organizations, and the deduction for certain car loan interest. Proposed and final rules appear in the Federal Register as they are published.
In July 2026 Treasury and the IRS finalized regulations identifying certain charitable remainder annuity trust transactions as listed transactions — which triggers disclosure obligations and penalties for failure to disclose — and finalized rules on the transfer-for-value treatment of life insurance contract exchanges. Both are narrow, but if either describes a structure you hold, the disclosure consequences are not narrow at all.
| What changed | When | What to do |
|---|---|---|
| Guidance implementing paid leave credit, backup withholding, foreign tax allocation, saver’s match | August 2026 | Review the two that apply to you |
| Backup withholding on third-party network transactions | In effect | Audit legal name + TIN on every payment platform |
| Employer paid family and medical leave credit | Ongoing | Adopt the written policy before leave is taken |
| Federal funding expiry | September 30, 2026 | Open IRS-dependent matters in September |
| Q3 estimated tax payment | September 15, 2026 | Unaffected by any funding lapse |
| TAS Act (S.3931) | Committee-approved July 30, 2026 | Watch; no action yet |
The short version
- Check the legal name and TIN on every payment platform before year-end — backup withholding takes money at the source
- The paid leave credit needs a written policy in place first; a retroactive policy does not work
- Deadlines will not move if funding lapses, but IRS response times will stretch — file and ask early
- September 15, 2026 is the third-quarter estimated payment date regardless of what Congress does
Frequently asked questions ❓
Q. Which 2026 federal tax changes affect a small business the most?
Three land closest to home. Treasury and the IRS released implementation guidance in August 2026 covering the employer credit for paid family and medical leave, backup withholding on third-party network transactions, foreign tax allocation and saver’s match contributions. Backup withholding on payment-app settlements is the one most likely to change your cash flow, because it withholds at the source rather than at filing.
Q. Does backup withholding now apply to money I receive through payment apps?
It can. Third-party settlement organizations are required to apply backup withholding when a payee’s taxpayer identification number is missing or does not match IRS records. The practical trigger is almost always a TIN mismatch on your merchant account, so the fix is to confirm that the legal name and TIN on every payment platform match your IRS records exactly before year-end.
Q. Is the paid family and medical leave credit still available in 2026?
Yes, and Treasury and the IRS issued further guidance on it in August 2026. The credit is claimed by the employer for wages paid to qualifying employees on family or medical leave under a written policy. Because the credit turns on having a compliant written policy in place before the leave is taken, employers who wait until filing season to think about it usually cannot claim it retroactively.
Q. What happens to the IRS if federal funding lapses on September 30, 2026?
Federal funding for fiscal year 2026 expires September 30, 2026. The Senate passed a short-term measure 90-6 extending funding through December 11, and the House passed a separate version running to December 4, so the two chambers still have to reconcile. A stopgap at current levels would hold IRS funding near $11.2 billion, roughly nine percent below the prior fiscal year, which generally shows up as slower correspondence and phone service rather than changed filing deadlines.
Q. Would the TAS Act change how I deal with the IRS?
It would, if enacted. The Taxpayer Assistance and Service Act (S.3931) advanced out of the Senate Finance Committee on July 30, 2026 by a 26-1 vote. It is a bipartisan tax administration package aimed at IRS-taxpayer communication, compliance simplification and access to timely assistance, with several provisions originating in National Taxpayer Advocate recommendations. It is not law yet, so nothing changes for your 2026 return on the strength of the committee vote alone.
Q. Do federal filing deadlines change because of a possible shutdown?
No. Statutory deadlines are set by law and a funding lapse does not move them. Third-quarter estimated tax payments are still due September 15, 2026. What a lapse changes is service capacity, so anything that depends on the IRS answering you, such as a transcript request, an installment agreement or a penalty abatement, should be started before the end of September rather than after.
Every business is different, and a roundup cannot tell you which of these applies to your return. If you would like us to look at your specific facts, contact SW Accounting & Consulting Corp — we are a Los Angeles CPA firm working with owner-operated businesses across California and with companies operating between the United States and Korea.
