The Latest – No Tax on Tips Payroll Rules, Independent Contractor Reclassification, And SECURE 2.0 Auto-Enrollment (April 2026)

Jenny Kiesewetter is a practicing ERISA and employee benefits attorney who partners with HR teams on a wide range of workplace compliance matters — from benefit-plan obligations to day-to-day HR policies and regulatory requirements. Her guidance helps employers spot risks early, navigate regulatory change, and make informed decisions that support both employees and the organization.

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Some compliance updates arrive with fanfare. Others land in the Federal Register, take effect within days, and wait quietly in payroll managers’ inboxes. April 2026 brings in both.

The Internal Revenue Service finalized regulations changing how employers code W-2s for tipped workers, effective April 13, 2026. The Department of Labor’s independent contractor comment window closes in two weeks. Retirement plans established since late 2022 must automatically enroll employees, with plan document amendments due before year-end. A wave of Temporary Protected Status terminations is creating new I-9 urgency. And AI tool rollouts are generating an unexpected category of religious accommodation requests. Here’s what HR leaders need on their radar right now.

Effective Date: Published in the Federal Register on April 13, 2026; effective 60 days after publication, or June 12, 2026

What’s Changing:

The Department of the Treasury and the Internal Revenue Service published final regulations on April 10, 2026, defining which workers qualify for the tip income deduction under the One, Big, Beautiful Bill. The rule, titled Occupations that Customarily and Regularly Received Tips; Definition of Qualified Tips, published in the Federal Register on Monday, April 13, 2026.

Under the provision, eligible workers in numerous qualifying occupations may deduct “qualified tips” from their federal taxable income. Qualified tips must be cash tips voluntarily paid by customers without conditions. Automatic gratuities and service charges do not qualify. Qualifying occupations span food and beverage service, hospitality, personal care, and transportation. The final regulations also added visual artists, floral designers, and gas pump attendants to the list.

The most immediate employer obligation is a new W-2 reporting requirement. Starting with tax year 2026 returns, employers must separately report cash tips and include a Treasury tipped occupation code in W-2 Box 14b. The IRS will use that code to match the deduction against each employee’s return. Employers who do not update payroll systems before year-end create reporting errors that directly affect employees’ ability to claim the deduction.

One critical point: this deduction applies only for individual income tax purposes. It does not change employer FICA obligations. Social Security and Medicare taxes continue to apply to all reported tips exactly as before.

HR Takeaway

Payroll platforms and W-2 software need to support the new tipped occupation codes before year-end reporting. HR teams in hospitality, restaurant, salon, and transportation industries should identify which roles qualify and update payroll configurations now, not in December.

• Confirm your payroll platform supports Treasury tipped occupation codes for the revised 2026 W-2.
• Audit which positions in your organization qualify under the approved occupation list.
• Communicate to tipped employees. The deduction applies to their personal tax return, not to their paycheck withholding.

Effective Date: Announced February 26, 2026; public comment period closes April 28, 2026

What’s Changing:

On February 26, 2026, the Department of Labor’s Wage and Hour Division announced a proposed rule that would rescind the Biden-era 2024 independent contractor regulation and reinstate a framework close to the 2021 rule issued during the first Trump administration.

The 2024 rule applied a six-factor “totality of the circumstances” analysis under the Fair Labor Standards Act (FLSA) and the Migrant and Seasonal Agricultural Worker Protection Act (MSPA), giving roughly equal weight to each factor. The 2026 proposed rule returns to a five-factor test but assigns greater weight to two “core” factors: (1) the nature and degree of the employer’s control over the work, and (2) the worker’s opportunity for profit or loss based on their own initiative or investment. When these two core factors point in the same direction, the analysis is largely complete.

The shift matters most for industries with heavy contractor workforces, including staffing, gig platforms, construction, and professional services. Workers who control their methods and bear genuine economic risk from their business decisions are more likely to qualify as independent contractors under the proposed rule. The 2024 rule, which remains in effect while the comment period runs, sets a higher bar for that classification.

HR Takeaway

The comment period closes April 28. If your organization relies on contractor classifications that are borderline under the current 2024 rule, now is the time to review them and, if warranted, submit a comment to the DOL. Reclassifying workers prematurely also carries risk: moving a contractor to employee status triggers payroll, benefits, and leave obligations.

• Review contractor arrangements against both the 2024 rule (currently in effect) and the proposed 2026 two-core-factor standard.
• Submit comments to the Department of Labor before April 28, 2026 if the final rule would materially affect your workforce.
• Work with employment counsel before changing any worker’s classification status.

Effective Date: Mandatory for 401(k) and 403(b) plans established on or after December 29, 2022; plan document amendments due December 31, 2026 (for most private plans)

What’s Changing:

Several provisions of the Setting Every Community Up for Retirement Enhancement 2.0 Act (SECURE 2.0) have been phasing in since 2022. One of the most operationally significant is now mandatory: automatic enrollment for newly established retirement plans.

Any 401(k) or 403(b) plan established on or after December 29, 2022 must automatically enroll eligible employees at a contribution rate between 3% and 10% of their compensation. The plan must also include automatic escalation, increasing contribution rates by 1% annually until reaching a plan-defined maximum between 10% and 15%. Employees retain the right to opt out and must have at least 90 days after their first deferral to withdraw automatic contributions without penalty.

Coverage generally extends to employees eligible to make salary deferrals, including some employees hired before the mandate first applied, unless they already had an affirmative deferral election in effect when the plan became subject to the automatic-enrollment requirement.

The exemptions are narrow: plans established before December 29, 2022; plans with fewer than 10 employees; governmental plans; SIMPLE 401(k) plans; and plans less than three years old. For most organizations that introduced new retirement offerings in late 2022, the requirement is active now. While plan document amendments are formally due by December 31, 2026, that deadline should not be read as permission to delay implementation. Plans must already operate in good faith compliance, meaning systems, enrollment processes, and participant communications must reflect the auto-enrollment and escalation requirements today.

HR Takeaway

Benefits teams should immediately confirm whether any plans established since December 2022 have auto-enrollment running correctly. A plan that has been accepting contributions without the required auto-enrollment feature is out of compliance, even if the formal document amendment has not yet occurred.

• Identify any 401(k) or 403(b) plans established on or after December 29, 2022.
• Confirm that auto-enrollment at 3–10% and automatic escalation at 1% annually are both live in plan operations.
• Complete plan document amendments by December 31, 2026 for calendar-year plans, and update participant communications now.

Effective Date: Electronic I-9 system upgrade required by July 31, 2026; TPS for Haiti terminated March 25, 2026; TPS for Ethiopia terminated April 7, 2026

What’s Changing:

Two I-9 developments are landing in rapid succession, and both require employer action.

First, a revised Form I-9 (Employment Eligibility Verification) edition with an expiration date of May 31, 2027 is now available. Employers using electronic I-9 systems must update their platforms to reflect the current form version by July 31, 2026. Paper-based completion remains acceptable using either version until the deadline, but electronic systems displaying an outdated form create compliance exposure that employers are directly responsible for.

Second, United States Citizenship and Immigration Services (USCIS) has issued updated guidance affectingTemporary Protected Status for Haiti and for Ethiopia, including changes tied to ongoing litigation in some cases. Workers whose TPS‑based work authorization has expired under the current USCIS instructions may no longer be work‑authorized under that status. Employers who continue to employ individuals whose TPS-based authorization has expired face I-9 violations regardless of whether HR was aware of the termination. Industries with significant Haitian or Ethiopian TPS worker populations, including food processing, construction, hospitality, and healthcare, should treat this as an immediate compliance issue.

HR Takeaway

Conduct a targeted audit for any employees whose work authorization was tied to TPS for Haiti or Ethiopia. Confirm that re-verification procedures are ready before authorization documents reach their expiration dates.

• Identify employees with TPS-based work authorization from Haiti or Ethiopia and track their authorization expiration dates.
• Confirm re-verification procedures are in place for affected workers before authorizations lapse.
• Verify your electronic I-9 platform will reflect the updated form version (expiration 05/31/2027) before the July 31, 2026 upgrade deadline.

Effective Date: Emerging issue; no single regulatory effective date

What’s Changing:

As organizations accelerate AI adoption, a new category of accommodation request is appearing at HR desks: employees citing sincerely held religious beliefs as the basis for opting out of AI-powered systems. Requests have ranged from objections to AI content generation tools to concerns about AI-driven scheduling, performance monitoring, and automated decision-making platforms.

Title VII of the Civil Rights Act requires employers to accommodate sincerely held religious beliefs unless doing so creates an undue hardship. The bar for “sincerely held” is deliberately broad. Courts have consistently held that beliefs do not need to align with an established religious tradition. A genuinely held personal religious conviction qualifies, and employers cannot demand that employees justify the theological basis of their beliefs.

This creates genuine operational friction for teams implementing AI at scale. An employee who objects to an AI writing tool or an automated scheduling platform on religious grounds may be entitled to an alternative workflow, even if that alternative creates inefficiencies or additional manual steps for the team.

The interactive accommodation process under Title VII requires a good-faith dialogue between the employer and the employee to identify a workable solution. Managers who dismiss these requests outright, or handle them unilaterally without HR involvement, expose the organization to liability.

HR Takeaway

Organizations rolling out new AI tools should build accommodation procedures into the deployment plan from the start. Employees with sincere religious objections deserve a clear, consistent process for raising those concerns, and managers need to know how to route requests rather than resolve them on their own judgment.

• Review whether existing accommodation policies address technology-related religious objections explicitly.
• Include accommodation language in AI tool rollout communications.
• Train managers on the interactive process requirement under Title VII before they lead AI adoption efforts.

Q2 2026 is not a slow quarter. Payroll updates, contractor classification questions, retirement plan audits, I-9 re-verification, and a new wave of accommodation requests are all converging at the same time, and several deadlines are already here or only days away. The IRS published the tips regulations today, the DOL comment window closes April 28, and SECURE 2.0 auto-enrollment already applies to covered new plans.

What HR leaders need now is operational clarity, not just awareness of the rules. That means identifying which roles qualify under the new tipped occupation list, reviewing contractor relationships for reclassification risk, confirming auto-enrollment is actually running in newer retirement plans, auditing TPS-related work authorization issues, and making sure AI rollouts include a clear accommodation process. The organizations most likely to avoid costly corrections are the ones that answer those questions now.

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