CPA firms are facing more payroll complexity at the same time that clients are expecting fewer surprises and clearer guidance as we head into 2026. Use this payroll compliance preview to help your firm shift from helping your clients with reactive cleanup to assisting with proactive risk management.

Compliance Preview: The 2026 Watch List by Compliance Area

• Worker classification pressure. Misclassification remains a high-penalty enforcement target as agencies share data more aggressively to compare payroll, tax, and information returns. Short-term projects, hybrid roles, and inconsistent onboarding of employees can increase exposure. CPA firms can reduce this risk by reinforcing classification reviews, documenting decisions, and aligning payroll, accounts payable, and tax records before discrepancies escalate into audits or retroactive reclassification issues.
• Wage bases and withholding volatility. Federal, state, and local changes continue to be made closer to effective dates, leaving little margin for delayed updates. Supplemental wage rules, benefit taxation, and threshold changes often create hidden errors when payroll systems lag. Firms that formalize monitoring and post-update testing avoid cascading corrections that spread across payroll runs, quarterly filings, and year-end forms.
• Multistate payroll complexity. Remote and temporary work arrangements have created new filing and withholding compliance obligations. One relocated employee can trigger registration, unemployment insurance, paid leave, and local tax requirements, while missed registrations and mismatched state reporting are common failure points. Early jurisdiction mapping, consistent employee location tracking, and documented onboarding controls can help firms contain their business clients’ expanding compliance exposure.
• Deposit timing and notice exposure. Most payroll penalties still stem from routine breakdowns such as late deposits, misapplied payments, or ignored notices, rather than because of complicated rules. Without a clear response process, small errors can compound quickly. Centralized calendars, quick triage of notices, documented follow-ups, and escalation paths can aid CPA firms to resolve issues early and prevent repeat penalties.
• Year-end issues that start early. Many year-end crises originate months earlier with incomplete or incorrect setup such as wrong addresses, benefit codes, residency status, or wage classifications. These errors accumulate silently until forms are generated. Quarterly reconciliations, midyear data cleanups, and proactive validation of employee records can reduce amendments, client frustration, and last-minute compliance fire drills.

Client Advisory Angle – What to Tell Clients Now

Clients need clear guidance before payroll risk turns into penalties. The message CPAs can tell their clients is simple: accurate setup drives compliance success. Encouraging pre-year reviews of tax profiles, earning codes, benefits, and employee locations helps prevent downstream errors. CPAs can add value by clarifying internal responsibilities, setting expectations around change approvals, and packaging payroll compliance reviews as advisory services. Proactive conversations position the firm as a planning partner rather than a problem solver after notices arrive.

A Simple January Checklist

The fastest way to reduce payroll risk is to act before the calendar fills up. These focused steps for business clients can help CPA firms move from intention to execution without overhauling everything at once.

• Run a payroll compliance spot check on a handful of clients to surface setup gaps before they become recurring issues
• Review and tighten deposit and filing calendars, including state and local jurisdictions that are easy to overlook
• Create a clear process for handling payroll notices so nothing sits unanswered or routed to the wrong person
• Schedule early-year configuration reviews with priority clients to confirm tax profiles, earning codes, and work locations
• Draft a short, reusable payroll update message you can send to clients as changes roll out during the year

Payroll in 2026 rewards firms that plan early, stay consistent, and communicate clearly, turning compliance from a stress point into a steady, manageable part of client service.