18 March 2026 California law largely does not conform to OBBBA provisions affecting compensation and benefits California recently enacted legislation updating its conformity to the federal Internal Revenue Code (IRC), marking the state's first broad conformity update in nearly a decade. S.B. 711 (the Conformity Act of 2025) advances California's general IRC conformity date from January 1, 2015, to January 1, 2025, effective for tax years beginning on or after January 1, 2025. While this change aligns California with many federal tax law developments enacted over the past 10 years, the state continues to apply a selective, static conformity approach and maintains significant areas of nonconformity, including the compensation and benefits provisions contained in the One Big Beautiful Bill Act (P.L. 119-21, OBBBA). The chart on the following page lists the compensation and benefits provisions under the OBBBA to which the California tax code does not conform for California personal income tax (PIT) purposes. (See the California Senate Revenue & Taxation Committee's Conformity Chart based on S.B. 711 and Tax Alert 2025-1476 for more information on the compensation and benefits provisions of the OBBBA.) California conformity with the OBBBA — income tax on compensation and benefits as of September 5, 2025 Internal Revenue Code | California Revenue and Tax Code (RTC)* | OBBBA description | Effective date | California conformity | IRC Section 132(f)(8) | RTC 17149.1 | Bicycle commuting benefits. Makes permanent the exclusion from gross income for bicycle commuting benefits. | January 1, 2026 | No, continues to be excluded from PIT wages | IRC Section 217(k), 132(g)(2) | RTC 17149.2 | Moving expenses. Makes permanent the elimination of the deduction for moving expenses except for members of the Armed Forces and certain members of the intelligence community. | January 1, 2026 | No, continues to be excluded from PIT wages | IRC Section 224 | N/A | No tax on tips. Creates deduction from gross taxable income for qualified tips up to $25,000. | January 1, 2025 (sunsets 2028) | No | IRC Section 225 | N/A | No tax on overtime. Creates deduction from gross taxable income for qualified overtime pay. | January 1, 2025 (sunsets 2028) | No | IRC Section 128, 139J | N/A | Employer contribution to Trump Accounts. Excludes from gross income amounts paid by employers as a contribution to the Trump account of the employee or dependents up to $2,500 per year. | January 1, 2026 | No | IRC Section 129(a)(2)(A) | RTC 17131 | Dependent care assistance. Increases the maximum exclusion from taxable wages for dependent care assistance from $5,000 to $7,500. | January 1, 2026 | No, the exclusion remains at $5,000 | IRC Section 127(c)(1)(B) | RTC 17151 | Educational assistance. Makes permanent that employer payment of a student loan is included in qualified educational assistance and subjects the maximum exclusion of $5,250 to annual inflation adjustments. | January 1, 2026, for student loans; January 1, 2027, for inflation adjustments to maximum exclusion | No, the exclusion of employer reimbursement of student loans expired after December 31, 2025, and the $5,250 exclusion limit does not increase for inflation starting in 2027 | IRC Section 223(a), 125, 106(d) | RTC 17131.4 | Health Savings Accounts (HSA). Excludes employee contributions and employer contributions up to the specified annual limits from wages subject to income tax and income tax withholding. | Existing law | Employer and employee contributions to an HSA continue to be included in in PIT wages |
California employers should note that the rules applicable for determining wages subject to California PIT do not necessarily align with the rules applicable for California payroll taxes, such as state disability Insurance, unemployment Insurance and the Employment Training Tax. Employers should also note that state conformity to the OBBBA varies significantly by jurisdiction. While California generally does not conform to several OBBBA provisions affecting wages and employee benefits, other states may adopt the federal changes in whole or in part. Accordingly, state-by-state analysis will remain an essential compliance and planning exercise in 2026, particularly for employers with multistate workforces. | * * * * * * * * * * | | Contact Information | For additional information concerning this Alert, please contact: Workforce Tax Services - Employment Tax Advisory Services | | Published by NTD’s Tax Technical Knowledge Services group; Andrea Ben-Yosef, legal editor |
Document ID: 2026-0665 |
