If you run payroll in Majuro or Ebeye, your withholding math changed this year — and if your payroll spreadsheet still uses the old bands, you are taking too much out of every paycheck. In March 2026, the Marshall Islands parliament passed Bill 103, exempting the first $8,320 of every worker's annual salary from withholding tax. For anyone earning that much or more, take-home pay rises by more than $600 a year overnight. That is money your employees legally keep starting with the April payrolls — but only if your withholding tables caught up.
This guide walks through the new brackets, what changed from the old law, the payroll deductions you still have to withhold on top of income tax, and the compliance calendar small employers need for the rest of 2026.
What Bill 103 Changed
The reform is simple on purpose. Before the change, low earners faced a quirk where crossing a small threshold could cost them the tax-free treatment on their earnings. Now the first $8,320 of annual wages is exempt from withholding tax for everyone, no cliff edge. Finance Minister David Paul, who introduced the bill on the final day of the parliamentary session, called it relief aimed squarely at household budgets being squeezed by soaring fuel and electricity costs.
The numbers behind the politics:
- $8,320 exempt per worker per year. At the 8% entry rate, that is $665.60 a year back in each employee's pocket — the "over $600 more net income" figure the government advertised.
- Effective with April payrolls. The bill passed in March 2026 and took effect the following month, so any pay period covering April onward should use the new treatment.
- About $3.1 million in forgone revenue over the remaining six months of the fiscal year, by the government's own estimate — money it expects to recirculate through local spending.
The timing is no accident. Gas prices at Majuro pumps jumped roughly 14% in two weeks that March, diesel rose about 25%, and the Marshalls Energy Company warned of electricity tariff hikes of up to 23% starting in April. The tax cut landed alongside second-quarter universal basic income payments to all 37,000 citizens and an Extraordinary Needs Distribution program delivering food and power subsidies to 11 atolls and islands. Your employees are getting relief from several directions at once; the payroll piece is the one you control.
The 2026 Wage Tax Brackets, Step by Step
The Marshall Islands taxes wages and salaries under the Income Tax Act 1989, as amended — most recently by the Income Tax (Amendment) Act 2025 and now the 2026 changes. The currency is the US dollar, so there is no FX translation to worry about. Here is how the structure works for 2026:
The $8,320 tax-free band
The first $8,320 of each employee's annual wages is free of withholding tax. On a monthly payroll that is roughly $693 per month shielded; on a biweekly payroll, about $320 per check. Apply the exemption before you touch the rate bands — this is the step most likely missing from an outdated payroll template.
The 8% band: $8,320 to $10,400
Wages above the exempt amount and up to $10,400 a year are taxed at 8%. Note the transitional detail: earnings in this window carry a partial $1,040 exemption, so only the remainder above the allowance is taxed at 8%. In practice, a worker earning exactly $10,400 owes 8% on roughly $1,040 — about $83 for the year. If that sounds surprisingly low, that is the point: the reform deliberately flattened the burden at the bottom.
The 12% band: above $10,400
Everything above $10,400 is taxed at 12%. This is where most full-time workers land. A full-time employee at the current $4.50/hour minimum wage earns about $9,360 a year — still inside the near-zero zone. But anyone on $5/hour or working overtime crosses into the 12% band on the excess.
The 16% top rate is gone
An earlier amendment, passed in January 2025 and effective for fiscal year 2026, removed the old 16% top rate on the highest income bracket. So the top marginal rate on wages is now 12%, full stop. If your payroll system still has a 16% tier coded in, delete it.
A worked example
Take an employee earning $15,000 a year:
- First $8,320: $0 tax.
- Next $2,080 (up to $10,400): after the $1,040 partial exemption, 8% on about $1,040 = roughly $83.
- Remaining $4,600: 12% = $552.
- Total annual withholding: roughly $635, or about $53 a month.
Under the pre-reform bands, that same worker would have paid meaningfully more — and a minimum-wage worker would have owed tax from nearly the first dollar. Run this example through your own payroll setup; if your number comes out much higher, your tables are stale.
What You Still Have to Withhold: MISSA and the Health Fund
Income tax is only one of three payroll deductions. The other two did not change, and they are often the larger line items:
MISSA social security: 8% + 8%
Both employer and employee contribute 8% of gross taxable wages to the Marshall Islands Social Security Administration (MISSA), which funds retirement, disability, and survivor benefits. The base is capped at $10,000 of wages per quarter ($40,000 a year). You deduct the employee's 8% from pay and remit it together with your matching 8% every quarter.
Health Fund: 3.5% + 3.5%
Both sides also contribute 3.5% of wages to the Marshall Islands Health Fund, capped at $5,000 of wages per quarter ($20,000 a year). Like MISSA, it is withheld from the employee and matched by you, remitted quarterly through MISSA's collection process.
The real cost of a hire
For a worker earning $1,500 a month — fully under both quarterly caps — employer-side extras run the full 11.5%, about $173 a month in MISSA and Health Fund contributions alone, before any workers' compensation fees. Higher earners hit the caps: at $3,500 a month ($10,500 a quarter), you pay 8% on the first $10,000 plus 3.5% on the first $5,000, or $975 a quarter. When you quote project costs or set prices, burden your labor rates with these contributions, not just the gross wage. New employers consistently underprice because they budget the paycheck and forget the match.
Your 2026 Employer Compliance Calendar
Four dates and deadlines matter for the rest of the year:
1. Update withholding now, and true up past months if needed
If you ran April-through-present payrolls on the old tables, your employees overpaid. Work out the difference per worker and adjust it through reduced withholding over the remaining pay periods of the year. Document the correction per employee — a simple schedule showing old withholding, correct withholding, and the credit applied each period keeps you defensible if questions arise later.
2. Quarterly MISSA filings continue unchanged
MISSA and Health Fund contributions are reported and remitted quarterly. The tax reform did not move these deadlines or change the caps, so keep your existing quarterly rhythm. Reconcile the wage base you report to MISSA against the wage base on your withholding records every quarter; the two should tie except for clearly documented differences.
3. Minimum wage rises to $5.00 on October 1, 2026
Under the Minimum Wage (Amendment) Act 2024, the floor rose from $3.00 to $4.50 in October 2025 and steps to $5.00 per hour on October 1, 2026, then $5.25 in October 2027. A full-time minimum-wage worker will earn about $10,400 a year at the new rate — right at the top of the 8% band. If you employ hourly staff at the floor, budget now for both the raise and the small amount of withholding that newly applies above the exempt band.
4. Phase Two tax reform arrives in October 2026
The income-tax cuts are Phase One of a two-phase overhaul designed with IMF technical assistance. Phase Two, scheduled for October 2026, introduces a value-added tax and a business profits tax to replace the current business gross revenue tax (roughly 3% on turnover, paid quarterly) and local sales taxes (generally 2% to 4%). Expect VAT registration and new filing obligations from the Division of Customs, Treasury, Revenue and Taxation ahead of the effective date. If you sell goods or services locally, start mapping which of your sales would fall under VAT and whether your invoicing can show it separately.
Common Mistakes Small Employers Make
Running the old tables all year. The most expensive error is also the most boring: nobody updated the spreadsheet. The fix costs ten minutes — update the $8,320 exemption, confirm the 8%/12% bands, remove any 16% tier — and the cost of not doing it is over-withheld wages you have to unwind.
Withholding income tax but forgetting the match. Income tax withholding gets the attention because it appears on the pay stub, but MISSA and Health Fund carry employer-side matches with quarterly remittance. Set calendar reminders for the quarter ends; penalties and interest attach to late filings just as they do to late tax.
Treating bonuses and allowances as exempt. Bonuses, overtime premiums, tips, stipends, and allowances paid in cash or in kind are wages. They go into the same withholding base as regular salary and count toward MISSA and Health Fund up to the quarterly caps. There is no statutory 13th-month payment in the Marshall Islands, but if you pay a voluntary year-end bonus, withhold on the full amount.
Misclassifying contractors and expatriates. Non-resident workers need permits under the Labour (Non-Resident Workers) Act 2018, and income of non-residents from services performed in the Marshall Islands is generally subject to a 10% withholding tax — a different regime from the wage bands. US, Micronesian, and Palauan citizens can work without a permit under the Compact of Free Association, but they still need MISSA registration, Health Fund enrollment, and normal wage withholding. And US contractor personnel have their own 5% rate. When in doubt about a worker's category, confirm with the Chief of Revenue and Taxation before the first paycheck, not after the first audit notice.
Ignoring the gross revenue tax while focused on payroll. If you carry on a business or profession in the Marshall Islands, you likely owe business gross revenue tax — historically around 3% on gross revenue, paid quarterly — regardless of profitability. It sits entirely outside the wage-tax system. Keep it on a separate compliance track so payroll work never crowds it out, and watch for its replacement by the business profits tax under Phase Two.
Keep Your Payroll Records Audit-Ready
Every reform like this one raises the same question from the tax office: prove you withheld correctly during the transition. The employers who answer easily are the ones whose records already separate each deduction into its own bucket. For every pay run, keep the gross wage, the income-tax withheld, the employee MISSA and Health Fund deductions, and your matching contributions as distinct line items, reconcilable to both your bank statements and your quarterly filings. A plain-text ledger makes this trivially auditable — each pay run is a dated transaction with balanced postings, and correcting an over-withheld spring is a visible reversing entry rather than a silently edited spreadsheet cell.
If you operate across the Pacific, the same discipline travels well: the Marshall Islands uses US dollars and a wage-based system your existing chart of accounts can absorb without new currencies or exotic account types.
Simplify Your Payroll Bookkeeping
As you update your withholding for the new $8,320 exemption and plan for the October minimum-wage increase, keeping clean payroll records is what turns a reform from a scramble into a non-event. Beancount.io provides plain-text accounting that gives you complete transparency and control over your payroll and tax data — every deduction traceable, every correction reviewable. Get started for free and see why developers and finance professionals are switching to plain-text accounting.
