The IRS has officially released the finalized 2026 Form W-4, Employee’s Withholding Certificate, which incorporates significant changes stemming from the One Big Beautiful Bill Act (OBBBA). These updates are designed to improve the accuracy of federal income tax withholding by accounting for new tax credits and deductions introduced by the legislation.
Key Changes to Form W-4
While the general purpose of Form W-4 remains the same – to determine the correct amount of federal income tax to withhold from an employee’s pay – the mechanics of how employees report their information have shifted in several key areas.
Expanded Deductions Worksheet
The Deductions Worksheet, found in Step 4(b), now spans a full page to accommodate new OBBBA tax provisions. Notable additions include:
- Qualified tips: Employees with a total income under $150,000 ($300,000 if married filing jointly) can enter an estimate of qualified tips up to $25,000.
- Qualified overtime compensation: Employees meeting the same income thresholds can also enter an estimate of qualified overtime compensation. This applies to the “and-a-half” portion of time-and-a-half compensation, up to $12,500 ($25,000 if married filing jointly).
- Qualified passenger vehicle loan interest: Employees with a total income of less than $100,000 ($200,000 if married filing jointly) can enter an estimate of qualified passenger vehicle loan interest up to $10,000.
The worksheet continues to include traditional itemized categories such as medical and dental expenses, state and local taxes (SALT), mortgage interest, and charitable gifts, but these new additions allow employees with variable pay or specific loan types to reduce over-withholding throughout the year.
Updated Dependent Credits
Dependent care and other tax credits, addressed in Step 3 of the form, retain the split structure from previous versions but include updated values.
- The Child Tax Credit increases from $2,000 to $2,200 per qualifying child.
- The credit for other dependents remains unchanged at $500.
Other Notable Adjustments
Other adjustments are noted in Step 4 of the form and allow for adjustments to income, deductions, and extra withholding. Several clarifications and formatting changes have been made to this section to improve usability and compliance.
- Removal of “Optional” Label: The “Optional” label has been removed, and instructions have been streamlined for better usability.
- Standard Deduction Clarification: Step 4(b) now explicitly informs employees that leaving this line blank will result in withholding based on the standard deduction.
- New Exemption checkbox: One of the most visible administrative changes is the introduction of a formal checkbox for claiming exemption from withholding. Previously, employees claimed exempt status by writing the word “Exempt” in the space below Step 4(c). The 2026 form replaces this manual notation with a specific checkbox and certification process.
Employer Action Plan
With the finalized form now released, employers should take action now to prepare payroll operations for the 2026 tax year.
Update Systems and Processes
Ensure your human resources information system (HRIS) and payroll systems are updated to accommodate the expanded deductions and new exemption checkbox. Partner with your payroll provider to proactively map new form data elements in these systems.
Refresh Employee Resources
- Onboarding materials: Update new hire packets to include the 2026 Form W-4 and remove previous versions.
- Self-service portals: If your employees update their Form W-4s via a self-service portal, ensure the interface reflects the new line items and instructions.
- FAQs: Create or update FAQs to explain the new lines for tips, overtime, and vehicle loan interest.
Communicate Early
Communication is key to a smooth transition. Educate your workforce about the changes to Form W-4, especially employees who may benefit from the new OBBBA provisions. For example, employees with significant tip income, frequent overtime, or new vehicle loans should be informed that they can now adjust their withholding more accurately.
While employers should not provide tax advice, you can direct employees to the IRS Tax Withholding Estimator, a tool designed to help validate accuracy throughout the year.
Stay Informed. Maintain Compliance.
The 2026 Form W-4 introduces important changes that require careful attention from employers. CBIZ brings deep expertise in tax compliance, payroll, and human capital management to help you implement these changes accurately and efficiently.
Our integrated solutions simplify compliance, so you can stay focused on driving growth. Connect with us today to learn how we can streamline your payroll and compliance processes.
© Copyright CBIZ, Inc. All rights reserved. Use of the material contained herein without the express written consent of the firms is prohibited by law. This publication is distributed with the understanding that CBIZ is not rendering legal, accounting or other professional advice. The reader is advised to contact a tax professional prior to taking any action based upon this information. CBIZ assumes no liability whatsoever in connection with the use of this information and assumes no obligation to inform the reader of any changes in tax laws or other factors that could affect the information contained herein. Material contained in this publication is informational and promotional in nature and not intended to be specific financial, tax or consulting advice. Readers are advised to seek professional consultation regarding circumstances affecting their organization.
“CBIZ” is the brand name under which CBIZ CPAs P.C. and CBIZ, Inc. and its subsidiaries, including CBIZ Advisors, LLC, provide professional services. CBIZ CPAs P.C. and CBIZ, Inc. (and its subsidiaries) practice as an alternative practice structure in accordance with the AICPA Code of Professional Conduct and applicable law, regulations, and professional standards. CBIZ CPAs P.C. is a licensed independent CPA firm that provides attest services to its clients. CBIZ, Inc. and its subsidiary entities provide tax, advisory, and consulting services to their clients. CBIZ, Inc. and its subsidiary entities are not licensed CPA firms and, therefore, cannot provide attest services.
