Update Applicable to:	Effective Date
All Employers	January 1, 2026

What happened?

The IRS (Internal Revenue Service) has finalized and released the 2026 version of Form W-4, (“Employee’s Withholding Certificate”), reflecting changes required by H.R. 1—the One Big Beautiful Bill Act (OBBBA; Pub. L. 119-21), enacted in July 2025. The updated form is available on the IRS website and will be used starting January 2026.

Overview

The 2026 Form W-4 makes withholding more detailed and data-driven. It brings OBBBA’s updated deductions and credits directly into payroll processes.

Why this matters

• Employees with variable pay (especially tips or overtime) can adjust withholding more accurately.
• Employers get cleaner, more consistent inputs, reducing payroll corrections, and year-end issues.
• The exempt checkbox simplifies tracking and administration.
• The child credit increase helps withholding align with the higher benefit under OBBBA.

Actions Steps for Compliance

Individuals who must submit a 2026 Form W-4

• Employees who already have a valid W-4 on file typically do not need to complete a new one. Employers will continue using the employees’ most recent W-4.

Mandatory update: Exempt status renewal

• Employees who claimed exempt in 2025 must submit a new 2026 W-4 by February 17, 2026, to remain exempt.
• If not received by the deadline, employers must change withholding to Single with no entries in Steps 2, 3, or 4.

IRS encourages updating if employees:

• Are a new hire in 2026.
• Want to change withholding (e.g., larger refund or less owed at tax time).
• Have major life or income changes (marriage, new dependent, second job, significant pay change).
• Want to reflect new deductions for tips or overtime in their withholding

Additional Information

What changed in the 2026 Form W-4

1) Longer form and expanded worksheet

• The form is now five pages (up from four) and includes instructions.
• The Step 4(b) Deductions Worksheet is now a full page.

2) Step 3 (Credits) is more structured

• Step 3 is now split into Line (a) and Line (b).
• The Child Tax Credit increases to $2,200 per qualifying child (up from $2,000).
• The $500 credit for other dependents remains the same.

3) Step 4 (Other Adjustments) is clearer

• Step 4 no longer says “Optional.”
• Step 4(b) now clearly states: if employees leave it blank, withholding is based on the standard deduction.

4) New/updated deduction entries tied to OBBBA: The expanded Step 4(b) worksheet adds lines for employees to estimate deductions, including:

• Qualified tips (employees can estimate tip income on a dedicated line).
• Qualified overtime compensation (estimate overtime on a dedicated line).
• Qualified passenger vehicle loan interest.
• Enhanced deduction for seniors age 65+.

5) New “Exempt” checkbox

• Employees who qualify as exempt from federal income tax withholding can now check a box.
• Previously, employees had to handwrite “Exempt” on the form.

Employer checklist (recommended actions)

• Update HRIS/payroll to capture the expanded Step 4(b) entries and the new exempt checkbox.
• Refresh employee guidance (onboarding, FAQs, self-service portals) to explain key updates.
• Validate withholding logic once 2026 tax tables are released.
• Communicate early to employees most impacted (tips, overtime, auto-loan interest, seniors).

Source References

• 2026 W-4 Form

Resources

• IRS Publication 15-T

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