All posts by Rudy Mahanta, CPP
On January 9, 2026, the Internal Revenue Service finalized the 2026 Form W-2, Wage and Tax Statement, formally implementing reporting changes required under Public Law 119-21, also known as the One Big Beautiful Bill Act (OBBBA). The final form largely reflects changes previewed in earlier drafts, with one important clarification related to tipped occupation reporting. While the final instructions have not yet been released, a draft version is available, and the form itself is now official. Employers should begin preparing systems and processes to support these updates ahead of the 2026 filing season. Key Changes in the Final 2026 Form W-2 New Box 12 Codes The finalized 2026 Form W-2 introduces three new Box 12 codes tied directly to OBBBA provisions: TA – Employer contributions under a section 128 Trump account contribution program paid to a Trump account of an employee or a dependent of an employeeTP – Total amount of cash tips reported to the employer that may be eligible for the OBBBA deductionTT – Total amount of qualified overtime compensation These codes support new above-the-line deductions that employees will calculate as part of their individual income tax filings. Box 14 Is Now Split Into 14a and 14b Box 14a – Other: Employers may continue to report miscellaneous informational items such as state disability insurance taxes, union dues, uniform payments, health insurance premiums, educational assistance, or other non-taxable income. Box 14b – Treasury Tipped Occupation Code(s): Employers will report up to two Treasury-issued tipped occupation codes that identify whether an employee’s role qualifies for the deduction for qualified tips. These occupation codes are used in combination with Box 12 code TP to determine tip deduction eligibility. Clarification on Code “000” in Box 14b One notable clarification was added in the final W-2 employee instructions. Only when Box 14b reports code “000” by itself does it indicate that an employee’s tips are not eligible for the OBBBA tip deduction. This distinction is important for employees with multiple tipped roles or occupation codes, ensuring that eligibility is not incorrectly disallowed due to partial or mixed reporting. Distinguishing Deductible vs. Non-Deductible Tips Earlier drafts introduced new reporting mechanics that are now reflected in the final form. Code TP is used to report cash tips when the employer is not a specified service trade or business (SSTB), and those tips may qualify for the deduction. Code TS applies to tips that do not qualify for the deduction when the employer is an SSTB, as defined under Internal Revenue Code sections 199A and 1202. Employers must correctly classify their business type and tip eligibility to ensure accurate reporting. Territorial Forms The IRS also released finalized versions of Form W-2AS (American Samoa) and Form W-2GU (Guam) on January 12, 2026. The finalized Form W-2VI (U.S. Virgin Islands) was not immediately available at the time of release. What This Means for Employers With the 2026 Form W-2 now finalized, employers should begin reviewing payroll systems, tip reporting processes, and occupation coding practices to ensure alignment with the new requirements. While the form itself is final, the final instructions have not yet been issued, and employers should continue monitoring IRS guidance for additional clarification. Looking Ahead The finalized 2026 Form W-2 represents a significant shift in wage reporting, particularly for tipped and overtime compensation. These changes increase reporting precision and reinforce the connection between payroll data and employee tax benefits under OBBBA. Employers that prepare early by validating data flows, updating payroll logic, and educating internal teams will be best positioned for a smooth 2026 filing season. View the final 2026 Form W-2: https://www.irs.gov/pub/irs-pdf/fw2.pdf Learn how Experian Employer Services can help with your year-end tax process and more:
The IRS has officially released the final 2026 Form W-4, Employee’s Withholding Certificate, incorporating updates from the One Big Beautiful Bill Act (OBBBA). Following the August draft, the finalized form confirms structural and numeric changes designed to align withholding with new deduction and credit provisions under the OBBBA. The finalized form expands the Deductions Worksheet, clarifies exemption procedures, and adjusts credit values to reflect the updated Child Tax Credit of $2,200 per qualifying child, up from $2,000. The layout now totals five pages (including instructions), up from four in 2025. Key 2026 updates: Step 3: Claim Dependent and Other Credits Split structure retained: Lines 3(a) and 3(b) remain separate for qualifying children and other dependents. New value applied: The Child Tax Credit rises to $2,200 per child under OBBBA, while the $500 credit for other dependents is unchanged. Step 4: Other Adjustments The optional label has been removed. Step 4 now clearly defines its subsections. Step 4(b) explicitly states that if left blank, withholding defaults to the standard deduction. Exemption checkbox added: Employees can now claim exempt from withholding via a formal checkbox and certification, replacing the old handwritten “Exempt” notation. Expanded Deductions Worksheet (Page 4) The worksheet grows, occupying its own page, and now includes new categories introduced by OBBBA: Qualified tips. If your total income is less than $150,000 ($300,000 if married filing jointly), enter an estimate of your qualified tips up to $25,000 Qualified overtime compensation: If your total income is less than $150,000 ($300,000 if married filing jointly), enter an estimate of your qualified overtime compensation up to $12,500 ($25,000 if married filing jointly) of the “and-a-half” portion of time-and-a-half compensation. Qualified overtime compensation. If your total income is less than $150,000 ($300,000 if married filing jointly), enter an estimate of your qualified overtime compensation up to $12,500 ($25,000 if married filing jointly) of the “and-a-half” portion of time-and-a-half compensation. Qualified passenger vehicle loan interest. If your total income is less than $100,000 ($200,000 if married filing jointly), enter an estimate of your qualified passenger vehicle loan interest up to $10,000. The worksheet retains traditional itemized categories (medical/dental, SALT, mortgage interest, charitable gifts) but now concludes with a limitation section and a refreshed standard deduction table. These additions directly mirror OBBBA’s new income-based deductions. Why this matters: The 2026 Form W-4 signals a shift toward greater precision and legislative alignment. Employees with variable pay—especially tips, overtime, or new car loans—can now fine-tune withholding through targeted deduction lines. Employers gain clearer data inputs for payroll accuracy and reduced rework. The checkbox for exemption simplifies verification and year-end tracking. The child credit increase ensures calculations match the higher benefit created under OBBBA. Employer checklist: Update HRIS/payroll fields to accommodate the expanded Step 4(b) deductions and new exempt checkbox. Refresh employee guidance—including onboarding instructions, FAQ content, and self-service portals—to explain the new lines. Validate withholding logic against 2026 tax tables once released. Communicate early—especially to employees with tips, overtime, or auto-loan interest deductions. Employees, what to know: If you earn tips or overtime, bought a new car, or are 65 or older, you may qualify for new deductions under OBBBA. Use the updated worksheet to reflect these items and avoid over withholding. The IRS withholding estimator (https://www.irs.gov/individuals/tax-withholding-estimator) remains the best way to validate accuracy throughout the year. Key takeaway: The final 2026 Form W-4 transforms the withholding certificate into a more granular, data-driven tool. It brings OBBBA’s deductions and credit changes directly into payroll operations and requires employers to review system fields and training materials now to stay ahead of 2026 implementation.
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Form 945, Annual Return of Withheld Federal Income Tax, is the cornerstone for reporting all “nonpayroll’ withheld taxes. Nonpayroll taxes encompass amounts withheld from various sources, including gambling winnings, retirement pay for service in the U.S. Armed Forces, pensions, annuities, IRAs, and certain other deferred income, and backup withholding concerning reportable payments. All income tax withholding reported on Forms 1099 or Form W-2G must be reported on Form 945. Form 945 may also be used to report backup withholding for compensation paid to H-2A visa holders who fail to furnish their taxpayer identification number. Who Must File Employers who withhold or are required to withhold federal income tax (including backup withholding) from nonpayroll payments must file Form 945. If an employer doesn't have a nonpayroll tax liability for a specific year, they are not required to file Form 945. Form 945 should not be used to report withholding required to be reported on Form 1042, the Annual Withholding Tax Return for U.S. Source Income of Foreign Persons. Form 945A Form 945A, Annual Record of Federal Tax Liability, serves as a daily log of federal tax obligations. Semiweekly and next-day depositors must complete and attach Form 945A to Form 945. Monthly depositors need not complete Form 945A unless they accrue a one-day tax liability of $100,000 or more, in which case they become semiweekly depositors for the remainder of the year. Facsimile Signature Corporate officers or duly authorized agents may sign Form 945 by rubber stamp, mechanical device, or computer software program. IRS Unveils Draft Instructions for the 2023 Annual Withholding Return In the ever-evolving landscape of tax regulations, businesses must stay ahead of the curve. The IRS has given us a glimpse into what the upcoming tax year holds with the release of the draft instructions for the 2023 Form 945, the Annual Return of Withheld Federal Income Tax. Let's delve into the specifics to ensure you're well-prepared for your tax obligations in the coming year. A Closer Look at the Form 945 Updates At its core, Form 945 serves as the linchpin for businesses, allowing them to report federal income tax withheld from nonpayroll payments. If you're an employer who withholds federal income tax, including backup withholding, from nonpayroll sources like pensions, military retirement, gambling winnings, specific government payments, or those subject to backup withholding, Form 945 is your annual record-keeper. It consolidates all federal income tax withholdings from these nonpayroll avenues into one comprehensive document. The filing deadline for the 2023 Form 945 is January 31, 2024. However, the IRS has shown understanding for diligent businesses. If you've consistently met your tax obligations throughout the year by making timely deposits, you gain a little breathing room. In this case, the deadline extends to February 12, 2024, providing you with a few extra days to ensure your records are in order. (Remember, the extension to February 12 is due to February 10 falling on a Saturday.) Filing Methods Demystified While the IRS strongly advocates for electronic filing due to its efficiency and speed, they recognize that some businesses still prefer the traditional paper route. If you're one of them, the method you choose depends on whether a payment accompanies Form 945. The details, including specific mailing addresses, can be found in the Form 945 instructions. The good news? These addresses remain unchanged, providing a familiar path for those accustomed to the paper trail. Addressing Errors with Form 945-X We're all human, and mistakes happen. If you find an error on a previously filed Form 945, fear not. The solution lies in Form 945-X, also known as the Adjusted Annual Return of Withheld Federal Income Tax or Claim for Refund. When errors rear their heads, this form allows you to make necessary corrections. It's crucial to note that Form 945-X is filed separately from the regular Form 945, ensuring clarity and accuracy in your tax records. Embracing Electronic Fund Deposits In our digital age, electronic transactions have become the norm, and federal tax deposits are no exception. Employers are mandated to utilize electronic funds transfer (EFT) for all federal tax deposits. The preferred method? Electronic Federal Tax Payment System (EFTPS) stands as the cornerstone of EFT. However, if EFTPS doesn't align with your preferences, alternatives exist. Businesses can delegate this responsibility to tax professionals, financial institutions, payroll services, or other trusted third parties. These entities can ensure your electronic deposits are made promptly and accurately. Peering into the Future As businesses, we thrive on foresight. The IRS granted us a glimpse into the future with the draft release of the 2023 Form 945 in June. While the final version has yet to see the light of day, this draft version equips businesses with invaluable insights. By familiarizing yourself with the draft instructions, you can prepare your financial records and processes for the year ahead, ensuring a smooth tax season. The IRS released a draft of the 2023 Form 945 in June. A final version has not yet been released.
A lower electronic filing threshold was announced this year by the IRS to begin in 2024. Learn more about this upcoming change in this blog.
Understanding the differences between employer tax withholding and tax filing is key to compliance and delivering a high quality employee experience.