Tax Withholding

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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