What is Form W-4?
Form W-4 (Employee’s Withholding Certificate) tells your employer how much federal income tax to withhold from each paycheck so your withholding tracks your eventual tax bill. If too little is withheld, you may owe tax and potential penalties at filing; if too much is withheld, you’ll get a refund. You should update your W-4 when life or income changes (marriage, a new job, more/less other income, different deductions or credits).
What’s new in the draft 2026 W-4
The IRS posted a draft of the 2026 form. It’s not final and not for filing, but it shows where the agency is headed.
1) Expanded deductions in Step 4(b)
The Deductions Worksheet is no longer just a bridge to Schedule A. It explicitly includes:
- Qualified tip income (up to $25,000)
- Overtime compensation (up to $12,500, or $25,000 if married filing jointly)
- New car-loan interest (up to $10,000)
- Additional amount for seniors (65+) ($6,000 each; a second $6,000 if the spouse is also 65+ with an SSN valid for work)
These sit alongside traditional itemized categories (medical/dental, state/local taxes, mortgage interest, charitable gifts) and the standard-deduction/limitation math at the end of the worksheet.
2) New way to claim “Exempt from withholding”
Instead of handwriting “Exempt,” the form adds a checkbox with certification language and a reminder you’ll need to submit a new W-4 for the next year.
3) Credits section refactored
Step 3 is split into 3(a) (qualifying children) and 3(b) (other dependents). The amount for children under 17 is shown as a placeholder ($X,XXX) rather than a fixed dollar figure – signaling the IRS may set the final number closer to tax-year launch.
How this differs from the current W-4
- Credits today: The 2025 form uses fixed amounts—$2,000 per qualifying child and $500 for other dependents – in a single Step 3 block.
- Deductions today: The 2025 Step 4(b) worksheet is shorter and does not include lines for tips, overtime, new car-loan interest, or the 65+ amount—only itemized deductions plus a line for student-loan interest/IRA/etc.
Who should pay attention
- Employees with tips or regular overtime. You’ll be able to reflect those amounts directly in withholding, potentially reducing over-withholding.
- New car buyers. Interest on a new auto loan appears as its own line on the deductions worksheet.
- Seniors (65+). There’s a specific line for an additional amount if you (and possibly your spouse) are 65 or older.
- Itemizers and multi-job households. The refactored credits, expanded worksheet, and multiple-jobs guidance aim to tighten the fit between paychecks and year-end liability.
What employers and payroll teams should plan
- Map new fields. Inventory where HRIS/payroll needs updates for Step 4(b) (tips, overtime, new car-loan interest, 65+) and the exempt checkbox workflow.
- Revise employee guidance. Update help text and onboarding flows to explain the new worksheet and the split credit steps.
- Watch for final numbers. The placeholders mean amounts may be finalized later. Design communications and system flags to accommodate late updates without re-issuing forms.
Quick action checklist
Employees
- Review the draft if you earn tips/overtime, recently financed a new car, are 65+.
- Use the IRS withholding estimator at the start of the year and after major changes.
Employers/Payroll
- Prototype form changes in test environments.
- Prepare a short explainer for employees and a playbook for HR/payroll staff.
- Monitor the IRS link below for updates to the draft and final values.
FAQs
Is the 2026 W-4 final?
No. The IRS labels it DRAFT – NOT FOR FILING. Expect potential revisions and finalized dollar amounts before 2026 setup.
Do I have to do anything now?
Not yet. But if you’re affected by tips, overtime, a new auto loan, or age-65+ status, it’s worth skimming the draft so you’re ready when the final form drops.
Can I still claim exempt?
Yes – if you meet the criteria. The draft adds a checkbox and clarifies the conditions and renewal timing.
Source documents