On January 30, 2026, the Internal Revenue Service released the final General Instructions for Forms W-2 and W-3 for the 2026 tax year. While much of the guidance builds on prior years, the final instructions reflect several important updates tied primarily to Public Law 119-21, the One Big Beautiful Bill Act (OBBBA), along with refinements from the draft instructions issued earlier in January.
For employers, payroll providers, and HR teams, the 2026 instructions introduce new reporting codes, expanded data elements, and clearer explanations around how certain types of compensation must be reported, even where the underlying tax treatment has not changed. As always, organizations should evaluate how these updates apply to their specific circumstances.
Below is a high-level summary of the most notable changes in the final 2026 instructions. This overview is for informational purposes only.
Big picture: more granular reporting, not less responsibility
Many of the 2026 updates focus on how information is reported, rather than whether it is taxable. In several areas, particularly tips and overtime, the IRS makes clear that while new deductions may be available at the individual level, employer reporting and payroll tax treatment largely remain the same.
The result is more detailed W-2 reporting and a greater emphasis on accurate classification and data capture.
Expanded reporting for tips
The 2026 instructions introduce new reporting requirements related to tipped wages.
A new Box 12 code, TP, must be used to report the total amount of cash tips reported to the employer.
Box 14 has been split into Box 14a (Other) and Box 14b, with Box 14b dedicated to reporting Treasury Tipped Occupation Code(s) when tips are reported using code TP.
Despite the new deduction for qualified tips under OBBBA, the final instructions reiterate that tips are generally subject to federal income tax withholding and both the employer and employee share of Social Security and Medicare taxes when the twenty-dollar-per-month threshold is met.
This distinction underscores that deductions available on an individual’s tax return do not change employer withholding and reporting obligations.
New reporting code for qualified overtime
The final instructions introduce Box 12 code TT for reporting qualified overtime compensation.
The IRS added clearer language than what appeared in the draft instructions. Only overtime compensation required under the Fair Labor Standards Act qualifies, and only the premium portion of overtime pay is reported. For example, in a time-and-a-half scenario, only the additional half of the overtime rate is reported using code TT.
As with tips, the IRS clarifies that overtime compensation is still generally subject to federal income tax withholding and payroll taxes, even though certain deductions may apply at the individual level.
Wage reporting threshold increase
For wages paid after calendar year 2025, the wage reporting threshold increases from six hundred dollars to two thousand dollars when no federal income tax, Social Security tax, or Medicare tax is withheld. The threshold will be indexed for inflation beginning after 2026.
This change may reduce reporting in limited situations, but it does not eliminate W-2 filing requirements where withholding occurs.
Box 14 structural changes
To accommodate new reporting needs, Box 14 has been split into Box 14a (Other) and Box 14b (Treasury Tipped Occupation Code[s]). Box 9 was reduced in size to allow for additional Box 14a entries.
These layout changes may require payroll system updates to ensure accurate formatting and data placement.
Trump account reporting
Public Law 119-21 introduces Trump accounts, a new type of individual retirement account for children under age eighteen.
For 2026 reporting, employers must use new Box 12 code TA to report employer contributions made under a Section 128 Trump account contribution program. Employer contributions may begin July 4, 2026, subject to annual limits and income exclusion rules.
The final instructions provide less detail than the draft and direct employers to Publication 15-A for additional guidance.
What changed from the draft instructions
Compared to the draft issued earlier in January, the final instructions shortened and streamlined the discussion of Trump accounts, clarified that tips and overtime remain subject to payroll taxes, and added a concrete example explaining how only the premium portion of overtime pay qualifies for reporting under code TT.
A note on interpretation
This overview is intended for informational purposes only. Employers and individuals should review the full IRS guidance and verify how the rules apply to their specific facts and circumstances.
Looking ahead
The 2026 W-2 and W-3 instructions reflect a broader trend toward more detailed wage reporting, particularly for compensation types that may be subject to special deductions or increased scrutiny. For organizations, the focus will be on ensuring systems, data flows, and classifications align with updated requirements well before year-end reporting.
Experian continues to monitor regulatory developments to help organizations stay informed as reporting requirements evolve. Connect today to learn how you can streamline your year-end tax compliance tasks to save time and improve your workflow.