2026 W–2 and W–4 Form Updates: What Employers and Taxpayers Need to Know

The IRS has released draft revisions to the W–2 and W–4 forms, set to take effect for the 2026 tax year. These updates follow the passage of the One Big Beautiful Bill Act (OBBBA) and introduce new employee deductions and expanded employer reporting requirements.

For Employers: What’s Changing on the W-2

  • Effective Year: These changes apply only to 2026 filings, not 2025. 
  • There are 3 new Box 12 codes on the 2026 W-2:  
    • TA– Employer Contributions to a Trump Account 
    • TP – Total Qualified Tips Earned for the Year 
    • TT – Total Qualified Overtime Compensation Earned for the Year 
  • Important Note: Employees will need to use 2025 pay stubs to calculate their tip and overtime deductions for their 2025 tax returns, as these amounts won’t be reported on the 2025 W-2.

Employer Action Items

  • Update 2025 Pay Stubs: Ensure tips and overtime are tracked and reported separately so employees can access this data for their 2025 returns. 
  • Watch for TTOC Guidance: The Treasury Tipped Occupation Code list is expected to be finalized in October 2025. Employers will need to assign codes to qualifying employees for 2026 reporting.

For Taxpayers: New Deductions on Schedule 1-A

  • The IRS has introduced Schedule 1-A, a new form for claiming tip and overtime deductions. 
    • The form has not yet been released but will be applicable on your 2025 income tax return. 
    • Beginning in 2025, the total Qualified Tip deduction reduces Adjusted Gross Income by up to $25,000 per year.  
      • Qualification is dependent on the Treasury Tipped Occupational determined by the IRS and will be reported on Box 14b on your 2026 W-2. (List expected to be published in early October 2025) 
    • Beginning in 2025, the total Qualified Overtime Compensation deduction reduces Adjusted Gross income by:  
      • $12,500 if filing Single 
      • $25,000 if filing Married Filing Jointly 
      • Phased out for income above $150,000 (single) or $300,000 (married) 

Taxpayer Action Items

  • Track Your 2025 Earnings: Employers are not required to report tips and overtime on the 2025 W-2. Keep pay stubs, timesheets, and other records to calculate your deductions. 
  • Check Your Occupation Code: To qualify for the tip deduction, your job must be listed in the Treasury’s official tipped occupation list, expected in October.

Proposed Changes to the 2026 W-4

  • The 2026 W-4 draft includes several updates to reflect new deduction options: 
    • Step 3: Dependents now split into Qualifying Children and Other Dependents 
    • Step 4: No longer optional — employees must report qualified tips and overtime 
  • Need help understanding the proposed changes to the 2026 W4 and how they might affect your taxes? Click here to learn more. 

Have questions about how these updates might affect your business or your personal tax situation? Our team is here to help you navigate the upcoming changes to the W–2 and W–4 forms and ensure you’re prepared for the 2026 tax year. We will continue to share updates as they become available. Contact us today for guidance, resources, or support tailored to your needs.

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