All employees should consider updating/revising their W-4 for 2026, especially those who earn overtime and/or receive tip income. The revised W-4 for 2026 now contains new “deduction lines” for employees to estimate their 2026 “overtime premium” compensation (just the “half” premium portion of OT) as well as their taxable tip income. The new deductions on the W-4, page 4, also include the new “senior deduction” for those age 65 and over by the end of 2026, as well as new deductions for interest expense on qualified vehicles and charitable donations for those who take the standard deduction (most of us).
ACCUPAY’S GUIDE TO HOW TO COMPLETE YOUR W-4
Previous PayDay’s we’ve authored, including our Guide to Completing the New W-4, explain how employees should complete the “new” W-4 form, which was revised and first effective January of 2020. Although, since updating the W-4 was not mandated, many employees who have not changed jobs or experienced any major life changes may still have the pre-2020 version on file with their employer. (It is now time for the IRS to mandate the “new” 6-year-old W-4 design!!). The current version of the W-4 does not contain “allowances” for exemptions since those exemptions were eliminated from federal income tax law seven years ago and replaced with increased standard deduction amounts and increased child tax credits. With even more changes coming in 2026, now is a good time for employees to update W-4 forms – especially if they have not done so since before 2020!
OUR PREVIOUS GUIDE, “HOW TO COMPLETE YOUR W-4,” IS STILL RELEVANT, BUT YOU NEED TO NOW PAY ATTENTION TO AND COMPLETE PAGE 4.
SO WHAT IS NEW ABOUT PAGE 4 “DEDUCTIONS” OF THE 2026 W-4 FORM?
Page 4 of the 2026 W-4 includes new lines to estimate your 2026 “OBBB” deductions for “qualified overtime premium” and “qualified tip income,” as part of the OBBB’s brand new Form 1040 deductions reflecting “no tax on tips and no tax on overtime.” If an employee with overtime and/or tip income wishes to receive the tax savings from OT and tips “ratably” per paycheck, they need to estimate those deductions on a new 2026 W-4 which they provide to their employer. Employees who are age 65 or greater by the end of 2026 should also consider claiming the brand new “senior deduction” on page 4 of the W-4. Page 4 also has lines in which an employee can claim deductions for IRA contributions, new charity deductions for non-itemizers, auto loan interest expense.
Please note that limitations exist for the new deductions for overtime and tip income, including “caps” on the deductions as well as limits imposed for higher income taxpayers.
Lines 6 to 14 on page 4 pertain to itemized deductions. The vast majority of Americans now claim the “standard deduction” instead of itemizing, so you may wish to “skip” lines 6-14 dealing with itemized deductions (unless you pay very high state income tax or have significant charitable donations.)
If you claim the “standard deduction,” it is already built into the tax withholding tables based on your filing status noted at the top of the W-4 form.
YOUR EMPLOYER WILL NOT REDUCE YOUR TAX WITHHOLDINGS FOR OVERTIME, TIPS, TAX CREDITS, ETC. IF YOU DO NOT CLAIM THEM ON YOUR W-4 FORM.
OTHER NOTEWORTHY CHANGES IN THE 2026 REVISED W-4 FORM
The “child tax credit” for dependent children under age 17 as of 12/31/26 has been increased to $2,200 per child for 2026, before any phaseout based on high income. This tax credit is a “dollar for dollar” reduction in your federal income tax, unlike deductions, which simply reduce your taxable income.
Step 4 now has a checkbox to claim an exemption from federal income tax withholding—-you no longer need to write in the word “Exempt.” A person is exempt from 2026 federal withholding ONLY IF they had zero federal income tax liability in 2025 and expect zero federal income tax in 2026 (mostly students, minors, and lower income individuals who can claim child tax credits and the “earned income tax credit.”) Exempt status has nothing at all to do with whether you received a refund in the previous year.
AS WITH LAST YEAR, YOU CAN REQUEST THAT EXTRA FEDERAL TAX BE WITHHELD FROM YOUR PAYCHECKS IN 2026
Certain tax profiles are well suited for the “extra withholding” option on the W-4. Pastors of churches often pay self-employment tax on their Form 1040 BUT the withholding tax tables DO NOT factor in any self-employment/SECA tax. A pastor/minister/clergyman can request their estimated self-employment tax be withheld as “extra” federal income tax by entering the extra amount on their W-4.
It is not uncommon for working couples who file a joint income tax return to owe additional federal income tax since their combined withholdings may not be sufficient to cover their combined federal income tax on a joint income tax return—–the “extra tax to withhold” line allows employees to enter an estimated amount to withhold over and above what the tax tables will withhold from your paycheck.
WHAT IS THE PURPOSE THE 2026 W-4?
The purpose of the W-4 is to enable a taxpayer to project their 2026 federal taxes and to withhold sufficient federal income tax to approach a “break-even” when they file their 2026 Form 1040 on or before April 15, 2027. It is IMPOSSIBLE to withhold exactly what your annual federal income tax liability will be, BUT THE MORE ATTENTION YOU PAY TO ACCURATELY COMPLETING THE W-4 , THE CLOSER YOU SHOULD GET TO BREAK-EVEN WHEN YOU FILE YOUR FORM 1040.
WHAT IF YOU WANT TO RECEIVE A TAX REFUND EACH YEAR INSTEAD OF USING THE W-4 TO APPROACH A BREAK-EVEN?
If you wish to receive a federal tax refund, simply do not claim all of the deduction amounts on the W-4. Omit or reduce the amount of child tax credits OR the amounts for anticipated deductions related to overtime premium income, tip income, or other deductions on Page 4. You can still claim those tax credits and deductions on your actual Form 1040, which will often result in a refund.
FOR EMPLOYER USE TO HELP YOUR EMPLOYEES—OPTIONAL
As we head into 2026, it is a good idea for employees to update their W-4 forms – especially employees who expect a significant amount of overtime or tip income next year. Employers may wish to provide this W-4 Guide to their employees as a tool for accurately completing the 2026 W-4. If you are an AccuPay client, you have the option of allowing employees to update W-4’s directly in isolved via Employee Self-Service. The updated 2026 form will be available for online completion sometime in January. Until then, the 2026 form is available on the Forms and Resources page of our website.
For more information, contact your Payroll Specialist at payroll@accupay.com or 317-885-7600.
This PayDay is for educational purposes only and does not constitute tax and/or legal advice. Any links to external resources are for educational purposes only. AccuPay is not affiliated with nor receives any renumeration from any outside sources. Please consult with your tax and/or legal advisor before applying any suggestions made here or through external links.