Do I need to update my W-4 in 2026 to account for the new tips and overtime deductions?

Yes, if you receive tips or overtime pay, updating your W-4 is worth doing. The One Big Beautiful Bill Act (OBBBA) added above-the-line deductions for qualified tip income (up to $25,000) and overtime pay (up to $12,500 single / $25,000 married filing jointly) for tax year 2025. Your employer cannot adjust withholding for these deductions automatically.

Why this matters

Without updating your W-4, your employer will withhold taxes on your full wages including tips and overtime, even though a portion of that income will be deductible on your return. You will get the money back as a refund, but you are giving the IRS an interest-free loan until you file.

How to adjust your W-4 for tips and overtime

• Download the current [Form W-4](https://www.irs.gov/pub/irs-pdf/fw4.pdf) from IRS.gov
• In Step 4(b) Deductions, enter the amount of qualifying deductions you expect to claim:
• Tip deduction: estimate your 2026 qualified tip income (up to $25,000)
• Overtime deduction: estimate your expected overtime (up to $12,500 / $25,000 joint)
• Add these to any other deductions above the standard deduction
• Submit the updated W-4 to your employer's HR or payroll department

Income limits to check first

• Tips and overtime deductions phase out above $150,000 (single) or $300,000 (married filing jointly)
• If you are above these limits, do not reduce withholding for these deductions

Other good reasons to update your W-4 in 2026

• Got married or divorced in 2025
• Had a child or lost a dependent
• Started a side business with 1099 income
• Significant change in income

The IRS Tax Withholding Estimator at irs.gov/tax-withholding-estimator walks you through the math and generates suggested W-4 values. Run it in February or March each year to avoid surprises at filing time.

Important: A W-4 change only affects future paychecks. If you under-withheld significantly in 2025, make sure you have a sufficient refund or pay any balance due by April 15, 2026.