The IRS has released the Form W-4, Employee’s Withholding Certificate, reflecting updates from the One Big Beautiful Bill Act (OBBBA) enacted in July 2025. Following the draft issued in August 2025, the finalized form introduces important changes for employers and employees, including an expansion from four pages to five.
What are Form W-4?
Form W-4 is used by employees to inform their employer of the appropriate amount of federal income tax to withhold from each paycheck. This ensures the correct amount is remitted to the IRS throughout the year, helping employees avoid underpayment penalties or unexpected tax bills at year end.
Form W-4 Updates
The updated Form W-4 has these four changes employers and employees should take note of:
- Step 3: Claim Dependent and Other Credits. The lines in Step 3 are now labeled Lines (a) and (b) and require the same information as in the 2025 form. The amount for the child tax credit was increased by the OBBBA to $2,200 from $2,000 per qualifying child.
- Step 4: Other Adjustments. Step 4 no longer includes “Optional.” Step 4(b) informs employees that if the employee skips this line, withholding will be based on the standard deduction.
- Deductions Worksheet. The Deductions Worksheet for Step 4(b) now has 15 lines and is on its own page. New lines were added for employees to enter qualified tips and overtime compensation for the new tax deductions under the OBBBA. Employees can use Line 1(a) to enter an estimate of their qualified tip income and Line 1(b) to enter an estimate of qualified overtime compensation.
- Exempt checkbox. A checkbox was added after Step 4 for employees to claim they are exempt from withholding. On the previous version, employees claimed exempt by writing “Exempt” in the space below Step 4(c).
How We Can Help
The OBBBA introduced numerous provisions that will shape payroll practices for years ahead. We monitor every change, so you don’t have to. Our team turns complex withholding rules into clear, actionable guidance. Let us manage the details, so your business stays compliant and ahead of the curve. Contact us today.
