The Internal Revenue Service has released a draft of the 2026 Form W-2, and there are significant implications for working adults, especially those in tipped or overtime-heavy jobs, as well as business owners responsible for payroll. These updates aim to simplify reporting and help taxpayers claim new deductions.

The changes are tied to the One Big Beautiful Bill Act, a sweeping piece of legislation that introduces new tax deductions for qualifying tip income and overtime compensation. Understanding the upcoming form revisions now will help businesses and employees prepare for tax reporting and maximize potential savings in the near future.

Two key changes include:

1. Box 12 has new codes.

• TP: Total qualified tips – up to $25,000 deductible for singles; $50,000 for joint filers.
• TT: Total qualified overtime compensation – up to $12,500 deductible for singles; $25,000 for joint filers.
• It’s important to note that these deductions phase out for individuals earning over $150,000 (or $300,000 for joint filers).

2. Box 14 is now divided into two sections.

• 14a Other – This retains the original purpose of Box 14 for reporting miscellaneous items.
• 14b Treasury Tipped Occupation Code (TTOC) – This section is used to report a specific code that identifies the employee’s tipped occupation. The official list of qualifying occupations will be published by the Treasury Department in the Federal Register by October 2, 2025.

While the form changes apply to 2026, the exemptions are effective starting in 2025 through 2028. However, the IRS confirmed no changes to the 2025 W-2 or withholding tables, meaning taxpayers must adjust when filing next year.

Next Steps for Employees:

This is your opportunity to save money on your taxes, but you can’t rely on the old W-2 to do it for you.

• Remember that the 2025 W-2 won’t have the new codes.
• The new W-2 form doesn’t take effect until 2026, but the tax exemptions for tips and overtime are retroactive to the beginning of 2025.
• Start a conversation with your payroll department now to ensure you have the information you’ll need. Ask your employer to provide you with a separate statement that shows your qualified tips and overtime to accurately claim your deductions when you file your 2025 tax return next year.

Next Steps for Employers:

• Reach out to your payroll provider to confirm they’re aware of these changes and have an implementation plan. Start making sure you have a way to track the new information, if you don’t already.
• Employers should review their payroll to make sure it is prepared to comply with the new fields by 2026.
• Educate your employees about these changes, especially since the benefits kick in before the new W-2 format goes live.

While the new W-2 is a year away, the actions you take now will ensure a smoother tax season and help you—and your employees be prepared.

As always, should you have questions, we are here to help.