Just the Tip:
If one of the new federal deductions for tips, overtime, seniors, or car loan interest applies to you and your W-4 hasn’t changed, you’re having too much tax withheld. Run the IRS Tax Withholding Estimator in October and give your employer a new W-4, so the fix reaches your last paychecks of the year.
Three months of paychecks are left in 2026, and the tools to fix them are ready. The IRS updated the estimator for the new deductions on March 12, and the 2026 W-4 has room for them in Step 4(b), so the fix takes one sitting.
The law created the four deductions for 2025 through 2028, and you can take each one whether or not you itemize.
- Reported tips, up to $25,000
- Overtime premium pay (the extra half of time-and-a-half), up to $12,500, or $25,000 on a joint return
- $6,000 for each taxpayer 65 or older
- Interest on a loan for a new, U.S.-assembled vehicle bought for personal use after 2024, up to $10,000 a year
The tip and overtime deductions phase out above $150,000 of modified adjusted gross income ($300,000 joint), the car loan deduction above $100,000 ($200,000 joint), and the senior deduction above $75,000 ($150,000 joint).
If one applies and your W-4 hasn’t changed, you’re over-withholding. By our math, an hourly worker in the 22% bracket with $8,000 of overtime premium this year owes about $1,760 less in federal income tax. An old W-4 hands that $1,760 to the IRS as an interest-free loan until next spring’s refund. Side income, a second job, or a bonus with too little withheld pushes the other way, toward a bill in April and sometimes an underpayment penalty.
Have your latest pay stub and last year’s return handy. The IRS says the estimator takes about 25 minutes and doesn’t ask for your name, Social Security number, or bank account numbers. It then helps you fill out a new W-4, which goes to your employer’s payroll or HR team, not the IRS.
Your employer has roughly a month to start using a new W-4, so one you hand in during October still reaches your November and December paychecks.
Each paycheck that passes leaves fewer to spread the correction across. File in October and the change per check stays small, while a December form may not take effect until the year is over.
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