If a new federal deduction 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, unless other income has too little withheld. Run the IRS Tax Withholding Estimator in October and give your employer a new W-4, so the fix reaches this year’s last paychecks.
Three months of paychecks are left in 2026, and the tools to fix them are ready. By March 12, the IRS had updated the estimator for the new deductions, 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 none requires itemizing, though married couples must file jointly to take all but the car loan deduction.
- Reported tips in jobs the IRS lists as tipped, up to $25,000
- Federally required overtime premium (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
Each phases out above a limit on modified adjusted gross income, usually your adjusted gross income: $150,000 ($300,000 joint) for tips and overtime, $100,000 ($200,000 joint) for the car loan, and $75,000 ($150,000 joint) for seniors.
If one applies and your W-4 hasn’t changed, you’re over-withholding. By our math, the overtime deduction saves an hourly worker in the 22% bracket with $8,000 of overtime premium this year about $1,760 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, and a December form may not take effect until the year is over.
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