IRS Releases Draft 2026 W-2, W-4, and New Schedule 1A: What It Means for Taxpayers
The IRS has released draft versions of key 2026 tax forms, including the Form W-2, Form W-4, and a brand-new Schedule 1A, reflecting changes under the One Big Beautiful Bill Act (OBBBA). These updates will affect employees, employers, and business owners alike—especially when it comes to reporting wages, tips, overtime, and deductions.
At Velin & Associates, Inc., we guide clients ranging from YouTubers and TikTokers to doctors, dentists, filmmakers, and Amazon business owners through IRS changes like these, ensuring they maximize deductions and stay compliant.
Key Changes to the 2026 Draft Form W-2
The 2026 draft W-2 introduces several important updates:
- Split of Box 14 into Box 14A and 14B
- Box 14A: For “other information,” just like the old Box 14.
- Box 14B: For tip-occupation codes, which will now be required to claim the new qualified tips deduction.
- New Box 12 Codes
Employers will now use new codes to report:- Trump account contributions (new retirement-style savings accounts).
- Qualified tips.
- Qualified overtime.
👉 Transition Year (2025): The IRS is treating 2025 as a transition year for reporting qualified tips and overtime. Employers will not be required to start reporting these changes until the 2026 tax year, but taxpayers should prepare now.
The New Schedule 1A: Additional Deductions
For 2025, the IRS introduced five new below-the-line deductions that aren’t itemized deductions but still reduce taxable income. To simplify reporting, the IRS created Schedule 1A, which aggregates them.
Five deductions available in 2025:
- Qualified business income (QBI) deduction
- Personal exemption for taxpayers age 65+
- Qualified tips deduction
- Qualified overtime deduction
- Qualified passenger vehicle loan interest deduction
Starting in 2026, a sixth deduction will be added:
- Cash charitable contributions (up to $1,000 single / $2,000 married filing jointly) for taxpayers who do not itemize.
This is a major expansion of deductions for non-itemizers, meaning taxpayers who typically take the standard deduction now have more opportunities to reduce taxable income.
Changes to the 2026 Draft Form W-4
The Form W-4 (used by employees to adjust tax withholding) largely mirrors the 2025 version, but there are key updates:
- Child Tax Credit: Increased from $2,000 to $2,200 per child under the OBBBA.
- Expanded Step 4(b) Worksheet:
- Previously, taxpayers estimated all itemized deductions with a single figure.
- Now, the worksheet is a full page, allowing employees to input:
- Qualified tips deduction
- Qualified overtime deduction
- Qualified vehicle loan interest deduction
- Personal exemption deduction (65+)
- Itemized deductions (in detail)
This gives employees greater control in matching their withholdings to their actual tax situation—reducing the risk of overpaying or underpaying taxes.
Why This Matters for Different Taxpayers
These changes affect nearly every working taxpayer, but here’s how they apply across industries:
- CPA for YouTubers / TikTokers / Creators: If you earn tips from live streams or fan donations, employers (such as platforms paying out tips) will report tip codes on your W-2, helping you claim the qualified tips deduction.
- CPA for Shopify Store / Amazon Business Owners: If you also employ staff, your payroll systems will need to update for the new W-2 and W-4 reporting requirements.
- Dentist CPA / Medical Practice CPA: Clinics that pool or distribute tips (yes, even in service-heavy practices) will need to correctly use new Box 14B codes so staff can claim the deduction.
- CPA for Filmmakers / Entertainment Professionals: Crew members who work overtime frequently can now claim the qualified overtime deduction, which can reduce taxable income significantly.
- CPA for Doctors / High Net Worth Individuals: With expanded charitable contribution deductions for non-itemizers, there’s new planning potential to combine philanthropy with tax savings.
Action Steps for Taxpayers and Employers
✔ Employees: Review your W-4 in 2026 and use the new worksheet to avoid surprise tax bills.
✔ Employers: Update payroll systems to handle new W-2 boxes and reporting codes.
✔ Taxpayers: Work with a qualified CPA to determine eligibility for the six below-the-line deductions, especially tips, overtime, and vehicle loan interest.
✔ Business owners: Plan ahead for 2025 (transition year) and 2026 reporting to remain compliant.
Final Thoughts
The new draft forms signal that the IRS is preparing for a more detailed reporting and deduction system starting in 2026. Whether you’re an employee, business owner, or high-net-worth individual, these updates create new opportunities—and new risks if you’re unprepared.
At Velin & Associates, Inc., we help clients navigate complex tax law changes like these with proactive strategies tailored to YouTubers, TikTokers, Shopify store owners, online sellers, dentists, doctors, filmmakers, and high net worth individuals.
For more information about our tax planning services, contact us today: visit our website.
Velin & Associates, Inc
8159 Santa Monica Blvd STE 198/200 West Hollywood, CA 90046
323-902-1000
dmitriy@losangelescpa.org
Our firm provides the information in this e-newsletter for general guidance only, and does not constitute the provision of legal advice, tax advice, accounting services, investment advice, or professional consulting of any kind. The information provided herein should not be used as a substitute for consultation with professional tax, accounting, legal, or other competent advisers. Before making any decision or taking any action, you should consult a professional adviser who has been provided with all pertinent facts relevant to your particular situation. Tax articles in this e-newsletter are not intended to be used, and cannot be used by any taxpayer, for the purpose of avoiding accuracy-related penalties that may be imposed on the taxpayer. The information is provided "as is," with no assurance or guarantee of completeness, accuracy, or timeliness of the information, and without warranty of any kind, express or implied, including but not limited to warranties of performance, merchantability, and fitness for a particular purpose.