A tax withholding update for 2026

The Internal Revenue Service has updated its 2026 Form W-4, the employee's withholding requests, and 2026 withholding tables to incorporate changes from the federal One, Big, Beautiful Bill Act (OBBBA) signed into law last July. 

Similarly, the Iowa Department of Revenue -- which largely follows federal tax law -- also has adjusted its 2026 income tax withholding formulas and tables to reflect the federal changes. However, because OBBBA was signed into law after the close of the 2025 Iowa legislative session, the state W-4 form could not be updated in time and it will look the same for 2026.

What does this mean for the 2026 tax year?

On both the federal and state level, these tax withholding updates are in effect. Here are a few key changes to the new federal W-4 form:

• It's been expanded to five pages, including a larger deductions worksheet to incorporate changes from OBBBA.
• Step 3 on the form (claiming dependents) now separates dependent credits and raises the Child Tax Credit to $2,200 per child.
• Step 4 (other adjustments) no longer is labeled "optional" and includes new and adjusted deduction categories.
• A new checkbox replaces the handwritten "exempt" for claiming exemption from withholding.

Employees can update their W-4 forms anytime and as often as necessary in Workday. Events such as divorce, marriage, new dependents or part-time positions can trigger a change in tax liability. Online tax withholding estimators provided by the Iowa Department of Revenue and the IRS can help employees conduct a "paycheck checkup" to see if they need to adjust current withholdings. A university FAQ answers some questions about the federal W-4 form.

Michael Bootsma, Dean's Teaching Fellow and senior lecturer of accounting, said January and February can be a helpful time to review your W-4 as the new tax year begins. 

"While you can make adjustments to your withholding at any time during the year, the start of the new year is a great time to take a look at tax adjustments because you have a full year ahead to avoid unwanted surprises -- like a large tax bill next spring -- and to maximize financial opportunities based on recent life changes and new tax laws," Bootsma said.

Considerations for this spring's tax documents

Most of the new tax laws in the OBBBA don't take effect until 2026, so they won't apply until employees file taxes a year from now. However, a few changes will apply to the 2025 tax year as employees prepare and submit those documents this spring.

For example, Bootsma said, OBBBA increased standard deduction amounts for the 2025 tax year and added a deduction for no tax on certain overtime payments.

Senior payroll manager Melissa Brown said employees who are eligible for overtime will be notified by the payroll office and informed on how to identify their overtime premium pay for 2025.

Other new deductions in effect for 2025 tax year include no tax on tips, no tax on car loan interest and a "bonus" deduction available to adults 65 years and older. Employees can learn more about these new deductions, as well as other adjustments, at the IRS' online overview of tax changes related to OBBBA.

Brown noted that university employees aren't able to give individual income tax advice. Employees are encouraged to contact a professional tax advisor for assistance with income tax planning, including adjustments to their W-4 form.