How the calculator works
It does two things, the same way the IRS forms do.
- Your Step 4(b) number. It fills in the Deductions Worksheet on page 4 of the 2026 Form W-4: tips on line 1a, the overtime premium on line 1b, car loan interest on line 1c, $6,000 for each person 65 or older on lines 3a and 3b, plus any other deductions you enter. The total is line 15, the amount you write in Step 4(b).
- Your paycheck, before and after. It runs IRS Publication 15-T Worksheet 1A, the percentage method that payroll software uses: your pay × paychecks per year, minus the Step 4(b) amount, minus $8,600 ($12,900 married filing jointly) unless you check the Step 2 box. It looks up the tax in the 2026 annual table, divides by the number of paychecks and subtracts your Step 3 credits. The difference with and without the new deductions is the extra take-home pay.
| W-4 worksheet line | What goes there (2026) |
|---|---|
| 1a Tips | Qualified tips you expect, up to $25,000, if total income is under $150,000 ($300,000 joint) |
| 1b Overtime | The "and-a-half" part of time-and-a-half pay, up to $12,500 ($25,000 joint), same income limit |
| 1c Car loan interest | Up to $10,000, if total income is under $100,000 ($200,000 joint) |
| 3a, 3b Seniors | $6,000 for you and $6,000 for your spouse if 65 or older by December 31, if total income is under $75,000 ($150,000 joint) |
| 5, 14 Other | Student loan interest, IRA contributions, itemized deductions above the standard deduction, or cash gifts to charity up to $1,000 ($2,000 joint) |
| 15 Total | Goes in Step 4(b) |
Where the W-4 is simpler than your tax return
The worksheet uses a hard income cutoff. Under $150,000 of total income ($300,000 joint) you enter your tips and overtime; at $150,000 or more you enter nothing. On your tax return, Schedule 1-A lets the deduction shrink gradually instead: $100 less for each full $1,000 over the limit. The car loan line ($100,000, or $200,000 joint) and the senior line ($75,000, or $150,000 joint) also stop at a hard cutoff on the W-4; on the return, car loan interest shrinks by $200 per $1,000 over the limit and the senior deduction by 6% of the excess. The calculator follows the worksheet and tells you when the return would allow more. For income near a limit, the IRS Tax Withholding Estimator can count the gradual amount.
The worksheet also doesn't repeat every rule. Married couples filing separately get no tips, overtime or senior deduction at all, so the calculator leaves those out for them; car loan interest still counts. Who qualifies: tips, overtime, car loans, seniors.
What it doesn't change, and why it's an estimate
- Federal income tax only. Social Security and Medicare (7.65% of pay) still come out of your wages, tips and overtime as before. State income tax withholding follows your state's own form and rules.
- Your employer may get a slightly different number. Payroll may use the IRS wage bracket tables instead of the percentage method, round to whole dollars, or treat pre-tax benefits differently. Expect your paycheck to be close, not identical.
- Claiming too much can mean owing at tax time. If your tips or overtime come in lower than you entered, less tax was withheld than you owe. The IRS Tax Withholding Estimator is the official tool for checking your whole year.
Worked example: a server paid every two weeks
Single, paid every two weeks, $1,500 a paycheck before taxes, which includes the tips she reports. She expects $18,000 of tips this year. Total income: $1,500 × 26 = $39,000.
Step 4(b): $18,000 on line 1a (under the $25,000 cap, income under $150,000). Line 15 is $18,000.
Now: $39,000 − $8,600 = $30,400. Tax from the 2026 single table: $1,240 + 12% of the $10,500 over $19,900 = $2,500 a year, or $96.15 a paycheck.
With the new W-4: $39,000 − $18,000 − $8,600 = $12,400. Tax: 10% of the $4,900 over $7,500 = $490 a year, or $18.85 a paycheck.
She takes home $77.30 more each paycheck, about $2,010 a year.
That $2,010 is the same as the tax her deduction saves on her return: $2,500 of tax on $22,900 of taxable income without it, $490 on $4,900 with it. So she shouldn't owe because of the new W-4, as long as her tips really come to about $18,000. This match holds for one job with no Step 2 box, no Step 3 credits and no age-65 deduction. In other cases the paycheck change and the tax saved can differ; the IRS Tax Withholding Estimator checks the whole year. The no tax on tips calculator and the no tax on overtime calculator show the same saving from the tax-return side.
When to give your employer a new W-4
- When you want the saving in each paycheck instead of in your refund. Nothing changes until you hand in a new form.
- When your tips or overtime change a lot, or you change jobs, marry, divorce or have a child.
- At the start of each year, to check your numbers again with the IRS Tax Withholding Estimator.
- Late in the year? Your employer has to start using a new W-4 no later than the start of the first payroll period ending on or after the 30th day after you hand it in, and many do it sooner (IRS Publication 15). A W-4 handed in now changes only the paychecks left in 2026; the rest of this year's deduction comes back when you file. The Step 4(b) lines for tips, overtime, car loan interest and seniors are the same on the draft 2027 W-4, so your amount carries into 2027.
- Two jobs? Fill in Steps 3 through 4(b) on one W-4 only, for the highest-paying job.
For the whole form, line by line, see Form W-4 2026: claiming the new deductions. For your tax return, see how to fill out Schedule 1-A.
Common questions
What do I put in Step 4(b) for no tax on tips or overtime?
The total from the Deductions Worksheet on page 4 of the 2026 Form W-4. If your total income is under $150,000 ($300,000 married filing jointly), enter the tips you expect for the year on line 1a, up to $25,000, and the "and-a-half" part of your overtime pay on line 1b, up to $12,500 ($25,000 joint). Add car loan interest, the $6,000 senior amount and any other deductions, and write the line 15 total in Step 4(b).
How much bigger will my paycheck be?
Your employer withholds less federal income tax: roughly your tax rate (10%, 12% or 22% for most workers) times the Step 4(b) amount, spread over the year's paychecks. A single worker paid every two weeks, with $1,500 a paycheck and $18,000 of tips a year, takes home $77.30 more per paycheck.
Does the new W-4 change Social Security, Medicare or state tax?
No. Step 4(b) lowers federal income tax withholding only. Social Security and Medicare (7.65% of pay) are still taken from your wages, tips and overtime as before, and state withholding follows your state's own rules and forms.
Why is my paycheck gain different from the tax I save?
For one job with no Step 2 box, no Step 3 credits and no age-65 deduction, the extra pay over a full year matches the tax the deduction saves on your return. In other cases they can differ: withholding can't go below $0, the Step 2 box splits the tax brackets between two jobs, Step 3 credits come off each paycheck, and the payroll tables leave out the extra standard deduction for age 65. The IRS Tax Withholding Estimator checks the whole year.
Why does the W-4 cut off at $150,000 when the deduction phases out gradually?
The W-4 worksheet keeps it simple: with total income under $150,000 ($300,000 joint) you enter your tips and overtime, and at or above it you enter nothing. On your tax return the deduction instead shrinks by $100 for each full $1,000 over the limit, so you may still get part of it when you file. The car loan line ($100,000, or $200,000 joint) and the senior line ($75,000, or $150,000 joint) also stop at a hard cutoff on the W-4; on the return, car loan interest shrinks by $200 per $1,000 over the limit and the senior deduction by 6% of the excess.
How soon will my paycheck change?
After you hand your employer the new W-4. Under IRS Publication 15, your employer has to start using it no later than the start of the first payroll period ending on or after the 30th day after you hand it in, and many do it sooner. A form handed in late in the year changes only the paychecks left in that year; the rest of the deduction comes back when you file.
Updated November 7, 2026. Sources: IRS Form W-4 (2026), Employee's Withholding Certificate, page 4, Step 4(b) Deductions Worksheet (form dated December 2025); IRS Publication 15-T (2026), Federal Income Tax Withholding Methods (December 3, 2025), Worksheet 1A and the 2026 Annual Percentage Method tables; IRS Publication 15 (2026), Employer's Tax Guide (December 15, 2025), "Effective date of Form W-4"; 2027 Form W-4 (draft, June 2026); IRS Rev. Proc. 2025-32 (2026 standard deduction); Internal Revenue Code §224 (tips), Internal Revenue Code §225 (overtime), Internal Revenue Code §163(h)(4) (car loan interest) and Internal Revenue Code §151(d)(5)(C) (seniors).