How to Adjust Your Withholding Now to Maximize the Impact of the New OBBB Deductions

Many taxpayers will receive unusually large refunds in 2026 — not just because of tax reform, but because of over-withholding throughout 2025. This happened because employers and payroll processors delayed updating withholding formulas to reflect the new OBBB deductions, creating an accidental “refund surge.”

But here’s the key:
This is likely a one-time windfall.

If you want to avoid an overly small or overly large refund in 2027, you must update your Form W-4 to reflect the new tax environment and the OBBB deductions.

Why Withholding Was Wrong in 2025

During 2025:

• employers still used pre-OBBB withholding tables
• payroll systems overestimated taxable income
• workers paid more tax each paycheck
• deductions like overtime, tips, interest, and senior adjustments were not accounted for in real time

This resulted in Uncle Sam holding more of your money upfront — and returning it as a refund.

The Goal for 2026: Pay Less Each Check, Still Maximize Refund Value

For 2027, taxpayers should adjust their W-4 to reflect expected deductions.
Examples include:

• claiming the $6,000 senior deduction
• claiming overtime deduction
• claiming tip income deduction
• claiming auto loan interest deduction
• increased Standard Deduction values

The IRS offers a withholding estimator — but in many cases, taxpayers will need to manually reflect the OBBB deductions on their W-4.

How to Fix Your W-4 for 2026 to Optimize Your 2027 Refund

Here’s what you can do right now:

1. File a new W-4 with your employer
   Almost everyone should complete a fresh one for 2026.
2. Adjust the withholding using Step 4(b)
   This allows you to reduce taxable income for expected deductions.
3. Account for OBBB deductions in advance
   Instead of waiting for a refund next year, you benefit immediately.
4. Consider filing separate W-4s for multiple jobs
   The IRS withholding estimator can help with multiple-income households.
5. If you are hourly and work overtime regularly
   Anticipate the deduction and reflect it in your withholding.

Who Should Definitely Adjust Their W-4 in 2026

• seniors age 65+
• tipped workers
• restaurant and hospitality workers
• retail workers
• union trades
• overtime-heavy professions
• ride-share and gig workers
• car buyers who will claim interest deduction
• married couples combining income

Anyone who expects to claim OBBB deductions should update their withholding — otherwise the IRS will over-withhold again.

What Happens If You Do Nothing

If no adjustments are made:

• your payroll system will continue withholding too much
• your take-home pay will be lower than necessary
• your refund in 2027 may be large — but artificially so

A huge refund is not “free money.”
It’s money you loaned to the government interest-free.

Example: The Difference in Take-Home Pay

Employee A does not adjust withholding:

• over-withholds during 2026
• receives a $4,800 refund in 2027

Employee B adjusts withholding for OBBB deductions:

• takes home ~$200 more per month during 2026
• receives a smaller refund in 2027
• but has more cash flow throughout the year

Both pay the same total tax.
One simply keeps more of their own money during the year.

When Should You Submit the New W-4?

Ideal times:

• January 2026 (start of payroll cycle)
• after a raise or income change
• when starting a new job
• when claiming new deductions
• upon retirement or semi-retirement
• after buying a qualifying vehicle

In 2026, taxpayers have a unique opportunity:

• the 2026 refund surge is partially accidental
• the 2027 refund will reflect smarter withholding decisions

Those who proactively adjust their W-4 will:

• take home more money each paycheck
• better leverage the OBBB deductions
• minimize over-withholding
• still ensure a refund (just not an artificially inflated one)