The IRS announced Thursday that it will postpone adjustments to certain withholding tables and information returns for tax year 2025, a measure projected to increase the size of many Americans’ refunds when they file in 2026. This postponement is part of the phased rollout of the One Big Beautiful Bill Act (OBBBA), signed into law last month by President Donald Trump, which removes federal income tax on wages earned from tips and overtime.
According to Newsweek, the decision aims to allow the IRS, employers, and tax professionals more time to update forms and systems before the new withholding rules take effect.
Unchanged Withholding Until 2026
While the OBBBA ultimately removes federal tax on certain wages, the IRS confirmed that workers will continue to have taxes withheld on tips and overtime until at least 2026, when a revised W-2 is expected to debut. This approach, the agency says, will prevent mid-year complications for employers tasked with implementing the new law.
As part of its phased implementation of the One Big Beautiful Bill Act, there will be no changes to certain information returns or withholding tables for Tax Year 2025 related to the new law – the IRS said in its announcement.
These decisions are intended to avoid disruptions during the tax filing season and to give the IRS, business and tax professionals enough time to implement the changes effectively.
Some experts caution that the adjustments could take even longer.
I’m not even 100 percent sure how they’ll handle it next year – said Christina Lewellen, professor of accounting at North Carolina State University.
I think they’re just kicking it to next year, but this is something that might not ever be figured into the withholding.” She added that taxpayers using standard withholding will continue to see deductions as usual, but will receive a refund for those taxes when they file.
What Taxpayers Can Expect
The Americans that are impacted by this can expect higher than average refunds due to the additional withholdings, however, that does not help them today – said Kevin Thompson, CEO of 9i Capital Group and host of the 9innings podcast.
Additionally, with all of the new tax changes, it stands to reason that some of these individuals may need to hire a CPA which will come at an additional cost to make sure they are refunded what they deserve.
Thompson noted that
Nothing will change for these workers until the IRS revises its W-2… until then, the money still comes out of the check each pay period.
Lewellen advised qualifying taxpayers to file their returns as early as possible next year to access their refunds quickly.
Reasons Behind the Delay
According to Garrett Watson, director of policy analysis at the Tax Foundation, the
Immediate impact of this announcement for taxpayers is to provide some certainty about whether they can expect changes to withholding and information reporting in the near term, which risked sparking confusion and mixups given the changes would be happening in the middle of the tax year they apply to.
Watson explained that
Part of the reason for this delay is also because the IRS and Treasury will still need to separate out eligible overtime deductions in the reporting and withholding along with tipping deduction withholding and associated rules, which may take more time to prepare.
He added:
The tradeoff is taxpayers eligible for the deductions for overtime and tipped income will not get an immediate benefit during 2025 by reduced withholding to reflect the new deductions. Instead, those taxpayers would receive the full benefit of the deductions when completing their federal tax returns next spring.
It sounds like the withholding adjustments are likely to begin in 2026, so this would be a temporary transition period. We would expect larger refunds than usual for eligible taxpayers given this decision, which will also push up average refund figures overall.
The IRS stated it is working on
New guidance and updated forms for TY 2026. These will include changes to how tips and overtime pay are reported. The IRS will coordinate with employers, payroll providers and tax professionals to ensure a smooth transition.
