IRS Update: 2026 W-2 Draft Changes under OBBA

The IRS has posted the 2026 W-2 draft and related instructions. These drafts are meant to solicit feedback and help employers prepare early. They also anticipate potential adjustments tied to broader tax legislation from the One Big Beautiful Bill Act (OBBA). Below, you’ll find an objective overview of what’s typical in W-2 drafts, how to prepare for possible updates, and practical steps you can take now, without getting lost in technical jargon.

Important: Drafts are not final. The IRS can revise layouts, codes, and instructions before the forms are officially released. Always verify the latest final instructions before filing.

What is the 2026 W-2 Draft and Why Does It Matter?

A draft is a preview of the form and instructions. It shows where the IRS is leaning regarding format updates, clarified guidance, and potential new codes, so payroll teams can plan ahead. The final version may change, especially where Congress is still debating policy, including items grouped under the OBBA label.

Where the 2026 W-2 Draft May Shift Your Attention

While we won’t know the exact final form until the IRS releases it, employers can expect potential movement in several areas that often evolve year to year. Keep an eye on these themes as you evaluate the 2026 W-2 draft changes:

• Box codes and definitions: Watch for new or revised Box 12 codes, clearer Box 14 guidance, and refined definitions for taxable vs. nontaxable benefits.
• Electronic filing requirements: The combined 10-return e-file threshold (already in effect) continues to affect Form W-2 filers. Ensure you can transmit via SSA’s Business Services Online using the EFW2 format.
• Privacy and identity protection: Expect continued attention to truncated identifiers on certain copies and data security practices for employee wage statements.
• Corrections workflow: Instructions for W-2c (Corrected Wage and Tax Statement) and W-3c typically receive clarifications to minimize common errors.
• State and locality reporting: Drafts sometimes refine how to present multi-state wages, locality taxes, and remote-work scenarios.

If elements of the OBBA pass, some of these areas could see additional refinements. Review the 2026 W-2 draft early so your team can adjust systems and processes well before year-end.

How OBBA Could Influence Reporting

OBBA is a broad legislative concept used to describe a package of tax measures Congress may consolidate. If enacted, its payroll-related provisions could affect the information shown on Form W-2 or how certain benefits are categorized. Because details can change during the legislative process, treat any OBBA-related W-2 references in the 2026 draft as placeholders until final rules are enacted and the IRS publishes definitive instructions.

Practical Examples You Can Use Right Now

Regardless of the final 2026 W-2 draft changes, the following examples and reminders remain helpful for accurate W-2 reporting:

• 401(k) elective deferrals are typically reported in Box 12 with code D. Roth 401(k) deferrals use code AA. These amounts usually reduce taxable wages in Box 1 but not Social Security or Medicare wages in Boxes 3 and 5.
• Action: Confirm your payroll system distinguishes traditional vs. Roth deferrals and assigns the correct Box 12 code.

• Employer contributions (including employee pretax through a cafeteria plan) are generally reported in Box 12 with code W. They are excluded from Box 1 wages in most cases.
• Action: Reconcile HSA funding each quarter to avoid year-end mismatches and ensure Box 12 totals align with your plan records.

• The cost of GTL coverage over $50,000 is imputed income. It’s included in Boxes 1, 3, and 5 and reported with code C in Box 12.
• Action: Work with your insurer or broker to capture age-based GTL costs monthly to prevent last-minute imputed income spikes in December payroll.

• Employer-provided dependent care assistance is typically reported in Box 10. Amounts above the excludable limit are usually included in taxable wages.
• Action: Track elections and reimbursements throughout the year; keep receipts or third-party records organized in case of inquiries.

• When insurers pay disability benefits, the reporting responsibility can vary by agreement. Sometimes the insurer issues a separate W-2. Other times the employer must include amounts and taxes on the employee’s W-2.
• Action: Confirm your agreement with the insurer now and reconcile taxes (including FICA) before year-end.

Checklist: Get Ready for the 2026 Filing Season

Use this step-by-step checklist to prepare for the 2026 W-2 season and stay ahead of any 2026 W-2 draft changes:

• Monitor the IRS drafts page and subscribe to IRS updates for final forms and instructions.
• Confirm you can e-file via SSA Business Services Online (BSO) in the EFW2 format. Set up or verify your account early.
• Validate employee names and SSNs against SSA records to reduce W-2c corrections.
• Audit fringe benefits monthly (GTL, moving expenses, taxable awards, personal use of company car) to avoid year-end surprises.
• Reconcile payroll tax deposits to Forms 941, 943, or 944 each quarter so annual totals match W-3.
• Coordinate with benefits administrators and third-party payers (FSAs, HSAs, dependent care, sick pay) to align year-end totals.
• Review state and local tax registrations for remote employees; confirm which states require W-2 copies and electronic submissions.
• Plan employee communications: Explain when W-2s will be available and how to access them securely online.
• Test your year-end payroll process in a non-production environment, if possible, to flag formatting or code issues early.

Deadlines, E-Filing, and Corrections

• Furnish to employees: Generally due by January 31 following the tax year.
• File with SSA: Generally due by January 31 as well. Late filings can trigger penalties.
• E-filing threshold: If you file 10 or more information returns in aggregate, you must e-file (this includes W-2, 1099 series, and other returns).
• Extensions: An extension to file W-2s with the SSA may be requested via Form 8809, but approval isn’t guaranteed. Extensions to furnish W-2s to employees require a written request and a valid reason.
• Corrections (W-2c/W-3c): If you discover an error after filing, correct it promptly. Follow the latest instructions to avoid compounding mistakes.

Frequently Asked Questions

Find the answers to some of the most frequently asked questions regarding 2026 W-2 Drafts:

No. Drafts can change. Rely on the final form and instructions when filing.

It depends on what Congress ultimately passes. The IRS may include placeholders or language in drafts to prepare for possible changes. Confirm final requirements before year-end processing.

Ask your vendor about their update schedule. Validate that any new or revised codes will be supported before you run your final payrolls for the year.

Mismatched names/SSNs, incorrect Box 12 codes, unreported taxable fringe benefits, and state/local wage discrepancies are frequent issues. Regular reconciliations reduce these risks.

Action Plan: Stay Ahead of the Curve

If you only do three things now:

1. Review the 2026 W-2 draft changes and note any items that would affect your payroll mapping or benefits reporting.
2. Schedule a meeting with your payroll provider and benefits partners to confirm data feeds, code updates, and timelines.
3. Set internal deadlines to reconcile Q3 and Q4 payroll and benefits data so that year-end W-2 totals are accurate.

Taking these steps today will minimize last-minute scrambles if the final instructions differ from the current 2026 W-2 drafts.

Key Takeaway

The 2026 W-2 draft changes are a heads-up, not a mandate. Use them to check your systems, clarify complex benefits, and strengthen your e-file readiness. If OBBA provisions become law, expect the IRS to fine-tune the final forms and instructions before filing season. Stay subscribed to official updates and verify everything against the final documents.

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