What Are Deductions on a W-4 and How Do They Work?

Deductions on a W-4 are entered on Step 4b, and the number you put there lowers your federal income tax withholding by telling your employer to treat that much of your pay as non-taxable across the year. It is not your total deductions. It is the amount by which your expected itemized deductions exceed the standard deduction for your filing status, plus any above-the-line adjustments you expect to claim. Leave the line blank and your paycheck withholding defaults to the standard deduction. For 2026, that default is $16,100 for single filers, $32,200 for married couples filing jointly, and $24,150 for heads of household.¹

What Step 4b Does to Your Paycheck

Your employer’s payroll system calculates federal withholding from each check using the information on your W-4. By default it assumes you’ll take the standard deduction and nothing more. Step 4b overrides that assumption. Enter a dollar figure there and the system shields that much additional income from withholding over the year, which raises your take-home pay on every check.²

The step is entirely optional. If your only deduction is the standard one, leave it blank. The people who benefit most are homeowners with sizeable mortgages, taxpayers with significant charitable giving, and anyone with substantial above-the-line items like HSA or traditional IRA contributions. Skip the line when those apply and you’ll typically overpay through the year and collect a bigger refund in April, which is the same as lending the government money for free.

Which Expenses Feed the Number

Two categories flow into Step 4b: itemized deductions and above-the-line adjustments. They work differently on your return, but the W-4 combines them into a single figure.

Itemized Deductions

These are the expenses that would go on Schedule A instead of the standard deduction. The ones most relevant to the W-4 worksheet:

Home mortgage interest, on up to $750,000 of mortgage debt ($375,000 if married filing separately) for loans taken out after December 15, 2017.²
State and local taxes, including property taxes and either state income taxes or state sales taxes. The SALT cap was raised from $10,000 to roughly $40,400 for 2026 under recent legislation, phasing down for higher earners and returning to $10,000 at the top income levels.
Charitable contributions to qualified nonprofits, whether cash or donated property.
Out-of-pocket medical expenses that exceed 7.5% of your adjusted gross income.

If these add up to less than your standard deduction, itemizing isn’t worth it and this category contributes nothing to Step 4b.

Above-the-Line Adjustments

These reduce your adjusted gross income whether or not you itemize, so they get added on top of any excess itemized deductions. The common ones:

Student loan interest, up to $2,500 a year for eligible borrowers, subject to income phase-outs.³
Traditional IRA contributions, up to $7,500 for 2026, or $8,600 if you’re 50 or older, though deductibility depends on whether you’re covered by a workplace retirement plan.⁴
HSA contributions, up to $4,400 for self-only coverage or $8,750 for family coverage in 2026.⁵
Educator expenses for qualifying teachers.

These are especially useful if you take the standard deduction but still have qualifying above-the-line items. You can enter those amounts in Step 4b even without itemizing.

Filling In the Deductions Worksheet

The Deductions Worksheet sits on page 4 of the 2026 Form W-4. You keep it for your records; only the final number moves to line 4b on the front page. Your employer never sees the worksheet.²

The worksheet first asks for your above-the-line adjustments (student loan interest, IRA contributions, HSA contributions, and similar items), each on its own line, then totals them. Next you estimate your total itemized deductions from Schedule A and compare that total against the standard deduction for your filing status. If your itemized deductions are higher, you subtract the standard deduction and keep the difference. If the standard deduction is higher, that portion zeros out and only the above-the-line adjustments carry forward.

The final line combines the two. A worked example: you’re a single filer expecting $22,100 in itemized deductions and $2,500 in student loan interest. Your itemized deductions exceed the $16,100 standard deduction by $6,000. Add the $2,500 adjustment and you enter $8,500 on line 4b.

Credits Go in Step 3, Not Step 4b

Deductions and credits both reduce what you owe, but they enter the W-4 in different places. Deductions lower the income subject to tax. Credits reduce the tax itself, dollar for dollar. The Child Tax Credit, education credits, and the foreign tax credit belong in Step 3. Putting them in Step 4b would understate their effect, because a deduction only shelters income from tax while a credit offsets the tax directly. The W-4 instructions are explicit on this split.²

Multiple Jobs: One W-4 Gets the Number

If you work more than one job, or you file jointly and your spouse works, complete Steps 3 through 4b on only one form: the one for the highest-paying job. Leave Step 4b blank on every other W-4. The payroll systems at those other jobs will withhold based on the standard deduction alone.²

Splitting deductions across several W-4s produces withholding errors that are hard to untangle later. Concentrating the adjustment on the highest-paying job keeps the math clean because that payroll system handles the largest share of your income.

When to Revisit the Number

The IRS recommends a paycheck checkup at least once a year, and after any major life event: marriage, divorce, buying a home, having a child. Each of those can shift your deductions or credits enough that the figure on line 4b is no longer accurate.⁶

Sometimes updating isn’t optional. If your circumstances change so that you’ll owe meaningfully more tax than your current withholding covers, you have to submit a new W-4 within 10 days. Specific triggers include expected deductions dropping more than $2,300 from the amount your current form reflects, or credits decreasing by more than $500.⁷

What Happens If the Number Is Wrong

There are two separate risks: honest miscalculation and deliberate overstatement.

If withholding falls short because you overestimated your deductions, you owe the balance at filing time, possibly with an underpayment penalty. The IRS charges interest at 7% per year, compounded daily, on the shortfall for each quarter it went unpaid.⁸ You can generally avoid the penalty if you owe less than $1,000 at filing, or if your withholding covered at least 90% of your current-year tax or 100% of last year’s tax (110% if your adjusted gross income was over $150,000).⁹

Deliberately inflating your Step 4b figure is treated differently. Filing a W-4 with information that has no reasonable basis carries a flat $500 civil penalty per occurrence.¹⁰ The amount on line 4b needs to reflect deductions you genuinely expect to claim. Padding the figure to boost your paycheck is what that penalty exists to catch.

1
Internal Revenue Service. IRS Releases Tax Inflation Adjustments for Tax Year 2026
2
Internal Revenue Service. Form W-4 (2026)
3
Office of the Law Revision Counsel. 26 USC 62 – Adjusted Gross Income Defined
4
Internal Revenue Service. Retirement Topics – IRA Contribution Limits
5
Internal Revenue Service. Notice 2026-05 HSA Inflation Adjustments
6
Internal Revenue Service. Paycheck Checkup
7
Internal Revenue Service. Publication 505 (2025) Tax Withholding and Estimated Tax
8
Internal Revenue Service. Interest Rates Remain the Same for the First Quarter of 2026
9
Internal Revenue Service. Underpayment of Estimated Tax by Individuals Penalty
10
Internal Revenue Service. 20.1.10 Miscellaneous Penalties