Question:

Carlos and Maria live in the U.S. and file taxes using individual taxpayer identification numbers (ITINs). They have a 10-year-old daughter, Isabella, who is ineligible for a Social Security number (SSN). Instead, she has an ITIN. With the One Big Beautiful Bill Act (H.R.1) making the child tax credit (CTC) permanent at $2,200 per child, Carlos and Maria want to know: Can they claim the CTC for Isabella if she only has an ITIN?

Answer:

No, they cannot.

No child tax credit may be claimed unless the taxpayer’s return includes the SSN of the qualifying child and the taxpayer (or the SSN of at least one spouse in the case of a joint return).

The act requires that the child have a valid SSN for employment issued before the tax return’s due date (including extensions). Since Isabella only has an ITIN, she does not qualify for CTC. Carlos and Maria may still claim a $500 credit for other dependents (ODC) if they meet the dependency rules.

On Aug. 15, 2025, the IRS posted draft versions for next year’s Form W-2, Wage and Tax Statement, (2026) and Form W-2c, Corrected Wage and Tax Statement, (Rev. Jan. 2026). The 2026 draft signals how reporting will support the One Big Beautiful Bill Act of 2025 (OBBBA) changes, while the IRS has separately said no changes are coming to 2025 payroll forms. Employers shouldn’t file these drafts; they simply signal that while 2025 stays steady, 2026 brings new reporting details.

What’s new on the draft W-2

1. New Box 12 codes

   • TA = employer contributions to a “Trump account”
   • TP = total qualified tips
   • TT = total qualified overtime compensation

2. The draft tells employees that TP and TT amounts will be reported on Schedule 1-A (Form 1040, U.S. Individual Income Tax Return) to claim the related deductions.

   • Schedule 1-A (Form 1040) is a new draft schedule being created post-OBBBA, but the IRS hasn’t yet released a draft or final instructions, so details on how taxpayers will claim these deductions are still pending.

3. Box 14 split

   • 14a “Other,” and
   • 14b “Treasury tipped occupation code.” Employees will use the occupation code when claiming the tips deduction on Schedule 1-A.

4. Draft W-2c alignment

   • The draft Form W-2c mirrors the changes in the W-2 fields, including the new Box 14b.

These changes are designed to operationalize OBBBA’s “no tax on tips” and “no tax on overtime” deductions, with more Treasury guidance still pending.

Setting the stage for 2026 reporting

Even though the 2025 Form W-2 remains unchanged, clients will ask about the new deductions during 2025-2026 planning. You can use the 2026 draft to brief employers on what data payroll must be captured next year, while emphasizing they should not implement anything until the IRS finalizes forms and issues the 2026 General Instructions for Forms W-2/W-3. The draft itself reminds employers to rely on the annual instructions for specifics.

Early moves for employers and payroll teams

• Do not implement based on the drafts. Monitor the IRS draft index for updates and continue to await the final forms, along with the 2026 instructions.

• Coordinate with payroll providers. Map systems to add Box 12 codes TA, TP, TT and capture Box 14b occupation data for 2026 wages.

• Plan substitute forms updates. If you issue substitutes, expect to revise W-2c/W-3c layouts based on specifications in Publication 1223, General Rules and Specifications For Substitute Forms W-2c and W-3c.

• Watch e-file schemas and Social Security Administration (SSA) processes. Final IRS and SSA schemas will drive how these new fields transmit; the draft W-2c confirms 14b’s presence for corrections.

Quick example: tipped restaurant servers with overtime

River City Grill employs servers who regularly report tips and sometimes work overtime.

• During 2026 payroll setup, the employer and payroll provider add fields for Box 12 codes TP and TT, plus a process to capture the Treasury tipped occupation code for Box 14b for each tipped employee.

• At year-end 2026, a server’s W-2 shows TP for qualified tips, TT for qualified overtime in Box 12, and the occupation code in Box 14b. Following final Treasury guidance, the employee then uses Schedule 1-A (Form 1040) to claim deductions.

• For 2025 returns, the servers may be eligible to claim OBBBA deductions for tips and overtime, but they’ll do so using the current Form W-2 and reporting methods. The redesigned W-2 will apply starting with 2026 wages.

Talking points for client conversations

• The IRS has posted W-2 and W-2c drafts for 2026 to prepare the pipeline; these drafts should not be filed.

• New Box 12 codes and Box 14b fields will help employees claim OBBBA deductions on a new Form 1040 Schedule 1-A, starting with 2026 forms.

• 2025 payroll reporting stays the same; expect changes in 2026 after final instructions are released.

Ready to stay ahead of payroll and W-2 changes?

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