If you are paid on a W-2, your employer handles most of the tax math, which makes it easy to assume the return takes care of itself. Often it does not. Bonuses, stock awards, a second job, a spouse's income, a move to another state or a change in overtime can all leave withholding too low or too high. This page explains what salaried employees in Naperville, Aurora and across the country should review each year, and the tax rules that changed for 2025 and 2026.
Make withholding match your real tax
Your paycheck withholding is an estimate. It can miss when a spouse also works, when you have investment income or a side business, or when you change jobs mid-year. Review the Form W-4 guide after any marriage, birth, job change or large raise, and compare year-to-date withholding with a projection of your tax.
Bonuses and stock vesting need extra attention. Employers can withhold on supplemental wages at a flat 22 percent, and at 37 percent on supplemental pay above $1 million in a calendar year (Publication 15, 2026). If your marginal rate is higher than 22 percent, a bonus or restricted stock vest can leave you owing at filing time. Two employers in one year can also withhold too much Social Security tax once your combined pay passes the annual wage base ($176,100 for 2025); the excess is claimed on your return.
Retirement and savings limits
| Item | 2025 | 2026 |
|---|---|---|
| 401(k), 403(b), 457(b) employee deferral | $23,500 | $24,500 |
| Catch-up, age 50 and over | $7,500 | $8,000 |
| Catch-up, ages 60 to 63 | $11,250 | $11,250 |
| IRA contribution | $7,000 | $7,500 |
Beginning in 2026, if your wages from the plan sponsor were above $150,000 in 2025, catch-up contributions generally must go in as Roth. Whether an IRA contribution is deductible depends on your income and on whether you are covered by a workplace plan. For 2025, a single filer covered by a plan starts losing the deduction at $79,000 of modified AGI. Roth IRA contributions phase out for single filers between $150,000 and $165,000 in 2025. The IRA and 401(k) guide covers the details, and a Roth conversion may suit some years better than others.
New deductions for 2025 through 2028
Employees may qualify for three deductions even if they take the standard deduction. They are claimed on Schedule 1-A:
- Overtime. Up to $12,500 ($25,000 joint) for the premium part of overtime pay required by federal wage law, the "half" in time-and-a-half. It phases out above $150,000 of modified AGI ($300,000 joint).
- Tips. Up to $25,000 for qualified tips in occupations on the IRS list, with the same income phase-out.
- Car loan interest. Up to $10,000 a year on a loan for a new, U.S.-assembled personal-use vehicle, phasing out above $100,000 ($200,000 joint). The vehicle identification number must be on your return.
Your W-2 or an employer statement should show these amounts, and the IRS has offered transition relief for the 2025 reporting. See our guide on new deductions for tips, overtime and seniors.
Work expenses and reimbursements
Most employees cannot deduct unreimbursed travel, home office or supply costs on their federal return, with narrow exceptions such as reservists and certain performing artists (Topic 511). The practical fix is to ask whether your employer reimburses expenses under an accountable plan. Reimbursements under such a plan are not taxable wages, while a flat stipend generally is.
Stock pay, benefits and multi-state work
Restricted stock units are taxed as wages when they vest, and the value reported on your W-2 is your cost basis for the later sale. Selling at a different price creates a capital gain or loss that is reported separately, which is a common source of double taxation when the basis is entered wrongly. Review option and ESPP rules in our stock options guide and talk to us about equity planning.
If you work remotely for an out-of-state employer or travel for work, more than one state may claim part of your wages. Illinois residents who pay income tax to another state can generally claim a credit on Schedule CR, and Illinois taxes wages at a flat 4.95 percent for 2025.
Also review health savings account eligibility, dependent care benefits and any employer student loan payments, since each has its own limit. Employees who keep bank accounts in India should check FBAR rules, which apply once combined foreign balances exceed $10,000 at any time in the year.
Records to keep
Save your final pay stub, W-2, 1099-INT, 1099-DIV and 1099-B, stock award statements and 1098 forms. Keep any employer letter that explains imputed income or relocation benefits.
How we can help
We prepare federal and Illinois returns for employees at every income level, run year-end projections, and adjust withholding and estimated payments. See individual tax preparation and tax planning. Clients in Naperville can meet with us in person, and we work with salaried clients in other states remotely. This page is general information, not advice for your situation.
Frequently asked questions
Why did I owe tax when my employer withheld every paycheck?
Withholding follows your W-4 and your employer's tables. It does not know about a spouse's job, bonuses taxed at the flat supplemental rate, stock vesting, investment income or side income, so total tax can be higher than total withholding.
Can I deduct my home office if I work remotely for an employer?
Generally no, not on a federal return. The home office deduction for employees was suspended, and most unreimbursed employee expenses are not deductible. Ask whether your employer reimburses these costs through an accountable plan.
Do I get the overtime deduction on my whole overtime pay?
No. It covers only the premium portion that federal law requires, for example the extra half of time-and-a-half, up to the annual limit, and it phases out at higher incomes.
What is the Roth catch-up rule?
Beginning in 2026, if your prior-year wages from the plan sponsor were above the IRS threshold ($150,000 for 2025 wages), your catch-up contributions to a 401(k) or similar plan generally must be Roth contributions.
Official sources
- IRS: Tax deductions for working Americans and seniors
- IRS: 401(k) limit increases to $24,500 for 2026
- IRS: Notice 2025-67 (2026 retirement plan limits)
- IRS: Publication 15 (2026), Employer's Tax Guide
- IRS: Topic no. 511, Business travel expenses
This page is a plain-language summary. The official source controls if there is any difference.
General information only, not tax, legal or accounting advice for your situation. Rules, limits and deadlines change; confirm the current rules with the official source or a qualified professional before you act. Reading this page does not create a professional relationship with CPA Tax Payroll and Accounting Corp.