Newsletters
The IRS has announced that the Work Opportunity Tax Credit (WOTC) will continue to be available to employers through the end of 2025. This federal incentive is designed to encourage businesses to hire...
he IRS has cautioned individuals about a rise in fraudulent tax schemes on social media that misuse credits such as the Fuel Tax Credit and the Sick and Family Leave Credit. The scams typically appear...
The IRS has urged individuals and businesses to review emergency preparedness plans as hurricane season peaks and wildfire risks remain high. Essential documents such as tax returns, Social Security c...
The IRS has reminded taxpayers that while donating to disaster relief is a compassionate and impactful way to help, it is equally important to remain cautious. In the aftermath of disasters, scam acti...
The IRS has reminded taxpayers that Individual Retirement Accounts (IRAs) continue to provide important benefits for those planning their financial future. A traditional IRA allows earnings to grow ta...
California has enacted legislation clarifying that a tax credit under Motion Picture and Television Production Tax Credit Program 3.0 generated by a disregarded single-member limited liability company...
By Michael Cohn September 12, 2025
The Internal Revenue Service, the Treasury Department and other parts of the federal government plan to phase out the use of paper checks for payments by the end of this month, in keeping with an order from President Trump.
In March, Trump signed an executive order saying the continued use of paper-based payments by the federal government, including checks and money orders, imposes unnecessary costs and delays, and the risk of fraud, theft and lost payments. In August, the Treasury Department announced it would stop issuing paper checks for most federal payments on Sept. 30.
"Reducing paper checks has been a longstanding bipartisan goal that our administration is finally putting into action," said Treasury Secretary Scott Bessent in a statement. "Thanks to President Trump, this will help reduce fraud and theft. It will also remove delays that prevent hardworking Americans from receiving their vital payments."
The Alcohol and Tobacco Tax and Trade Bureau also made an announcement last week about the Sept. 30 cutoff date.
The Treasury Department issued instructions for those who are still receiving paper check for Social Security, Veterans benefits, or any other federal benefit, encouraging people to enroll in direct deposit using one of the following options:
Call the Federal agency that pays your benefits and follow their instructions for enrolling in direct deposit. A list of the paying agencies' contact information can be found here.
Enrolling online at GoDirect.gov
Call the Electronic Payment Solution Center at 800-967-6857, Monday – Friday 9:00 a.m.-7:00 p.m. ET
By Michael Cohn September 12, 2025
The Internal Revenue Service, the Treasury Department and other parts of the federal government plan to phase out the use of paper checks for payments by the end of this month, in keeping with an order from President Trump.
In March, Trump signed an executive order saying the continued use of paper-based payments by the federal government, including checks and money orders, imposes unnecessary costs and delays, and the risk of fraud, theft and lost payments. In August, the Treasury Department announced it would stop issuing paper checks for most federal payments on Sept. 30.
"Reducing paper checks has been a longstanding bipartisan goal that our administration is finally putting into action," said Treasury Secretary Scott Bessent in a statement. "Thanks to President Trump, this will help reduce fraud and theft. It will also remove delays that prevent hardworking Americans from receiving their vital payments."
The Alcohol and Tobacco Tax and Trade Bureau also made an announcement last week about the Sept. 30 cutoff date.
The Treasury Department issued instructions for those who are still receiving paper check for Social Security, Veterans benefits, or any other federal benefit, encouraging people to enroll in direct deposit using one of the following options:
- Call the Federal agency that pays your benefits and follow their instructions for enrolling in direct deposit. A list of the paying agencies' contact information can be found here.
- Enrolling online at GoDirect.gov
- Call the Electronic Payment Solution Center at 800-967-6857, Monday – Friday 9:00 a.m.-7:00 p.m. ET
The amount of the increase depends on whether the federal government grants California’s waiver request.
By Sandy Weiner, J.D. in September 2025 issue of Spidell’s California Taxletter
As California employers are well aware, the Federal Unemployment Insurance Tax Act (FUTA) rate for California employers has increased by 0.3% for the last three years (see discussion “How the FUTA rate is determined” below). This is because California borrowed close to $18 billion in 2020 from the federal government to pay unemployment benefits during the COVID-19 pandemic and has yet to pay it off. The outstanding balance owed today is over $20 billion. (“Fixing Unemployment Insurance” (December 2024) California Legislative Analyst’s Office)
Because the loan has not been paid, employers face a 0.3% credit rate reduction (a.k.a. rate increase) for 2025, which will be paid by employers in 2026. Similar increases were imposed for 2022 through 2024. This brings the cumulative rate increase to 1.2%, which is the equivalent of an additional $84 per employee ($7,000 wage base × 1.2%).
If California did not owe money to the federal government, most employers would only pay a 0.6% rate on the first $7,000 of an employee’s wages, which amounts to $42. With the additional 1.2% rate in effect for 2025 (for a total rate of 1.8%), employers will pay at least $126 per employee next year for employees with at least $7,000 in wages.
The amount of the increase depends on whether the federal government grants California’s waiver request.
By Sandy Weiner, J.D. in September 2025 issue of Spidell’s California Taxletter
As California employers are well aware, the Federal Unemployment Insurance Tax Act (FUTA) rate for California employers has increased by 0.3% for the last three years (see discussion “How the FUTA rate is determined” below). This is because California borrowed close to $18 billion in 2020 from the federal government to pay unemployment benefits during the COVID-19 pandemic and has yet to pay it off. The outstanding balance owed today is over $20 billion. (“Fixing Unemployment Insurance” (December 2024) California Legislative Analyst’s Office)
Because the loan has not been paid, employers face a 0.3% credit rate reduction (a.k.a. rate increase) for 2025, which will be paid by employers in 2026. Similar increases were imposed for 2022 through 2024. This brings the cumulative rate increase to 1.2%, which is the equivalent of an additional $84 per employee ($7,000 wage base × 1.2%).
If California did not owe money to the federal government, most employers would only pay a 0.6% rate on the first $7,000 of an employee’s wages, which amounts to $42. With the additional 1.2% rate in effect for 2025 (for a total rate of 1.8%), employers will pay at least $126 per employee next year for employees with at least $7,000 in wages.
What’s even more concerning, however, is that because the loan has been outstanding for over five years now (come January 1, 2026), employers may face an additional 3.7% rate hike, referred to as a Benefit Cost Reduction (BCR) add-on. (IRC §3302(c)(2)(C)) This would amount to $238 per employee and a total rate of 4.9%.
Governor Newsom has submitted a request to the U.S. Department of Labor to waive the BCR add-on; similar requests were submitted and approved in the past (2015–2017). However, the federal government has until November 10, 2025, to either approve or reject the waiver, which means that employers are currently in limbo as to how much they must set aside to pay for the tax next year.
How the FUTA rate is determined
The standard FUTA rate is 6.0%, but generally employers with a good claim rate history receive a 5.4% credit against the 6.0% rate (leaving the base minimum rate of 0.6%). However, this credit is reduced in states that have an outstanding loan balance with the federal government, effectively increasing the FUTA rate.
When a state borrows money from the federal government to pay unemployment benefits to its residents, it’s the state’s employers that essentially make payments on the loan through a FUTA credit rate reduction. The FUTA credit is reduced when a state has an outstanding loan balance on January 1 for two consecutive years and the loan is not repaid by November 10 of the second year. (IRC §3302(c)(2); Treas. Regs. §31.3302(c)-1)
The credit reduction is 0.3% for the first year and an additional 0.3% for each succeeding year until the loan is repaid. From the third year onward, there may be additional reductions in the credit, although, as mentioned above, in the past California has received waivers from these additional reductions.
According to the California Legislative Analyst’s Office, all things remaining the same, it will take at least until 2030 until the fund is paid off. This means at least an additional $21 per employee each year, which could increase to as high as $189 per employee by 2030. The amount could be higher if additional add-ons, such as the BCR discussed above, are imposed.
The repayment period could be shorter if the state pays off more of the loan directly, or it could be longer if unemployment rates rise again.
The change includes a new address for California taxpayers to mail in their 2025 estimated tax payments.
By Sandy Weiner, J.D.
The IRS has confirmed that for taxpayers in California, the mailing address for taxpayers sending Form 1040-ES payments has now been changed to P.O. Box 1300, Charlotte, NC 28201-1300. Previously, taxpayers sent these payments to P.O. Box 802502, Cincinnati, OH 45280-2502.
The address to mail the extension payment with 2025 IRS Form 4868, Application for Automatic Extension of Time to File U.S. Individual Income Tax Return, (that is due April 15, 2026) has also been changed for California taxpayers to P.O. Box 931300, Louisville, KY 40293-1300. Previously, these payments were sent to P.O. Box 802503, Cincinnati, OH 45280-2503.
In addition, the address to mail 2024 tax year Form 1040-V, Payment Voucher for Individuals, and accompanying payment has been changed to P.O. Box 931000, Louisville, KY 40293-1000.
The change includes a new address for California taxpayers to mail in their 2025 estimated tax payments.
By Sandy Weiner, J.D.
The IRS has confirmed that for taxpayers in California, the mailing address for taxpayers sending Form 1040-ES payments has now been changed to P.O. Box 1300, Charlotte, NC 28201-1300. Previously, taxpayers sent these payments to P.O. Box 802502, Cincinnati, OH 45280-2502.
The address to mail the extension payment with 2025 IRS Form 4868, Application for Automatic Extension of Time to File U.S. Individual Income Tax Return, (that is due April 15, 2026) has also been changed for California taxpayers to P.O. Box 931300, Louisville, KY 40293-1300. Previously, these payments were sent to P.O. Box 802503, Cincinnati, OH 45280-2503.
In addition, the address to mail 2024 tax year Form 1040-V, Payment Voucher for Individuals, and accompanying payment has been changed to P.O. Box 931000, Louisville, KY 40293-1000.
Tax professionals should verify whether their software has updated these addresses, and if not, should override the address listed. Tax professionals may need to contact their clients to inform them of the address change.
This change was announced in IRS Publication 3891, Lockbox Addresses for 2026:
www.spidell.com/files/2025/irspub3891.pdf.
However, we have confirmed with the IRS that these changes do apply to 2025 filings and payments as well as to the 2024 tax year Form 1040-V.
No penalties if timely mailed According to the IRS, they will forward any returns and payments inadvertently mailed to the wrong address, and no late-filing or late-payment penalties should be imposed. However, if the IRS erroneously imposes penalties, taxpayers or their tax professionals can contact the IRS customer service or Tax Practitioner Hotline to have the penalties abated. Proof of timely payment must be provided. |
Other address changes
The latest version of IRS Publication 3891 also changes addresses for various payments associated with IRS Forms 1040 and 1040-ES and employer forms (940 series). If you have clients in other states, be sure to consult the latest Publication 3891 to confirm that you are sending these payments to the correct address.
Electronic payment mandate coming?
It is interesting that the IRS is changing the mailing addresses for these forms that are submitted with payments, given President Trump’s Executive Order 14247 to have all tax payments made electronically by September 30, 2025. To date, we have not received any guidance on this new mandate. We will send a Flash E-mail as soon as guidance is issued:
www.whitehouse.gov/presidential-actions/2025/03/modernizing-payments-to-and-from-americas-bank-account/.
Some of the most widely-impactful provisions of the Big Beautiful Bill for our clients
Besides making many soon-to-expire tax provisions permanent, this tax bill added some provisions and expanded others. These were mostly paid for by elimination of modification of green energy provisions enacted under the previous administration. Expanded explanations can be found in an understandable format on our website under Tax Alerts by clicking the One Big Beautiful Bill Act (signed into law July 4, 2025), but here are a few provisions we think are of highest impact to our clients:
Some of the most widely-impactful provisions of the Big Beautiful Bill for our clients
Besides making many soon-to-expire tax provisions permanent, this tax bill added some provisions and expanded others. These were mostly paid for by elimination of modification of green energy provisions enacted under the previous administration. Expanded explanations can be found in an understandable format on our website under Tax Alerts by clicking the One Big Beautiful Bill Act (signed into law July 4, 2025), but here are a few provisions we think are of highest impact to our clients:
State And Local Tax (SALT) Deduction
The Act increases the cap to $40,000 for 2025, with a one percent increase in the cap each year through 2029 before returning to the $10,000 limit in 2030. The cap is reduced by 30% of the amount by which the taxpayer’s modified adjusted gross income exceeds a threshold amount. That threshold amount is generally $500,000 for 2025, with a one percent increase each year through 2029.
Estate & Gift Tax Exclusion
The estate & gift tax basic exclusion is $13.99 million in 2025 and was set to revert back to $7 million in 2026. Under the Act, the exclusion is increased to $15 million for 2026, and will be adjusted for inflation thereafter.
No Tax on Overtime Pay
Under the Act, taxpayers are able to claim a deduction for the amount of overtime pay received in 2025-2028. Taxpayers do not have to itemize deductions to claim the deduction, but are required to provide a Social Security number. The deduction is capped at $12,500 ($25,000 for joint filers), and the deduction begins to phase out when the taxpayer’s modified adjusted gross income exceeds $150,000 ($300,000 for joint filers).
Deductible Auto Loan Interest
Previously, interest on an individual’s automobile loan was treated as nondeductible personal interest. The Act includes a deduction of up to $10,000 for interest paid on an automobile loan in 2025 through 2028 for a car purchased after 2024. The deduction is available for both itemizers and non-itemizers.
Additional Deduction for Seniors
The Act provides a $6,000 deduction for seniors age 65 and older for 2025 through 2028. This deduction would phase out for individuals whose adjusted gross income exceeds $75,000 ($150,000 for joint filers). This appears to be an attempt to satisfy the promise to make Social Security benefits tax free.
Bonus Depreciation
Bonus depreciation allows a percentage of a business asset acquired to be written off in the first year. Business activities were in the midst of a multi-year phase-out of bonus depreciation. The Act permanently restored bonus depreciation to a 100% write-off in the first year, starting with 2025.
Green Energy Credits Terminated
Most energy credits for individuals have been terminated as of the end of 2025, or upon the passage of the Act. The 30% Solar Energy Credit ends at December 31, 2025.
March 4, 2025
The Department of the Treasury will not be enforcing beneficial ownership information regulations on U.S. citizens or domestic companies or their beneficial owner under existing deadlines.
In a March 2, 2025, announcement, the agency added that it will "not enforce any penalties or fines against U.S. citizens or domestic reporting companies or their beneficial owners after the forthcoming rule changes take effect either."
March 4, 2025
The Department of the Treasury will not be enforcing beneficial ownership information regulations on U.S. citizens or domestic companies or their beneficial owner under existing deadlines.
In a March 2, 2025, announcement, the agency added that it will "not enforce any penalties or fines against U.S. citizens or domestic reporting companies or their beneficial owners after the forthcoming rule changes take effect either."
According to the announcement, the Treasury Department is planning to issue a notice of proposed rulemaking "that will narrow the scope of the rule to foreign companies only. Treasury takes this step in the interest of supporting hard-working American taxpayers and small businesses and ensuring that the rule is appropriately tailored to advance the public interest."
Current statute does not limit BOI reporting to foreign companies.
The announcement by Treasury comes in the wake of the Financial Crimes Enforcement Network announcing that mandatory reporting was back in effect with a new reporting deadline 30 calendar days from February 19, 2025, for most companies. The new deadline followed a stay on the injunction order against the reporting requirements put in place by the U.S. District Court for the Eastern District of Texas.
As of March 3, 2025, the FinCEN BOI website still carries the following alert, updated February 19, 2025: "Beneficial ownership reporting requirements are back in effect, with a new deadline of March 21, 2025, for most companies. FinCEN will assess its options for further modifying deadlines."
However, FinCEN also issued an announcement on February 27, 2025, stating that it "will not issue any fines or penalties or take any other enforcement actions against companies based on any failure to file or update beneficial ownership information (BOI) reports pursuant to the Corporate Transparency Act by the current deadlines."
FinCEN added in that announcement that by March 21, 2025, it "intends to issue an interim final rule that extends BOI reporting deadlines, recognizing the need to provide new guidance and clarity as quickly as possible, while ensuring that BOI that is highly useful to important national security, intelligence, and law enforcement activities is reported."
The agency is also planning on soliciting public comment on potential revising BOI reporting requirements for an NPRM that will be issued "later this year."
By Gregory Twachtman, Washington News Editor for Wolters Kluwer
Los Angeles County individuals and businesses impacted by fires that began on January 7, 2025, qualify for a postponement to file, and pay taxes until October 15, 2025.
Los Angeles County individuals and businesses impacted by fires that began on January 7, 2025, qualify for a postponement to file, and pay taxes until October 15, 2025.
This includes:
- 2024 individual income tax returns and payments normally due on April 15, 2025.
- Quarterly estimated tax payments normally due on January 15, April 15, June 15, September 15, 2025.
- Calendar-year 2024 partnership, limited liability company (LLC), and S corporation tax returns and payments normally due on March 15, 2025.
- Calendar-year 2024 corporate and fiduciary income tax returns and payments normally due on April 15, 2025.
- Calendar-year 2024 returns filed by tax-exempt organizations normally due on May 15, 2025.
- Calendar-year 2025 LLC annual tax payments normally due on April 15, 2025, and LLC estimated fee payments normally due on June 15, 2025.
- Passthrough Entity Elective Tax payments normally due on March 15 and June 15, 2025.
Note: Only Los Angeles County was granted the postponement to file and pay taxes until October 15, 2025. Taxpayers with their principal residence or their principal place of business located outside of Los Angeles County must file and pay by the normal due dates.
To our business clients.
WITHHOLDING FROM EMPLOYEES' PAYCHECKS:
1a. Social Security - The employee portion of this tax remains at 6.2% with a wage limit of $176,100. The employer’s portion of Social Security for 2025 also remains at 6.2%, on wages up to $176,100.
1b. Medicare - The employee and employer each pay 1.45% and there is no cap on the amount of payroll which will be subject to this total tax of 2.9%. Because of the unlimited ceiling on Medicare, there is no maximum tax deduction.
Generally, payroll deposits will include 15.3% of wages (6.2% times 2, plus 1.45% times 2) on wages up to $176,100, and 2.9% of all wages thereafter. However, there is an additional Medicare withholding of 0.9% on employees earning over $200,000. So the employee’s normal Medicare tax rate of 1.45%, will rise to 2.35% on their earnings over $200,000 but the employer still pays only the 1.45% rate.
2. The rate for self-employment persons will be 15.3% on wages up to $176,100. The Medicare tax of 2.9% continues on amounts over $176,100. Self-employed people earning over $200,000 will also face the additional .9% Medicare tax. Because the Medicare tax applies to all earnings, there is no maximum self-employment tax. (There is a deduction allowed for self-employed persons for both self-employment tax and income tax computations).
3. Federal and State Income Tax - The amount of withholding will change for both Federal and State effective January 1, 2025. Please see the updated federal Employer’s Tax Guide Publication 15 (Circular E) on the Internal Revenue Service website at: https://www.irs.gov/pub/irs-pdf/p15.pdf and the California Employment Development Department’s Publication DE 44 (updated each January) in the Publication dropdown menu at: https://edd.ca.gov/en/payroll_taxes/forms_and_publications/
4. State Disability Insurance - The rate will change to 1.2%, and there is no cap on the amount of payroll which will be subject to this tax.
EMPLOYER TAXES PAID QUARTERLY:
- Federal Unemployment Tax - The 2025 federal unemployment tax rate is .6% on the first $7,000.
- State Unemployment Insurance and Employment Training Tax - The wage limit will remain at $7,000. Rates are set individually for employers. You will receive a notice of your 2025 rate in the mail or it can be accessed in your EDD e-Services for Business account. Please send a copy of any notice you receive to your payroll report preparer.
2025 FEDERAL PAYROLL DEPOSIT REQUIREMENTS:
Federal Payroll Tax Deposits must follow the monthly or semi-weekly deposit method assigned to each employer by the IRS. The IRS will send a notice if your status changed from 2024; however, the employer is ultimately responsible for determining which deposit schedule actually applies. If you didn’t receive an IRS notice, you can make your own determination as shown below:
- An employer’s status as a monthly or semi-weekly depositor should be known before the beginning of each calendar year and is determined annually. This determination is based on the amount of employment taxes the employer reported on the four quarterly reports for the 12-month period from July 1, 2023 through June 30, 2024.
- Employers who accumulated less than $2,500 of employment taxes during a quarter are only required to make a deposit at the end of the quarter. They can pay their payroll taxes with the quarterly form.
- Employers who report $50,000 or less of employment taxes (taxes withheld from the employee plus the employer portion) during the 12-month period from July 1, 2023 through June 30, 2024, and all new employers, will be monthly depositors. The deposits will be due the 15th of the following month. NOTE: These deposits will have to be made electronically (see below).
- Employers who reported more than $50,000 of employment taxes during the 12-month period from July 1, 2023 through June 30, 2024, will be semi-weekly depositors. The deposits will be required on or before either Wednesday or Friday, depending on the timing of the payroll. Semi-weekly depositors will still have at least three banking days after a payday to make the deposit. NOTE: These deposits will have to be made electronically (see below).
Under the semi-weekly rule, the payroll taxes withheld plus the employer’s portion of the FICA/Medicare on payrolls which were paid on Wednesday, Thursday or Friday must be deposited by the following Wednesday. Payroll taxes, accumulated for a payroll period, which were paid on Saturday through Tuesday must be deposited by the following Friday. Remember, your deposit will be due either on a Wednesday or Friday. - Employers who accumulate $100,000 of employment taxes during a monthly or semi-weekly period are required to deposit those taxes by the next banking day. Once you make a next-banking-day deposit, you automatically become a semi-weekly depositor for the remainder of that calendar year and the following calendar year.
FEDERAL ELECTRONIC DEPOSIT REQUIREMENTS FOR 2025:
Employers must use the IRS’ EFTPS for making tax payments. There is an exception for employers with a deposit liability of less than $2,500 for a return period. These employers can remit employment taxes with their quarterly or annual return.
If you are required to use EFTPS for your Federal tax deposits and fail to do so, you may be subject to a 10% penalty. For deposits made by EFTPS to be considered on time, you must initiate the transaction at least one business day before the date the deposit is due. If you are new to EFTPS you will need to allow seven (7) days to get your pin number and complete your account set-up.
You may voluntarily participate in the Electronic Federal Tax Payment System even if you are not required to do so.
To get more information or to enroll in EFTPS, call 1-800-555-4477, or visit the EFTPS web site at www.eftps.gov.
EMPLOYER’S QUARTERLY FEDERAL TAX RETURN, FORM 941
Each quarter’s wages subject to income tax, social security and/or Medicare taxes must be reported on Form 941. This form must be filed even if you have no taxes to report. Any employment taxes totaling less than $2,500 for the period and not previously deposited for the quarter can be paid with the report.
Due dates for 2025 employment tax deposits are April 30, July 31, and October 31, 2025, and January 31, 2026, for the previous quarter. If all taxes have been deposited when due, and no tax is being paid with the return, an additional ten days is allowed to file the return. Late returns are subject to penalties on any unpaid tax due with the return.
2025 STATE PAYROLL TAX DEPOSIT REQUIREMENTS:
These deposits are required to be paid electronically. The depositing requirements are described below:
- State deposit due dates are generally the same as federal deposit due dates.
- Employers who are required to make federal monthly deposits and have accumulated $350 to $500 of undeposited state income tax withholding, are required to deposit all State Income Tax and State Disability Insurance withholding using the federal monthly deposit schedule.e.
- Employers who deposit semi-weekly for federal purposes and have accumulated more than $500 of undeposited state income tax withholding are required to deposit all State Income Tax and State Disability Insurance withholding to the Employment Development Department using the federal semi-weekly deposit schedule.
- Employers, who accumulate $100,000 of federal employment taxes, and more than $500 of state withholding taxes, must deposit all State Income Tax and State Disability Insurance withholding by the next banking day. Once you make a next banking day deposit, you automatically become a semi-weekly depositor for the remainder of that calendar year and the following calendar year.
If you accumulate more than $350 of state withholding taxes in a month or in the cumulative of two or more months, but are not required to make a federal monthly deposit, you are still required to deposit all State Income Tax and State Disability Insurance withheld by the 15th of the following month. Any withholding which is not required to be deposited based on the above will be due on April 30, July 31, and October 31, 2025 or January 31, 2026 for the preceding quarter.
- State Unemployment Insurance (SUI) and Employment Training Tax (ETT) must be deposited at least quarterly.
A penalty of 15% plus interest will be charged on late payroll tax payments.
CALIFORNIA ELECTRONIC DEPOSIT REQUIREMENTS:
e-Services for Business can be used to electronically submit all tax payments, wage reports and employment tax returns. Register at https://edd.ca.gov/eServices or contact the Taxpayer Assistance Center at 1-888-745-3886.
STATE WAGE AND WITHHOLDING REPORTS:
Employers file two quarterly reports, the DE 9 and DE 9C. These reports must be filed by April 30, July 31, and October 31, 2025, and January 31, 2026 for the previous quarter, even if you don’t have payroll during a quarter. A wage item penalty of $20.00 per employee will be charged for late or unreported employee wages. On these reports, be sure to include the full first name, not just the first initial.
The DE 9 and DE 9C forms must be filed on-line together using e-Services for Business.
STATE REPORTING REQUIREMENTS FOR NEW OR RE-HIRED EMPLOYEES:
All employers are required to report the full name, social security number, home address and start-of-work date of each employee within twenty days of the start-of-work date.
Form DE 34, Report of New Employees, is used to report new employees. The information may be filed online through e-Services for Business https://edd.ca.gov/eServices faxed to the EDD at 1-916-319-4400, or mailed to:
Employment Development Department
Document Management Group, MIC 96
P.O. Box 997016
West Sacramento, CA 95799-7016
The reporting of new employees is required for all newly hired employees, employees rehired or returning to work from a furlough, separation, leave of absence without pay, or termination. If a returning employee was not formally terminated or removed from payroll records and is returning after less than sixty consecutive days, you don’t need to report the employee as a rehire.
STATE REPORTING REQUIREMENTS FOR INDEPENDENT CONTRACTORS:
Businesses are required to report specific independent contractor information to the EDD if the following statements all apply:
- You will be required to file a 2025 Form 1099-NEC for the services performed by the independent contractor.
- You pay the independent contractor $600 or more OR enter into a contract for $600 or more.
- The independent contractor is an individual or sole proprietorship.
If all the above statements apply, you must report the independent contractor to the EDD within 20 days of paying/contracting for $600 or more in services. You are not required to report independent contractors that are corporations, general partnerships, limited liability partnerships, and limited liability companies. Form DE 542, Report of Independent Contractor(s), is used. The information may be filed online through e-Services for Business https://edd.ca.gov/eServices faxed to the EDD at 1-916-319-4410, or mailed to:
Employment Development Department
Document Management Group, MIC 96
P.O. Box 997350
Sacramento, CA 95899-7350
* * * * *
While we’ll try to inform you of any additional changes made during 2025, please be vigilant yourself and also seek out information on changes from your payroll processors.
If you need assistance in preparing your payroll checks or have other questions relating to these taxes, please call.
STANDARD MILEAGE RATES FOR 2025
For 2025, the standard mileage rate for business mileage will be 70 cents per mile. The previous rate was 67 cents per mile.
The standard mileage rate for the use of a car when providing services to a charitable organization will remain at 14 cents per mile.
The standard mileage rate for the use of your car for medical expenses or deductible moving expenses will remain at 21 cents per mile.
By Tobias Salinger August 07, 2024
The IRS has quashed any remaining hope that it would alter its new guidelines for inherited individual retirement accounts, ending the "stretch" strategy for most beneficiaries.
With its finding in rules issued last month that tax revenue-raising provisions of the 2019 Secure Act require so-called noneligible beneficiaries who have inherited IRAs in 2020 or later to transfer all the assets into their income within a decade, the IRS told financial advisors and their clients that there would be no more delays in implementation or a shift in the final statutes. That means beneficiaries must begin taking required minimum distributions next year — if they haven't already started. But experts agree that it's likely past time to initiate that process.
"Everyone thought there was a mistake. The longer we waited for the final regulations, the more the industry seemed to be thinking, 'OK, they're actually going to hold us to this,'" Heather Zack, the director of high net worth solutions with Waltham, Massachusetts-based wealth management firm Commonwealth Financial Network, said in an interview.
By Tobias Salinger August 07, 2024
The IRS has quashed any remaining hope that it would alter its new guidelines for inherited individual retirement accounts, ending the "stretch" strategy for most beneficiaries.
With its finding in rules issued last month that tax revenue-raising provisions of the 2019 Secure Act require so-called noneligible beneficiaries who have inherited IRAs in 2020 or later to transfer all the assets into their income within a decade, the IRS told financial advisors and their clients that there would be no more delays in implementation or a shift in the final statutes. That means beneficiaries must begin taking required minimum distributions next year — if they haven't already started. But experts agree that it's likely past time to initiate that process.
"Everyone thought there was a mistake. The longer we waited for the final regulations, the more the industry seemed to be thinking, 'OK, they're actually going to hold us to this,'" Heather Zack, the director of high net worth solutions with Waltham, Massachusetts-based wealth management firm Commonwealth Financial Network, said in an interview.
That said, the rules point to "a strategy that most advisors were taking already" in seeking to "equalize distributions over 10 years" rather than setting up a "tax bomb" by taking them all at once, she noted. "I don't think there were many advisors who were telling their clients, 'Let's wait and take out everything in year 10.'"
The rules' implications to retirement planning with "a tax component" merit a conversation with clients who inherited an IRA in any of the past four years, said Matthew Cleary, a financial planner with Wakefield, Massachusetts-based 401(k) and wealth firm Sentinel Group.
"We want to bring that up absolutely, because it may be a situation where you do want to have more of a schedule to minimize the tax burden of taking it out in one year," Cleary said in an interview. "There are a couple of exceptions to that rule, but for the most part the stretch IRA is dead."
Caveats to the new 10-year requirement apply to eligible designated beneficiaries — a group that includes the spouse of the deceased IRA owner, heirs who are chronically ill or disabled, and heirs younger than the late retirement saver by only a decade or less, Zack and Cleary noted. Another carve-out from the mandatory distributions applies to heirs who are 20 years old or younger, who can still use the stretch strategy until they are 21, according to a blog post by Sarah Brenner, director of retirement planning for IRA advice firm Ed Slott & Company. At that age, the new rules state that the beneficiary must launch their distributions and empty the accounts into their own income within the 10-year window.
In addition, the rules maintained the "controversial" provision that most beneficiaries are subject to the 10-year guideline — even if the account owner died on or after the beginning period for the holder's own required minimum distributions, Brenner wrote in another blog.
"This rule requires annual RMDs to continue once they have started," she wrote. "Many believed this rule went away with the Secure Act, but apparently the IRS thought differently. Due to all the confusion its interpretation caused, the IRS waived RMDs during the 10-year period for beneficiaries for the years 2021, 2022, 2023, and 2024. In the newly released final regulations, the IRS is doubling down on its position that these annual RMDs are required. They must be taken starting in 2025. However, the IRS will not impose penalties for annual RMDs that were not taken for years before 2025."
In its announcement, the IRS specifically discussed the concerns around that interpretation.
"Treasury and IRS reviewed comments suggesting that a beneficiary of an individual who has started required annual distributions should not be required to continue those annual distributions if the remaining account balance is fully distributed within 10 years of the individual's death as required by the Secure Act," the agency said in its July 18 press release. "However, Treasury and IRS determined that the final regulations should retain the provision in the proposed regulations requiring such a beneficiary to continue receiving annual payments."
As part of his characteristically detailed social thread examining the tax impact of a newly released rule, Buckingham Strategic Wealth Chief Planning Officer and Kitces.com blog Lead Financial Planning Nerd Jeffrey Levine reported that finding as the answer to "the No. 1 question advisors have asked for 2+ years now," adding, "Sorry, I don't make the rules, I just report them!!!" The industry had been eagerly anticipating the guidelines, he said.
"I honestly can't remember a time when advisors, tax pros and 'mom and pop' investors more eagerly awaited news from the IRS," Levine said. "But more than 4.5 years after Secure was passed, we now have some definitive answers to key Q's."
IRA owners seeking to avoid a tax hit on their beneficiaries could convert traditional accounts to Roth ones, which usually won't carry any more duties tied to the added income, Cleary noted.
"They would still be subject to the 10-year rule, but then they don't necessarily have the tax issue," he said. "It's an idea for the right person who's able to pay those taxes up front."
While there are "not a ton" of strategies that advisors can take to reduce the impact of the distributions on their income once they start taking them, separate charitable donations and maximizing other deductions could mitigate part of the burden, Zack said.
Since inherited IRAs are "something that every advisor deals with," the rules have created "this whole maze of different beneficiary withdrawal requirements" based on the year of the account owner's death and the age, spousal and health status of the heir, she noted. And the final rule clarified that the 10-year distribution span started with IRA owners who died in 2020 — regardless of the fact that the IRS pushed back the required distribution four years in a row.
"It's just made the landscape a lot more complicated for advisors and clients now than it used to be," Zack said. "That is definitely of concern for some folks. That clock has been running this entire time."
Every year, Americans donate billions of dollars to charity. Many donations are in cash. Others take the form of clothing and household items. With all this money involved, it's inevitable that some abuses occur. Current tax law cracks down on abuses by requiring that all donations of clothing and household items be in "good used condition or better."
Every year, Americans donate billions of dollars to charity. Many donations are in cash. Others take the form of clothing and household items. With all this money involved, it's inevitable that some abuses occur. Current tax law cracks down on abuses by requiring that all donations of clothing and household items be in "good used condition or better."
Good used or better condition
The law does not define good or better condition. For guidance, you can look to the standards that many charities already have in place. Many charities will not accept your donations of clothing or household items unless they are in good or better condition.
Clothing cannot be torn, soiled or stained. It must be clean and wearable. Many charities will reject a shirt with a torn collar or a jacket with a large tear in a sleeve. As one charity spokesperson summed it up, "Don't donate anything you wouldn't want to wear yourself."
Household items include furniture, furnishings, electronics, appliances, and linens, and similar items. Food, paintings, antiques, art, jewelry and collectibles are not household items. Household items must be in working condition. For example, a DVD player that does not work is not in good used or better condition. You can still donate it (if the charity will accept it) but you cannot claim a tax deduction. Household items, particularly furnishings and linens, must be clean and useable.
The law authorizes the IRS to deny a deduction for the contribution of a clothing or household item that has minimal monetary value. At the top of this list you can expect to find socks and undergarments.
Fair market value
You generally can deduct the fair market value of your donation. Unless your donation is new - for example, a blouse that has never been worn - its fair market value is not what you paid for it. Just like when you drive a new car off the dealer's lot, a new item loses value once you wear or use it. Therefore, its value is less than what you paid for it.
If you're not sure about an item's value, a reputable charity can help you determine its fair market value. Our office can also help you value your donations of used clothing and household items.
Get a receipt
Generally, you must obtain a receipt for your gift. If obtaining a receipt is impracticable, for example, you drop off clothing at a self-service donation center, you must maintain reliable written information about the contribution, such as the type and value of the property.
Charitable contributions of property of $250 or more must be substantiated by obtaining a contemporaneous written acknowledgement from the charity including an estimate of the value of the items. If your deduction for noncash contributions is greater than $500, you must attach Form 8283 to your tax return. Special rules apply if you are claiming a deduction of more than $5,000.
Exception
In some cases, the rules about good used or better condition do not apply. The restrictions do not apply if a deduction of more than $500 is claimed for the single clothing or household item and the taxpayer includes an appraisal with his or her return.
If you have any questions about the charitable contribution rules for donations of clothing and household items, give our office a call.
To our business clients:
Form 1099-NEC is to be used for reporting nonemployee compensation (NEC). This form must be filed by January 31, 2025 with the IRS and also provided to the recipient by this date. California participates in the combined Federal/State filing program for Form 1099-NEC which means that a copy of the form won’t need to be sent separately to the FTB.
The form 1099-MISC is still required for other types of payments and information. See below for the specific uses of this form.
The 1099-NEC form is unusual in that it needs to be both to the IRS and the recipient by January 31st. Most other 1099s are due to the recipient by January 31st and to the IRS by February 28th.
The penalty for each instance of failing to file a correct 1099 form by the due date with the IRS is as follows:
- $60 per form if correctly filed within 30 days of the due date;
- $130 per form if correctly filed after 30 days of the due date but by August 1st;
- $330 per form if filed after August 1st, or not filed (assuming there was no intentional disregard);
- At least $660 per form with no maximum penalty if due to intentional disregard of the requirements.
A similar additional penalty framework applies if the payee isn’t provided their copy by these deadlines.
California imposes its own penalties with the amount ranging between $15 and $130 per information return depending on the reason for the penalty.
Federal business income tax returns contain two questions regarding the filing of 1099 forms. We'll be checking with you about your fulfilment of the 1099 form filing requirements in order to answer those questions correctly.
WHAT IS A 1099 FORM?
A 1099 form is an informational return on which businesses report various sorts of payments they've made to partnerships, sole proprietorships, individuals and certain types of corporations during the calendar year. Some of the most common types of 1099 forms are:
| 1099-DIV | Used to report dividend payments of $10 or more and liquidating distributions of $600 or more from a corporation. |
1099-INT | Used to report interest payments of $10 or more, or when interest of $600 or more is paid by a trade or business. |
1099-MISC* | This form is used to report royalty payments of $10 or more; rent, prizes and awards, and some other forms of payments of $600 or more. Direct sales of $5,000 or more of consumer goods for resale anywhere other than a permanent retail establishment may be reported on the 1099-MISC or 1099-NEC. (Employee travel or auto allowances must be reported on their W-2s, not on the 1099-MISC form.) Medical and health care payments and gross proceeds of legal settlements paid to attorneys of $600 or more are reportable on form 1099-MISC, even if paid to a corporation. |
1099-NEC | This form is used to report nonemployee compensation of at least $600 paid for services and payments made to an attorney for fees. Legal fees are reportable, even if paid to a corporation. |
| 1099-R | Used to report distributions of $10 or more from retirement plans, profit-sharing plans, IRAs, charitable gift annuities, and insurance contracts, including certain direct rollovers and death benefit payments. |
| 1099-OID | Used to report the original discount of $10 or more on the issuance of bond or notes. |
| 1099-B | Used by brokers to report the proceeds of stocks, bonds, commodities, etc. sold or bartered for others. |
| 1099-S | Used by settlement agents to report the proceeds of real estate sales or exchanges. (If no escrow is used, the person responsible for filing must be determined via complex instructions. Call us for this information if needed.) |
| 1098 | Used by businesses who received $600 or more from an individual on a mortgage to report the amount of interest received during the year. |
| 1098-C | Used by charitable organizations to report donations of motor vehicles, boats and airplanes within thirty days of the sale of the vehicle or its contribution. |
WHO SHOULD WE SEND A 1099 FORM TO?
They should be sent to partnerships, sole proprietorships, limited liability companies (LLC), limited liability partnerships (LLP), and individuals you made payments to in the course of your business. A 1099 should also be sent to any attorney, physician, or supplier of medical services even if they are a corporation. Any payment on which you take backup withholding for Federal income taxes must be reported on the appropriate Form 1099, regardless of the amount of the payment. This means:
- Only send 1099s for payments you made related to the operation of your business.
- You don't need to send 1099s for materials or products you purchased.
- You don't need to send 1099s to corporations (unless it is for medical or legal services). However, the burden to find out if it's a corporation is on you. If the name has "Incorporated", "Inc.", "Corporation", or "Corp." in it, you can assume it's a corporation. Otherwise, you need to ask.
- You don't need to send 1099s to exempt organizations, retirement trusts, or IRA accounts.
FILING RETURNS WITH THE IRS
Businesses who file 10 or more informational returns are required to file electronically through the IRS' FIRE System (Filing Information Returns Electronically). We can help you with this.
If you must file any Form 1098 or 1099 with the IRS and you are filing paper forms, you must send a separate Form 1096 with each different type of form, as the transmittal document.
For businesses located in California, the government copies need to be mailed to:
Department of the Treasury
IRS Submission Processing Center
1973 North Rulon White Blvd.
Ogden, UT 84201
CALIFORNIA REPORTING REQUIREMENTS
If you file IRS Forms 1099 series, Forms 5498, 1098 and W-2G with the IRS on paper, you are not required to file a paper copy of the same form with the Franchise Tax Board. The IRS will forward the information to them.
When the Federal and State payment amounts differ, you may file information returns directly with the Franchise Tax Board.
WHAT INFORMATION DO YOU NEED FOR THE 1099 FORM?
- Name and address of whom you paid.
- The amount you paid them during 2024.
- The type of payment made.
- Their identification number. For an individual this would be their social security number. For a proprietorship, LLC, partnership, or corporation this would be their employer identification number which is a nine-digit number, usually beginning with "94-" or "77-".
IMPORTANT: It is extremely important that the name recorded on the 1099 agrees with the name listed on the Social Security Administration's records for the specified identification number. Therefore, in the case where an individual is self-employed, care must be taken to make sure that the name of the individual is listed on the 1099. Any "dba" name should be listed on the 1099 underneath the individual's legal name which agrees with the Social Security Administration's records.
WHAT IF SOMEONE WON'T GIVE US THEIR IDENTIFICATION NUMBER?
If someone won't give you their identification number, you're not sure they're giving you the correct number, or you're not sure they're incorporated as they say, then you should send them a W-9 form (available at the IRS website) by certified mail, return receipt requested. The receipt will document your request for their number and help you avoid the penalty for filing a 1099 form without an identification number. If the W-9 form is completed and returned to you, it will take you off the hook for both the accuracy of the identification number used and as to whether they're really a corporation.
WHAT CAN SEEBA & ASSOCIATES DO TO HELP?
Please give us a call if you would like us to help in the preparation of these 1099 forms. We can:
- Answer your questions regarding the issues discussed above,
- Prepare 1099 forms for you from information you've gathered, consisting of name, address, identification number, and amount paid in 2024, or
- Figure the amount you've paid for 2024 from your books and records. Along with the address and identification number supplied by you, we'll prepare the 1099 forms.
- e-File your 1099 forms via the IRS system.
* * * * *
IMPORTANT
Please let us know as soon as possible if we can assist you since the 1099s are due by January 31st.
You should be getting an identification number or completed W-9 form from anyone you pay for services, even if less than $600, before you pay them. Otherwise, you are obligated to withhold 24% of their payment and remit it to the IRS. Please call us if you run into problems where the 24% "backup withholding" may come into effect.
You should also keep in mind that you will need to maintain records of amounts paid to independent contractors as payments are made or contracts are signed in order to comply with the 2025 Employment Development Department reporting requirement for independent contractors.
If you have any questions regarding 1099 filings, feel free to contact us.
So that the reporting for this fringe benefit is not so burdensome, the IRS allows employers to include the personal use of business-owned cars during November and December in the following year's W-2s. This means that W-2s for 2024 need to include the value of the personal use of the vehicles from November 1, 2023 to October 31, 2024 and that this value can be calculated now. Those clients using computerized payroll systems which prepare W-2s will have to inform the system of this fringe benefit value which needs to be included in payroll before the end of December.
The following information should serve to remind you of how to calculate the value of the personal use of business-owned cars for W-2 purposes and how to withhold taxes on it:
So that the reporting for this fringe benefit is not so burdensome, the IRS allows employers to include the personal use of business-owned cars during November and December in the following year's W-2s. This means that W-2s for 2024 need to include the value of the personal use of the vehicles from November 1, 2023 to October 31, 2024 and that this value can be calculated now. Those clients using computerized payroll systems which prepare W-2s will have to inform the system of this fringe benefit value which needs to be included in payroll before the end of December.
The following information should serve to remind you of how to calculate the value of the personal use of business-owned cars for W-2 purposes and how to withhold taxes on it:
- For non-officer/shareholders: If commuting is the only personal use of a business-owned car allowed by an employer, then the employer would need to include $3 a day in the employee's wages to recognize the value of the commute, plus 5.5 cents/mile for the fuel provided by the employer.
For officers and shareholders: The personal use of a business-owned vehicle must be included in their W-2. The formula for computing the value of their personal use is as follows:
- Annual lease value based on the IRS table (see attached table) prorated for the number of months the vehicle was used from November 2023-October 2024.
- Times this value by the personal use percentage determined from mileage records maintained throughout the year which list business and personal miles driven.
- Then add the lesser of the actual cost, or 5.5 cents/mile, for gasoline provided by employer that was used for personal travel
- Next subtract any reimbursement that the employer receives from employee.
- The result is the value of the personal use of the business-owned vehicle to be included in employee's W-2 compensation.
or
(A x B) + (C - D) = E- It is possible to avoid income tax withholding on the value of the personal use of an employer-provided vehicle. However, early action was required in order to avoid withholding income tax for 2024. The employer must have notified the employee in writing by January 31, 2024 or within 30 days after receiving the vehicle during the year, in order to avoid income tax withholding on this fringe benefit. If the employee is not notified of the withholding election by the specified dates, the employer must withhold income taxes on the value included in the W-2. For 2025, the employee must be notified in writing by January 31, 2025 or within 30 days of receiving the vehicle, in order to avoid 2025 withholding on this fringe benefit.
Even though an employer can avoid withholding income tax on the value of the personal use of a vehicle (as described in item 3 above), the Social Security tax (FICA), the Medicare tax, and State Disability Insurance (SDI) must be withheld on the value included in the W-2. However, there are some choices available on the timing of these withholdings. The employer is given the option of calculating and withholding these taxes on a pay period, quarterly, semi-annual, or annual basis. As stated previously, the annual period would run from November through October, which means that the employer could wait until the end of October to figure the taxes to be withheld. If the employee will reach the maximum Social Security wages for the year by that time, without considering the fringe benefit, only Medicare tax withholding would be necessary.
Please feel free to contact us if you need help in calculating the value of the personal usage of business owned cars, but remember it must be calculated in time to be included on the 2024 W-2 forms.
Click here to view the Business Car Usage
All businesses are required to report independent contractors, to whom they will be issuing a 1099-MISC form, to the California Employment Development Department. The information provided will be forwarded to state and local child support agencies to help in their efforts to locate parents who are delinquent in their child support obligations.
The information must be reported to the EDD, using form DE 542 ("Report of Independent Contractors"), within twenty days of either entering a contract for $600 or more, or the date during the calendar year when total payments to the independent contractor reach $600. Form DE 542 requests the independent contractors' full name, social security number, address and the contract dates and amounts. You may obtain forms by calling the Employment Development Department at (916) 657-0529, accessing the EDD web site at www.edd.ca.gov, or contacting our office.
Only individuals working as independent contractors are to be reported. Thus, you don't need to report corporations or partnerships which you pay for services provided to your business. However, you must report all independent contractors you hire for $600 or more, regardless of whether the independent contractor lives or works in California or another state. You only need to report an independent contractor one time per each calendar year that you contract or pay the contractor $600 or more.
The completed DE 542 forms can be either mailed or faxed to the Employment Development Department. The mailing address is:Employment Development Department PO Box 997350 MIC 96 Sacramento, CA 95899-7350 And the fax number is: (916) 319-4410
The EDD may assess a $24 penalty for each failure to comply with the reporting requirements within the required time frame. Also, a penalty of $490 may be assessed for the failure to report the required information due to an agreement between you and the independent contractor to disregard the filing requirements.
California's state-run college saving program, Golden State Scholarshare Trust allows parents and others to put aside tax-deferred money for college.
Plan Features
Money that participants (parents, grandparents, businesses, etc.) contribute to the Scholarshare Trust will grow while in the participant's account and be tax free for federal and California purposes upon disbursement to the beneficiary's school of choice. The funds disbursed can cover room and board, as well as tuition fees, books, supplies and equipment required for enrollment or attendance at a "qualified institution" (defined below). The participant retains ownership of his/her deposits in the trust until disbursement, at which time ownership is transferred to the beneficiary (student). Interest earnings disbursed from the trust are not included in the beneficiary's gross income (while attending college).
Qualified Institutions
Neither the beneficiary nor the participant will have to choose a college when opening a Scholarshare account. However, the type of college the beneficiary plans to attend will affect the maximum contribution allowed, i.e., community college, state university, private institution, etc. The student may use the funds to attend any qualified institution. A qualified institution is one that offers credit toward:
A bachelor's degree; An associate's degree; A graduate level or professional degree; and Another recognized post-secondary credential. Certain proprietary and post-secondary vocational schools are also eligible institutions.
At the time the beneficiary enrolls in college, the Scholarshare Program will transfer payments from the participant's Scholarshare account directly to the college to pay the beneficiary's qualified expenses.
Transferability
If the beneficiary dies or does not attend college, the contributor has the option of canceling the account or changing the beneficiary. Cancellation results in a refund equal to the then-current market value less a penalty of no less than 10 percent of the earnings. The penalty is waived in the event of the beneficiary's death.
Without cause and before the beneficiary's admission to college, the contributor may change the beneficiary designation to relatives of the original beneficiary or relatives of the beneficiary's spouse, including the contributor if the contributor is a relative of the original beneficiary or a relative of the original beneficiary's spouse.
Income Tax Issues
There are no income tax deductions to the contributor for placing funds into a Scholarshare program. Taxation is avoided on the earnings. Amounts paid for tuition will also be eligible for both the HOPE credit and Lifetime Learning credit, subject to the rules that regularly apply to each of those credits.
Gift Tax Issues
For gift tax purposes, deposits are completed gifts of present interests to the designated beneficiary and therefore qualify for the annual gift tax and generation-skipping transfer tax exclusion of $15,000 per year per donee as indexed. They do not qualify as excludable education expenses under the gift tax rules which allow education expenses to be paid in addition to the $15,000 annual exclusion. If the deposit exceeds the annual exclusion amount, the contributor may elect to take the balance into account ratably over a five-year period on their gift tax return.
The Treasury Department and the IRS have proposed regulations that identify occupations that customarily and regularly receive tips, and define "qualified tips" that eligible tip recipients may claim for the "no tax on tips" deduction under Code Sec. 224. This deduction was enacted as part of the the One Big Beautiful Bill Act (OBBBA) (P.L. 119-21).
The Treasury Department and the IRS have proposed regulations that identify occupations that customarily and regularly receive tips, and define "qualified tips" that eligible tip recipients may claim for the "no tax on tips" deduction under Code Sec. 224. This deduction was enacted as part of the the One Big Beautiful Bill Act (OBBBA) (P.L. 119-21).
Background
Under Code Sec. 224, an eligible individual can claim an income tax deduction for qualified tips received in tax years 2025 through 2028. The deduction is limited to $25,000 per tax year, and starts to phase out when modified adjusted gross income is above $150,000 ($300,000 for joint filers).
An employer must report qualified tips on an employee‘s Form W-2, or the employee must report the tips on Form 4137. A service recipient must report qualified tips on an information return furnished to a nonemployee payee (Form 1099-NEC, Form 1099-MISC, Form 1099-K).
If an individual tip recipient is "married" (under Code Sec. 7703), the deduction applies only if the individual and his or her spouse file a joint return. The deduction is not allowed unless the taxpayer includes his or her social security number (SSN) on their income tax return for the tax year. For this purpose, a SSN is valid only if it is issued to a U.S. citizen or a person authorized to work in the United States, and before the due date of the taxpayer’s return.
What is a Qualified Tip?
A "qualified tip" is a cash tip received in an occupation that customarily and regularly received tips on or before December 31, 2024. An amount is not a qualified tip unless (1) the amount received is paid voluntarily without any consequence for nonpayment, is not the subject of negotiation, and is determined by the payor; (2) the trade or business in which the individual receives the amount is not a specified service trade or business under Code Sec. 199A(d)(2); and (3) other requirements established in regulations or other guidance are satisfied.
The proposed regulations define qualified tips—and payments that are not qualified tips— based on several factors, including the following:
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Qualified tips must be paid in cash or an equivalent medium, such as check, credit card, debit card, gift card, tangible or intangible tokens that are readily exchangeable for a fixed amount in cash, or another form of electronic settlement or mobile payment application that is denominated in cash.
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Qualified tips do not include items paid in any medium other than cash, such as event tickets, meals, services, or other assets that are not exchangeable for a fixed amount in cash (such as most digital assets).
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Qualified tips must be received from customers. For employees, qualified tips can be received through a mandatory or voluntary tip-sharing arrangement, such as a tip pool.
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Qualified tips must be paid voluntarily by the customer, and not be subject to negotiation.
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Qualified tips do not include some service charges. For example, if a restaurant imposes an automatic 18-percent service charge for large parties and distributes that amount to waiters, bussers and kitchen staff, the amounts distributed are not qualified tips if the charge is added with no option for the customer to disregard or modify it.
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Qualified tips do not include amounts received for an illegal activity (a service the performance of which is a felony or misdemeanor under applicable law), prostitution services, or pornographic activity.
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Qualified tips do not include tips received by an employee or other service provider who has an ownership interest in or is employed by the tip payor.
The proposed regulations also include examples that illustrate some of the requirements and restrictions.
Occupations that Customarily and Regularly Receive Tips
The proposed regulations list the occupations that customarily and regularly received tips on or before December 31, 2024. For each occupation, the list provides a numeric Treasury Tipped Occupation Code (TTOC), an occupation title, a description of the types of services performed in the occupation, illustrative examples of specific occupations, and the related Standard Occupation Classification (SOC) system code(s) published by the Office of Management and Budget (OMB).
The list groups the eligible occupations into eight categories:
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Beverage and Food Service—includes bartenders; wait staff; food servers outside of a restaurant; dining room and cafeteria attendants and bartender helpers; chefs and cooks; food preparation workers; fast food and counter workers; dishwashers; host staff, restaurant, lounge, and coffee shop; bakers
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Entertainment and Events—includes gambling dealers; gambling change persons and booth cashiers; gambling cage workers; gambling and sports book writers and runners; dancers; musicians and singers; disc jockeys (but not radio disc jockeys); entertainers and performers; digital content creators; ushers, lobby attendants, and ticket takers; locker room, coatroom, and dressing room attendants
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Hospitality and Guest Services—includes baggage porters and bellhops; concierges; hotel, motel, and resort desk clerks; maids and housekeeping cleaners
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Home Services—includes home maintenance and repair workers; home landscaping and groundskeeping workers; home electricians; home plumbers; home heating and air conditioning mechanics and installers; home appliance installers and repairers; home cleaning service workers; locksmiths; roadside assistance workers
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Personal Services—includes personal care and service workers; private event planners; private event and portrait photographers; private event videographers; event officiants; pet caretakers; tutors; nannies and babysitters
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Personal Appearance and Wellness—includes skincare specialists; massage therapists; barbers, hairdressers , hairstylists, and cosmetologists; shampooers; manicurists and pedicurists; eyebrow threading and waxing technicians; makeup artists; exercise trainers and group fitness instructors; tattoo artists and piercers; tailors; shoe and leather workers and repairers
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Recreation and Instruction—includes golf caddies; self-enrichment teachers; recreational and tour pilots; tour guides; travel guides; sports and recreation instructors
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Transportation and Delivery—includes parking and valet attendants; taxi and rideshare drivers and chauffeurs; shuttle drivers; goods delivery people; personal vehicle and equipment cleaners; private and charter bus drivers; water taxi operators and charter boat workers; rickshaw, pedicab, and carriage drivers; home movers
Applicability Dates
The proposed regulations apply for tax years beginning after December 31, 2024. Taxpayers may rely on the proposed regulations for those tax years, and on or before the date the final regulations are published in the Federal Register, but only if the proposed regulations are followed in their entirety and in a consistent manner.
Request for Comments, Public Hearing
Written or electronic comments must be received by October 22, 2025 (30 days after the proposed regulations are published in the Federal Register). Comments may be submitted electronically via the Federal eRulemaking Portal (https://www.regulations.gov), or on paper submitted to: CC:PA:01:PR (REG-110032-25), Room 5203, Internal Revenue Service, P.O. Box 7604, Ben Franklin Station, Washington, DC 20044.
A public hearing is being held on October 23, 2025, at 10:00 a.m. Eastern Time (ET). Requests to speak and outlines of topics to be discussed at the public hearing must be received by October 22, 2025; if no outlines are received by that date, the public hearing will be cancelled. Requests to attend the public hearing must be received by 5:00 p.m. ET on October 21, 2023.
The IRS issued final regulations implementing the Roth catch-up contribution requirement and other statutory changes to catch-up contributions made by the SECURE 2.0 Act of 2022 (P.L. 117-328). The regulations affect qualified retirement plans that allow catch-up contributions (including 401(k) plans, 403(b) plans, governmental plans, SEPs and SIMPLE plans) and their participants. The regulations generally apply for contribtions in tax years beginning after December 31, 2026, with extensions for collectively bargained, multiemployer, and governmental plans. However, plans may elect to apply the final rules in earlier tax years.
The IRS issued final regulations implementing the Roth catch-up contribution requirement and other statutory changes to catch-up contributions made by the SECURE 2.0 Act of 2022 (P.L. 117-328). The regulations affect qualified retirement plans that allow catch-up contributions (including 401(k) plans, 403(b) plans, governmental plans, SEPs and SIMPLE plans) and their participants. The regulations generally apply for contribtions in tax years beginning after December 31, 2026, with extensions for collectively bargained, multiemployer, and governmental plans. However, plans may elect to apply the final rules in earlier tax years.
The SECURE 2.0 Act amended the catch-up contribution provision to allow an increased contribution limit for participants aged 60 through 63 and an increased contribution limit for certain SIMPLE plans. The final regulations provide that SIMPLE plans may allow participant to take advantage of one of these increased contribution limits, but not both. However, beginning with the 2025 calendar year, a SIMPLE plan that provides for increased contribution limits for all participants may instead permit participants attaining age 60 to 63 to contribute the full amount allowed for that age group.
With respect to mandatory Roth catch-up contributions for particpants whose income exceeds a statutory threshold, the final regulations allow 401(k) and 403(b) plans to automatically treat catch-up contributions as Roth for affected participants, provided an opt-out opportunity is offered. The final regulations do not include a rule allowing deemed Roth elections for all employees' catch-up contributions, only for those employees whose income exceeds the threshold. In response to comments, the final regulations provide that deemed elections must cease within a reasonable period of time following the date on which the employee no longer meets the mandatory Roth threshold or an amended Form W-2 is filed or furnished to the employee indicating that the employee no longer meets the mandatory Roth threshold. As a result, Roth catch-up contributions made pursuant to the deemed election before the end of the reasonable period of time need not be recharacterized as pre-tax catch-up contributions. The IRS further indicated that the plan must be amended to implement deemed Roth elections, and that the deadline for adopting amendments implementing the SECURE 2.0 Act is generally December 31, 2026.
The final regulations provide two correction methods to address pre-tax contributions that should have been designated Roth. First, a plan may transfer pre-tax contributions to the participant's Roth account and report the contribution as an elective deferral that is a designated Roth contribution on the participant's Form W-2. This correction method is available only if the participant's Form W-2 for that year has not yet been filed or furnished to the participant. Alternatively, the plan can directly roll over the elective deferrals that would be catch-up contributions if they had been designated Roth contributions (adjusted for earnings and losses) from the participant’s pre-tax account to the participant’s designated Roth account and report the rollover on Form 1099-R. Failures do not need to be corrected if the amount of the pre-tax elective deferral that was required to be a designated Roth contribution does not exceed $250, or if the participant was incorrectly treated as subject to the Roth catch-up contribution requirement due to a Form W-2 that is later amended.
IR-2025-91
Revenue Procedure 2025-28 instructs taxpayers on how to make various elections, file amended returns or change accounting methods for research or experimental expenditures as provided under the One, Big, Beautiful Bill Act (P.L. 119-21). The revenue procedure also provides transitional rules, modifies Rev. Proc. 2025-23, and grants an extension of time for partnerships, S corporations, C corporations, individuals, estates and trusts, and exempt organizations to file superseding 2024 federal income tax returns.
Revenue Procedure 2025-28 instructs taxpayers on how to make various elections, file amended returns or change accounting methods for research or experimental expenditures as provided under the One, Big, Beautiful Bill Act (P.L. 119-21). The revenue procedure also provides transitional rules, modifies Rev. Proc. 2025-23, and grants an extension of time for partnerships, S corporations, C corporations, individuals, estates and trusts, and exempt organizations to file superseding 2024 federal income tax returns.
Background
The Tax Cuts and Jobs Act (TCJA) required taxpayers to capitalize and amortize specified research or experimental expenditures over 5 years for domestic research or 15 years for foreign research, beginning with taxable years after December 31, 2021. The OBBB Act, enacted July 4, significantly modified these rules by adding new Code Sec. 174A to allow immediate deduction of domestic research or experimental expenditures while retaining the capitalization and amortization requirements only for foreign research expenditures.
Code Sec. 174A provides that domestic research or experimental expenditures paid or incurred in taxable years beginning after December 31, 2024, are generally deductible when paid or incurred. Alternatively, taxpayers may elect under Code Sec. 174A(c) to capitalize these expenditures and amortize them over at least 60 months, beginning when the taxpayer first realizes benefits from the expenditures.
The OBBB Act also provides transition relief, including retroactive application options for small business taxpayers and methods for recovering previously capitalized amounts.
Code Sec. 280C(c)(2) Elections and Revocations
Eligible small business taxpayers may make late elections under Code Sec. 280C(c)(2) to reduce their research credit in lieu of reducing their deductible research expenditures or revoke prior Code Sec. 280C(c)(2) elections. These are available for applicable taxable years where the original return was filed before September 15, 2025.
Elections are made by adjusting the research credit amount on amended returns, attaching amended Form 6765 marked with the appropriate revenue procedure reference, and including required declarations.
Code Sec. 174A(c) Election Procedures
For domestic research or experimental expenditures paid or incurred in taxable years beginning after December 31, 2024, taxpayers may elect to capitalize and amortize these expenditures under Code Sec. 174A(c). The election must be made by the due date of the return for the first applicable taxable year by attaching a statement specifying the amortization period (not less than 60 months) and the month when benefits are first realized.
Automatic Consent for Accounting Method Changes
Rev. Proc. 2025-28 modifies Rev. Proc. 2025-23 to provide automatic consent procedures for various accounting method changes related to research expenditures:
changes to comply with Code Sec. 174 for expenditures paid or incurred before January 1, 2025;
changes to implement the new Code Sec. 174A deduction or amortization methods for expenditures paid or incurred after December 31, 2024; and
changes to comply with modified Code Sec. 174 requirements for foreign research expenditures.
For the first taxable year beginning after December 31, 2024, taxpayers may use statements in lieu of Form 3115 for certain accounting method changes, with simplified procedures and waived duplicate filing requirements.
Small Business Retroactive Election
Small business taxpayers meeting the Code Sec. 448(c) gross receipts test (average annual gross receipts of $31,000,000 or less for 2025) may elect to retroactively apply Code Sec. 174A to domestic research or experimental expenditures paid or incurred in taxable years beginning after December 31, 2021. This election allows eligible taxpayers to either deduct these expenditures in the year paid or incurred or elect the Code Sec. 174A(c) amortization method.
The election is made by attaching a statement entitled "FILED PURSUANT TO SECTION 3.03 OF REV. PROC. 2025-28" to the taxpayer's original or amended federal income tax return for each applicable taxable year. The statement must include the taxpayer's identification information, declarations regarding tax shelter status and gross receipts test compliance, and specification of the chosen method.
Elections made on amended returns must be filed by July 6, 2026, subject to the normal statute of limitations under Code Sec. 6511 for refund claims.
Relief for Previously Filed Returns
Rev. Proc. 2025-28 grants automatic six-month extensions for eligible taxpayers to file superseding returns for 2024 taxable years. This relief is available to taxpayers who filed returns before September 15, 2025, without extensions, and need to make elections or method changes provided by the revenue procedure.
The extension applies to partnerships, S corporations, C corporations, individuals, trusts, estates, and exempt organizations with 2024 taxable years ending before September 15, 2025, where the original due date was before September 15, 2025.
Effective Date
Most provisions of Rev. Proc. 2025-28 are effective August 28, 2025. The modified automatic change procedures apply to Forms 3115 filed after August 28, 2025, with transition rules for taxpayers who properly filed duplicate copies before November 15, 2025.
Rev. Proc. 2025-28
The shareholders of S corporations engaged in cannabis sales could not include wages disallowed under Code Sec. 280E when calculating the Code Sec. 199A deduction. The Court reasoned that only wages "properly allocable to qualified business income" qualify, and nondeductible wages cannot be so allocated under the statute.
The shareholders of S corporations engaged in cannabis sales could not include wages disallowed under Code Sec. 280E when calculating the Code Sec. 199A deduction. The Court reasoned that only wages "properly allocable to qualified business income" qualify, and nondeductible wages cannot be so allocated under the statute.
The individuals owned three S corporations and reported pass-through income for the tax years at issue. Two corporations, engaged in cannabis sales, were subject to Code Sec. 280E, which bars deductions for expenses of businesses trafficking in controlled substances. Both entities paid significant W-2 wages, but portions were nondeductible under Code Sec. 280E. Petitioners claimed the full amount of reported wages in computing the Code Sec. 199A deduction.
The IRS reduced the deductions, asserting that only deductible wages could count as W-2 wages under Code Sec. 199A. The Court agreed, finding that Code Sec. 199A(b)(4)(B) excludes any amount not "properly allocable to qualified business income," and Code Sec. 199A(c)(3)(A)(ii) limits qualified items to those "allowed in determining taxable income." Because nondeductible wages are not allowed in determining taxable income, they cannot be W-2 wages. "Although certain amounts may have been reported by an employer to an employee in a Form W-2," the Court explained, "those amounts do not constitute "W-2 wages" for purposes of 199A if they are not properly allocated to qualified business income."
A dissenting judge argued that Congress intended the wage limitation to encourage job creation and that wages properly allocable to a trade or business should count regardless of deductibility. The majority, however, concluded that statutory text foreclosed this interpretation.
A.A. Savage, 165 TC No. 5, Dec. 62,714
A married couple was not entitled to claim a plug-in vehicle credit after the year in which their vehicle was first placed in service.
A married couple was not entitled to claim a plug-in vehicle credit after the year in which their vehicle was first placed in service. The Tax Court explained that Code Sec. 30D provides a one-time credit available only in the year a qualified vehicle is first placed in service, meaning when it is ready and available for its intended function. The couple purchased a new plug-in electric vehicle and continued to claim the credit in later years. The IRS disallowed the credit for the tax year at issue and determined a deficiency. An accuracy-related penalty was also proposed but later conceded. Relying on regulations interpreting similar provisions under the general business credit, the Court emphasized that once the vehicle was in use in the year of purchase, it was considered placed in service. Accordingly, the Court held that the credit could not be claimed again in subsequent years.
A. Moon, 165 TC No. 4, Dec. 62,712
The Financial Crimes Enforcement Network (FinCEN) has proposed regulations that would amend the Anti-Money Laundering/Countering the Financing of Terrorism (AML/CFT) Program and Suspicious Activity Report (SAR) Filing Requirements for registered investment advisers (IA AML Rule) by delaying the obligations of covered investment advisers from January 1, 2026, to January 1, 2028.
The Financial Crimes Enforcement Network (FinCEN) has proposed regulations that would amend the Anti-Money Laundering/Countering the Financing of Terrorism (AML/CFT) Program and Suspicious Activity Report (SAR) Filing Requirements for registered investment advisers (IA AML Rule) by delaying the obligations of covered investment advisers from January 1, 2026, to January 1, 2028. The proposed regulation follows an exemptive relief order issued earlier this summer (FinCEN Exemptive Relief Order, August 5, 2025).
The IA AML Rule requires covered investment advisers to establish AML/CFT programs, report suspicious activity, and keep relevant records, among other requirements.
By delaying the effective date, FinCEN states that it will have an opportunity to review the IA AML Rule, and ensure that the rule is effectively tailored to the diverse business models and risk profiles of firms in the investment adviser sector. According to FinCEN, the review may also provide an opportunity to reduce any unnecessary or duplicative regulatory burden, and ensure the IA AML Rule strikes an appropriate balance between cost and benefit, while still adequately protecting the U.S. financial system and guarding against money laundering, terrorist financing, and other illicit finance risks.
Request for Comments
FinCEN invites interested parties to submit comments on the proposed delay in the effective date of the IA AML Rule. Written or electronic comments must be received by October 22, 2025 (30 days after the proposed regulations are published in the Federal Register). Comments may be submitted electronically via the Federal eRulemaking Portal (https://www.regulations.gov), or by mail to: Policy Division, Financial Crimes Enforcement Network, P.O. Box 39, Vienna, VA 22183. Refer to Docket Number FINCEN-2025-0072 and RIN 1506-AB58 and 1506-AB69.
Probably one of the more difficult decisions you will have to make as a consumer is whether to buy or lease your auto. Knowing the advantages and disadvantages of buying vs. leasing a new car or truck before you get to the car dealership can ease the decision-making process and may alleviate unpleasant surprises later.
Probably one of the more difficult decisions you will have to make as a consumer is whether to buy or lease your auto. Knowing the advantages and disadvantages of buying vs. leasing a new car or truck before you get to the car dealership can ease the decision-making process and may alleviate unpleasant surprises later.
Nearly one-third of all new vehicles (and up to 75% of all new luxury cars) are leased rather than purchased. But the decision to lease or buy must ultimately be made on an individual level, taking into consideration each person's facts and circumstances.
Buying
Advantages.
- You own the car at the end of the loan term.
- Lower insurance premiums.
- No mileage limitations.
Disadvantages.
- Higher upfront costs.
- Higher monthly payments.
- Buyer bears risk of future value decrease.
Leasing
Advantages.
- Lower upfront costs.
- Lower monthly payments.
- Lessor assumes risk of future value decrease.
- Greater purchasing power.
- Potential additional income tax benefits.
- Ease of disposition.
Disadvantages.
- You do not own the car at the end of the lease term, although you may have the option to purchase at that time.
- Higher insurance premiums.
- Potential early lease termination charges.
- Possible additional costs for abnormal wear & tear (determined by lessor).
- Extra charges for mileage in excess of mileage specified in your lease contract.
Before you make the decision whether to lease or buy your next vehicle, it makes sense to ask yourself the following questions:
How long do I plan to keep the vehicle? If you want to keep the car or truck longer than the term of the lease, you may be better off purchasing the vehicle as purchase contracts usually result in a lower overall cost of ownership.
How much am I going to drive the vehicle? If you are an outside salesperson and you drive 30,000 miles per year, any benefits you may have gained upfront by leasing will surely be lost in the end to excess mileage charges. Most lease contracts include mileage of between 12,000-15,000 per year - any miles driven in excess of the limit are subject to some pretty hefty charges.
How expensive of a vehicle do I want? If you can really only afford monthly payments on a Honda Civic but you've got your eye on a Lexus, you may want to consider leasing. Leasing usually results in lower upfront fees in the form of lower down payments and deferred sales tax, in addition to lower monthly payments. This combination can make it easier for you to get into the car of your dreams.
If you have any questions about the tax ramifications regarding buying vs. leasing an automobile or would like some additional information when making your decision, please contact the office.