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The Massachusetts Appeals Court affirmed an Appellate Tax Board decision concerning Massachusetts personal income tax, upholding the Commissioner of Revenue's denial of the taxpayer's request for abat...
Beginning in 2026, individuals aged 50 and older who earn more than $150,000 in prior‑year-wages will see a significant change in how they can make catch‑up contributions to their workplace retirement plans. Under the SECURE 2.0 Act, these contributions will no longer be eligible for traditional pre‑tax treatment. Instead, they will be required to be made as after‑tax ROTH contributions (if their plan allows). It should be noted that the new rule applies to just the additional catch-up portion; high earners should still consider maxing out the full $24,500 pre‑tax potion thereby allowing for the greatest income deferral.
Beginning in 2026, individuals aged 50 and older who earn more than $150,000 in prior‑year-wages will see a significant change in how they can make catch‑up contributions to their workplace retirement plans. Under the SECURE 2.0 Act, these contributions will no longer be eligible for traditional pre‑tax treatment. Instead, they will be required to be made as after‑tax ROTH contributions (if their plan allows). It should be noted that the new rule applies to just the additional catch-up portion; high earners should still consider maxing out the full $24,500 pre‑tax potion thereby allowing for the greatest income deferral.
What Employees Need to Know
Catch‑up contributions allow workers over 50 to save beyond the standard 401(k) limit by contributing an additional $8,000, or up to $32,500 in total for 2026. Historically, these contributions reduced taxable income in the year they were made. Under the new rules, high‑earning participants will pay taxes upfront on just the additional $8,000, but this ROTH contribution piece will grow tax‑free and may be withdrawn tax‑free in retirement, provided the account has been open at least five years and the participant is at least 59½.
Key Takeaways for Taxpayers
We encourage clients to review how these rules may affect their savings strategy, while coordinating with plan administrators to ensure ROTH catch‑up contributions are eligible under their plans effective for 2026. Understanding these changes earlier in 2026 can help prevent surprises come year-end. Don’t hesitate reaching out to your EGP & Company contact for additional information.
The One Big Beautiful Bill Act (OBBBA) introduced a major tax change for workers who earn overtime pay. A new tax provision allows eligible individuals to deduct certain overtime compensation directly on their federal income tax return. This provision is designed to provide meaningful tax relief to workers who rely on overtime to supplement their income.
The One Big Beautiful Bill Act (OBBBA) introduced a major tax change for workers who earn overtime pay. A new tax provision allows eligible individuals to deduct certain overtime compensation directly on their federal income tax return. This provision is designed to provide meaningful tax relief to workers who rely on overtime to supplement their income.
Below is an overview of how the new deduction works, who qualifies, and what employers need to know as they prepare as the rule takes effect.
What Is the Qualified Overtime Compensation Deduction?
New IRC Section 225 allows individuals to deduct qualified overtime compensation they receive during the tax year, provided the income is properly reported on an information return such as Form W‑2 or other statements. Key features include:
· Maximum deduction: Up to $12,500 per year (or $25,000 for joint filers).
· Above‑the‑line deduction: Reduces adjusted gross income (AGI) and is available in addition to the standard deduction.
· Income‑based phaseout: The deduction is reduced by $100 for every $1,000 by which the taxpayer’s modified AGI exceeds the statutory threshold.
· Reporting requirement: Only overtime compensation reported on required information returns (Forms W‑2 and 1099) qualifies for the deduction.
Who Can Claim the Deduction?
· Employees: Most employees who receive overtime pay under the Fair Labor Standards Act (FLSA) or similar state laws may qualify.
· Independent Contractors: Do not qualify for the overtime deduction, as overtime rules apply only to employees.
What Employers Need to Know
Employers should prepare for several practical implications:
· Payroll systems may require updates. Because the deduction applies beginning January 1, 2025, employers may need to adjust payroll systems. However, given the retroactive nature of the deduction, employers are not required to separately report overtime compensation on 2025 Forms W‑2 to employees.
· Accurate overtime tracking is essential. Employers should ensure their payroll systems accurately track overtime hours and pay, as employees may rely on these records to substantiate their deduction.
· Withholding rules remain unchanged. Overtime compensation remains fully subject to federal income tax withholding, Social Security, and Medicare taxes.
· Employee communications may be needed. Employers may wish to inform employees about the new deduction and how to access their payroll records for substantiation.
Key Takeaways for Taxpayers
This new Qualified Tips Deduction represents a meaningful shift in how tip income is treated for tax purposes. While the deduction primarily benefits workers, employers will need to ensure compliance with the increased reporting rules. For 2025, the IRS has provided a transition period, allowing for a reasonable method to bifurcate between ‘wage’ and ‘tip’ income. In 2026, new tip coding will be afforded to employees within Box-12 of their W-2 forms.
The Overtime Income Deduction provides a new tax benefit for employees who work overtime, but it also introduces new compliance considerations for employers. While reporting obligations remain largely unchanged for 2025, employers should ensure that overtime is calculated correctly, payroll systems maintain accurate records, and employees can access documentation needed to claim the deduction.
We recommend reviewing your current systems, proactive preparation will help minimize administrative burdens and support employees in taking advantage of this new tax benefit. Don’t hesitate reaching out to your EGP & Company contact for additional information.
As we approach the close of the 2025 tax year, proactive planning remains essential. Recent legislative changes enacted under the One Big Beautiful Bill Act (OBBBA) introduces a significant new tax benefit for workers in traditionally tipped occupations. This provision allows eligible individuals to deduct certain tip income directly on their federal tax return. However, there are numerous limitations, restrictions, and constraints.
As we approach the close of the 2025 tax year, proactive planning remains essential. Recent legislative changes enacted under the One Big Beautiful Bill Act (OBBBA) introduces a significant new tax benefit for workers in traditionally tipped occupations. This provision allows eligible individuals to deduct certain tip income directly on their federal tax return. However, there are numerous limitations, restrictions, and constraints.
Below is an overview of how the new deduction works, who qualifies, and what employers need to know as they prepare for implementation.
What Is the Qualified Tips Deduction?
New IRC Section 224 allows individuals to deduct up to $25,000 of qualified tips received during the tax year. This deduction is taken “above the line,” meaning it is available in addition to the standard deduction. To qualify, tips must be:
· Cash tips received in an occupation that traditionally and customarily received tips on or before December 31, 2024.
· Applies to certain occupations as determined by the Secretary of the Treasury.
· Voluntary payments made by customers, not negotiated or mandatory charges.
· Reported to the IRS on an information return such as Form W‑2, Form 1099, etc.
· Not received in a “specified service trade or business” which includes fields such as health, law, consulting, and investment management.
Further, the deduction is subject to an income‑based phaseout. It begins to phase out at $150,000 modified AGI for single filers ($300,000 for joint filers). The deduction is reduced by $100 for every $1,000 of income above these thresholds.
Who Can Claim the Deduction?
· Employees: Most employees in tipped industries—such as restaurants, hospitality, and personal services—may qualify, provided their tips meet the statutory criteria and are properly reported.
· Independent Contractors: Non‑employee workers (e.g., hair stylists renting a booth, self‑employed massage therapists) may also claim the deduction, but only to the extent their tips exceed their deductible business expenses. This ensures the deduction applies only to net tip income.
What Employers Need to Know
Employers should prepare for several practical implications:
· Tips must still be reported. Employees must continue reporting tips to employers, and employers must continue reporting them on Form W‑2.
· Withholding rules remain unchanged. Tips remain subject to federal income tax withholding, as well as Social Security and Medicare taxes.
· Payroll systems may require updates. Because the deduction applies beginning January 1, 2025, employers may need to adjust payroll systems.
· Service charges are not tips. Automatic gratuities -- such as an 18% charge for large parties -- do not qualify as tips (for purposes of this deduction).
· Unreported tips may still be deductible. Employees who fail to report tips to their employer may still claim the deduction by reporting them on Form 4137.
· Non‑employee tip reporting is evolving. Form 1099‑NEC currently has no dedicated line for tips, but the law requires reporting of tipped amounts and whether the occupation is customarily tipped.
Key Takeaways for Taxpayers
This new Qualified Tips Deduction represents a meaningful shift in how tip income is treated for tax purposes. While the deduction primarily benefits workers, employers will need to ensure compliance with the increased reporting rules. For 2025, the IRS has provided a transition period, allowing for a reasonable method to bifurcate between ‘wage’ and ‘tip’ income. In 2026, new tip coding will be afforded to employees within Box-12 of their W-2 forms.
We recommend reviewing your current tip‑reporting procedures, updating payroll systems as needed, and preparing to communicate these changes to employees. Don’t hesitate reaching out to your EGP & Company contact for additional information.
The One Big Beautiful Bill Act (OBBBA) created a new tax‑advantaged savings vehicle known as the Trump Account. These accounts are designed to encourage long‑term savings and investment for American children and operate similarly to traditional IRAs, with several important distinctions. Further additional IRS and Treasury guidance is forthcoming.
The One Big Beautiful Bill Act (OBBBA) created a new tax‑advantaged savings vehicle known as the Trump Account. These accounts are designed to encourage long‑term savings and investment for American children and operate similarly to traditional IRAs, with several important distinctions. IRS and Treasury guidance is forthcoming.
Below is a practical overview for evaluating how Trump Accounts may fit into your individual tax planning.
What Is a Trump Account?
A savings vehicle treated similarly to a traditional IRA. An account is created for the exclusive benefit of an eligible individual, generally a minor child. Once created, it is subject to specific contribution, reporting, and administrative rules. Distributions from the account could likely be taxable, however, exceptions apply. Current guidance makes it clear these accounts are not Roth IRA’s.
Taxpayer may eventually open a Trump Account in various ways: via an online portal at trumpaccounts.gov, with Form 4547 with the 2025 tax return, or potentially additionally prescribed by future IRS Notice(s).
Who Is Eligible?
An “eligible individual” is generally a child who has not reached age 18 by the end of the calendar year, and meets additional criteria to be clarified in forthcoming regulations.
IRS guidance indicates that no contributions may be made until July 4, 2026. Annual contributions are capped at $5,000, indexed for inflation beginning in 2027. Contributions may be made by parents, guardians, or other permitted contributors.
Families with children born between December 31, 2024, and January 1, 2029, and who are a U.S. citizens, and hold a valid social security number can likely receive additional benefits. These individual may participate in the ‘pilot program’ where an one-time governmental $1,000 contribution is seeded for each qualifying Trump account beneficiary.
Tax Treatment
Trump Accounts are modeled on traditional IRAs where contributions may be deductible, subject to income limits (to be clarified in regulations). Earnings grow tax‑deferred. While withdrawals will be subject to rules similar to IRA distributions unless modified by future guidance. Any future ‘nonqualified distributions’ from the account are taxable and may face further penalties (similar to traditional IRA rules).
Trump Accounts represent a new opportunity for families to build long‑term savings for children, with tax advantages similar to retirement accounts. Financial institutions will begin offering Trump Accounts once regulations are finalized. As noted above, future legislation is anticipated further clarifying the accounts. Don’t hesitate reaching out to your EGP & Company contact for additional information.
Contributions to Trump accounts will be treated as completed gifts that are not future interests in property and the gift tax annual exclusion amount will apply under a safe harbor for certain donors making contributions to Trump accounts created under Code Sec. 530A.
Contributions to Trump accounts will be treated as completed gifts that are not future interests in property and the gift tax annual exclusion amount will apply under a safe harbor for certain donors making contributions to Trump accounts created under Code Sec. 530A.
Pursuant to the rules of Code Sec. 530A, distributions from Trump accounts are limited during the growth period, which is the period ending on January 1 of the year in which the account beneficiary attains age 18. During the growth period, annual contributions are limited to $5,000 per year, as adjusted for inflation after 2027. Gifts of future interests in property are not eligible for the annual gift tax exclusion and must be reported on a federal gift tax return.
The safe harbor applies for a particular year if the following requirements of section 4.02 are met:
- The taxpayer is an individual;
- The only taxable gifts made by the taxpayer during the calendar year are cash contributions to one or more Trump accounts, each made before the calendar year in which the account beneficiary attains age 18;
- The taxpayer's total gifts during the calendar year to each individual who is an account beneficiary, including contributions to that individual beneficiary's Trump account, do not exceed the Code Sec. 2503(b) annual exclusion;
- Such contributions to Trump accounts during the calendar year do not generate for that year either a gift or generation-skipping transfer (GST) tax liability after application of the taxpayer's remaining applicable credit amount against the gift tax or remaining GST exemption; and
- Disregarding the Trump account contributions described in section 4.02(2) of the revenue procedure, a gift tax return is not required to be filed, and no gift tax return is otherwise filed for that calendar year by or on behalf of the taxpayer for any other purposes.
If these requirements are satisfied, each Trump account contribution made by the taxpayer during the calendar year will be treated as a completed gift to the account beneficiary that is not a future interest in property and to which the annual exclusion applies for purposes of gift and GST tax reporting. As a result, taxpayers within the scope of the safe harbor will not be required to file a gift tax return reporting the such contributions.
The IRS has issued final regulations identifying certain Charitable Remainder Annuity Trust (CRAT) transactions and substantially similar transactions as listed transactions subject to the reportable transaction disclosure rules. The regulations require participants and material advisors to disclose these transactions to the IRS while clarifying that charitable organizations whose only interest is as charitable remaindermen are not treated as participants or parties to prohibited tax shelter transactions. The regulations are effective July 9, 2026.
The IRS has issued final regulations identifying certain Charitable Remainder Annuity Trust (CRAT) transactions and substantially similar transactions as listed transactions subject to the reportable transaction disclosure rules. The regulations require participants and material advisors to disclose these transactions to the IRS while clarifying that charitable organizations whose only interest is as charitable remaindermen are not treated as participants or parties to prohibited tax shelter transactions. The regulations are effective July 9, 2026.
Under Code Secs. 6011 and 6707A, the IRS may identify transactions with tax avoidance potential as listed transactions. The final regulations add Reg. §1.6011-15, identifying transactions in which appreciated property is contributed to a purported CRAT, sold by the trust, and the sale proceeds are used to purchase an annuity, with the beneficiary improperly treating the annuity payments under Code Sec. 72 instead of applying the distribution ordering rules of Code Sec. 664(b).
Although participants and material advisors remain subject to the applicable disclosure requirements, organizations described in Code Sec. 170(c) that merely receive the charitable remainder interest are excluded from participant status and are not treated as parties to prohibited tax shelter transactions under Code Sec. 4965 solely because of that interest. The IRS finalized the regulations without substantive changes from the proposed regulations issued in 2024.
A portion of litigation settlement proceeds consisting of attorney’s fees and costs was includible in the gross income of two individuals (taxpayers). Said portion was not deductible under Code Sec. 62(a)(20). The Fair Credit Reporting Act’s (FCRA) (P.L. 91-508) fee-shifting provisions were inapplicable in this case.
A portion of litigation settlement proceeds consisting of attorney’s fees and costs was includible in the gross income of two individuals (taxpayers). Said portion was not deductible under Code Sec. 62(a)(20). The Fair Credit Reporting Act’s (FCRA) (P.L. 91-508) fee-shifting provisions were inapplicable in this case.
Background
The taxpayers sued multiple credit reporting agencies under FCRA provisions. They eventually settled with each agency. In all relevant Forms 1099–MISC the settlement amounts were reflected without the attorney’s fees and costs.
Civil Rights Interpretation for FCRA Claims Denied
The taxpayers’ FCRA claims of unlawful discrimination did not fall under Code Sec. 62(e)(18)(i). Said claims were based on fair and accurate credit reporting and not consumer privacy. Particularly, the taxpayers’ concerns did not fall under “highly sensitive” and “intimate personal information” categories.
J.W. Eiler, 167 T.C. No. 3, Dec. 62,865
The IRS has reminded taxpayers that major life events can affect tax filing requirements, eligibility for tax benefits and the amount of tax withheld from paychecks. The agency explained that changes such as marriage, the birth or adoption of a child, divorce or the death of a loved one may require updates to tax information and a review of filing status.
The IRS has reminded taxpayers that major life events can affect tax filing requirements, eligibility for tax benefits and the amount of tax withheld from paychecks. The agency explained that changes such as marriage, the birth or adoption of a child, divorce or the death of a loved one may require updates to tax information and a review of filing status. A name change following marriage should be reported to the Social Security Administration so the updated name matches Social Security records. An address change should be reported to the IRS by filing Form 8822, Change of Address, and employers, financial institutions and the U.S. Postal Service should also be notified. Marriage may also require submission of a new Form W-4, Employee's Withholding Certificate, to ensure the correct amount of tax is withheld.
Additionally, the IRS noted that the birth or adoption of a child may make a taxpayer eligible for valuable tax benefits, including the Child Tax Credit, Adoption Credit and Child and Dependent Care Credit, if applicable requirements are satisfied. Divorce or the death of a spouse may also affect filing status, tax withholding and eligibility for certain tax benefits. The IRS encouraged prompt updates to tax records, careful evaluation of changes affecting tax obligations and use of available IRS resources to better understand the tax consequences of major life events. Early action can help avoid filing issues, support accurate tax reporting, maximize available tax benefits and improve preparation for the next tax filing season.
The Internal Revenue Service received and processed less returns during 2026, according to the Treasury Inspector General for Tax Administration.
The Internal Revenue Service received and processed less returns during 2026, according to the Treasury Inspector General for Tax Administration.
In a recently released report, TIGTA stated that from March 1, 2025, through February 28, 2026, the IRS received 51.5 million tax returns, down from 52. 4 million in the previous year, though it did see a significant drop in paper returns received from 1.2 million in 2025 to 618,000 in 2026. Of the returns received in 2026, the agency processed 50.9 million returns, down from 51.8 million.
From the beginning of the 2026 tax filing season to the end of February 2026, TIGTA reported that the inventory backlog in key tax return processing programs increased from 1.9 million to 2.4 million. Additionally, nearly 75 percent of the amended return inventory is over-aged during the 2026 tax filing season.
“Generally, inventories increase during the filing season as the IRS balances efforts to answer phone calls and reduce inventories,” TIGTA stated in the report. “However, with the reduction in staff, increases in key inventories could become a concern.”
The number of refunds dipped to 36.5 million from 36.9 million, although there was a $360 increase in the average refund from $3,382 in 2025 to $3,742.
TIGTA also reported that the IRS did not meet its hiring goals for the 2026 tax filing season. The agency had been approved to hire 1,900 employees for submission processing (these workers process original and amended returns and resolve tax return errors) but only onboarded 800 individuals. Likewise, it was approved to hire 3,500 account management employees (handlers of taxpayer contacts through telephone and mail and process adjustments) but brought 2,300 on board.
Submission processing management said it would be onboarding new hires throughout the tax season, while account management leadership had no plans to hire new employees and would only be onboarding those who previously received offers but had delays in the hiring process.
In a positive from the 2026 season, TIGTA reported that the new and modified “e-file business rules associated with the child tax Credit, state and local tax deduction, and adoption credit are working as intended.”
Taxpayer Assistance Centers offered incorrect tax guidance during nearly half of unannounced visits by Treasury Inspector General for Tax Administration staff.
Taxpayer Assistance Centers offered incorrect tax guidance during nearly half of unannounced visits by Treasury Inspector General for Tax Administration staff.
According to a recent TIGTA report, during the 2025 tax filing season, the Treasury watchdog made 91 unannounced visits to TACs nationwide at various time (regular and extended hours), at the 61 visits where TIGTA staff did receive assistance, “TAC employees did not provide the correct tax law guidance during 28 of those visits (46 percent).”
TAC employees were presented with questions across one of the three areas – injured spouse, selling your main home, and American Opportunity Tax Credit. The report notes that for questions related to tax law topics, “TAC employees must use the Interactive Tax Law Assistant ITLA) tool to respond to taxpayers. The ITLA tool asks a series of questions, then generates accurate and complete responses based on the taxpayer’s situation. The tool is designed for TAC employees and is intended to improve operational performance in the areas of quality, efficiency, customers satisfaction, and employee satisfaction.”
TIGTA noted that during the 2025 filing season, “managers counseled several TAC employees for not using the ITLA tool during taxpayer interactions. During our site visits, we also observed that TAC employees did not always the ITLA tool to answer our tax law questions.”
Additionally, of those 91 visits, TIGTA “did not receive full assistance during 30 of our 91 visits due to incomplete or inaccurate responses to tax law questions, denial of entry by security or unexpected TAC closures.”