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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will pay taxes upfront on just the additional $8,000, but this ROTH contribution piece will grow tax‑free and may be withdrawn tax‑free in retirement, provided the account has been open at least five years and the participant is at least 59½.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.

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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.

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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.

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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.

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The IRS has issued final regulations modifying reporting obligations for partnerships involved in Code Sec. 751(a) exchanges of partnership interests. The regulations remove the requirement that partnerships furnish transferors with certain information relating to unrealized receivables and inventory items by January 31 following the exchange year. The regulations are effective for returns filed for tax years ending on or after May 20, 2026.

Under Code Sec. 6050K, partnerships must file Form 8308, Report of a Sale or Exchange of Certain Partnership Interests, for transfers involving Code Sec. 751(a) property. The IRS and Treasury Department received comments that many partnerships could not determine the information required for Part IV of Form 8308 by the January 31 furnishing deadline. As a result, the final regulations remove Reg. §1.6050K-1(c)(2) and revise Reg. §1.6050K-1(c)(1) to permit partnerships to furnish Form 8308 completed in accordance with the form instructions.

Although partnerships are no longer required to furnish Part IV information to transferors and transferees by January 31, they must still file a completed Form 8308, including Part IV, with Form 1065. The IRS finalized the regulations without substantive changes from the proposed regulations issued in 2025.

T.D. 10048

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The IRS has issued guidance on qualified long-term care distributions from qualified retirement plans. The guidance affects providers of certified long-term care insurance (issuers), plan administrators, and individual participants receiving qualified long-term care distributions. The IRS also extended the general deadline for amending a plan to permit qualified long-term care distributions to December 31, 2027.

Background

The SECURE 2.0 Act of 2022 (SECURE 2.0 Act), permitted defined contribution plans to make qualified long-term care distributions, effective for distributions made after December 29, 2025. The 10 percent additional tax on early distributions would not apply to distributions under Code Sec. 401(a)(39). However, a qualified long-term care distribution would be included in the taxpayer’s gross income.

Disclosure Requirements

The guidance addresses content requirements and procedures for submitting an Issuer Disclosure to the IRS. There is no general deadline for submitting an Issuer Disclosure. However, an issuer must submit an Issuer Disclosure to the IRS before the issuer can file a long-term care premium statement with a defined contribution plan.

Distribution Requirements

Under the guidance, the plan administrator is permitted to rely on the issuer’s statement and the information provided on the long-term care premium statement in making a qualified long-term care distribution. It is optional for a plan to permit qualified long-term care distributions, but the exception to the 10% additional tax only applies if the plan permits qualified long-term care distributions, even if the employee uses a distribution to pay for long-term care insurance. Unlike other permitted distributions, a qualified long-term care distribution would not be eligible for an extended 3-year repayment to a retirement plan.

Reporting Requirements

The payment of a qualified long-term care distribution to an employee must be reported by the payor on Form 1099-R, Distributions from Pensions, Annuities, Retirement or Profit Sharing Plans, IRAs, Insurance Contracts, etc.

Further, issuers must make a return to the IRS using Form 1099-LPS, Long-Term Care Premiums Paid Statement. The issuer will report the long-term care premiums paid for the calendar year. The Form 1099-LPS must be filed with the IRS no later than February 1 of the calendar year following the calendar year the long-term care premium statement was filed with the plan.

Deadline Extension

The guidance extends the deadline for a plan sponsor of a defined contribution plan that is not a governmental plan, a section 403(b) plan maintained by a public school, or an applicable collectively bargained plan, to amend its plan to permit qualified long-term care distributions from December 31, 2026, to December 31, 2027. The deadlines to amend defined contribution plans that are applicable collectively bargained plans or governmental plans remain as provided in Notice 2024-02. Thus, Notice 2024-2, I.R.B. 2024-2, 316, is modified in part.

Notice 2026-33

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The IRS finalized regulations treating income derived by individual members of an Indian tribe from fishing rights-related activities as compensation for purposes of limitations on benefits and contributions under a qualified retirement plan. These regulations are effective for plan years beginning on or after May 4, 2026, and affect participants, beneficiaries, sponsors, and administrators of Tribal plans.

Fishing rights-related income is exempt from federal income tax and employment tax under Code Sec. 7873. However, proposed reliance regulations would allow contributions to be made to qualified retirement plans based on fishing rights-related income. Also, plans that accept contributions of fishing rights-related income may still use safe harbor definitions of compensation. The IRS finalized this rule as proposed without material modification.

Although the final rule is somewhat limited in scope, the IRS addressed additional issues in the preamble. The IRS clarified that plan contributions attributable to a Tribal employee's fishing rights-related activiity is treated as investment in the contract under Code Sec. 72 . Thus, distributions of the amount contributed would generally be tax-free (subject to basis recovery rules) and distributions attributable to earnings would be taxable. The IRS also indicated that plans that permit designated Roth contributions may allow contributions attributable to fishing rights-related activity to be made on a Roth basis.

T.D. 10046

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The IRS has introduced a streamlined option allowing taxpayers to extend the time to challenge disallowed Employee Retention Credit (ERC) claims, reducing the need for immediate refund litigation. The measure applies to taxpayers who received Letter 105-C or 106-C, are awaiting review by the IRS Independent Office of Appeals and have six months or less remaining in the statutory two-year period.

Taxpayers generally have two years from the disallowance notice to resolve the claim or file a refund suit, but an administrative appeal does not suspend this deadline. Once the period expires, the IRS cannot issue a refund even if the taxpayer later prevails. To address this, eligible taxpayers may execute Form 907, Agreement to Extend the Time to Bring Suit, provided it is signed by both parties before the limitation period ends.

The IRS now permits submission of Form 907 through its Document Upload Tool, with qualifying requests reviewed and confirmed in writing. While the IRS is issuing notices to eligible taxpayers, others meeting the criteria may also apply. The agency indicated that the initiative is intended to preserve taxpayer rights and facilitate administrative resolution of ERC disputes.

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The IRS has established a significant issue ruling program for cerain corporate transactions (Rev. Proc. 2026-21). This program would not diminish the availability of letter rulings under existing programs. This procedure modifies and amplifies the ruling procedures provided in Rev. Proc. 2026-1, I.R.B. 2026-1, 1, and Rev. Proc. 2026-3, I.R.B. 2026-1, 143.

The significant issue ruling program allows taxpayers to request rulings on one or more issues that:

are solely under the jurisdiction of the Associate Chief Counsel (Corporate);
are significant issues, as defined in section 4.02 of Rev. Proc. 2026-21; and
involve the tax consequences or characterization of a transaction (or part of a transaction) that is described in Code Sec. 332, 351, 355, 368, or 1036.

Significant Issue Ruling Program

Taxpayers may request, and the IRS may issue, a ruling on part of an integrated transaction described in the above provisions, or a ruling on a particular legal issue under a section of the Code or regulations with respect to a transaction (or part thereof) rather than a ruling that addresses all aspects of that section (or any other section) with respect to the transaction (or part thereof).

In addition, the IRS may rule on the tax consequences resulting from integrated transactions described in the above provisions to the extent that a significant issue is presented under related Code sections that address such tax consequences.

A significant issue generally is a germane and specific issue of law, provided that a ruling on the issue would not be a comfort ruling or the conclusion in such a ruling otherwise would not be essentially free from doubt.

The requests for ruling must contain (1) narrative description of the transaction that puts the significant issue in context; (2) statement identifying the issue; (3) analysis of the solvability of issue; and more.

Effect on Other Documents

Rev. Proc. 2026-1 and Rev. Proc. 2026-3 are modified and amplified.

Effective Date

The significant issue ruling program applies to all letter ruling requests described in section 4.01 of Rev. Proc. 2026-21 postmarked or, if not mailed, received by the IRS after May 5, 2026.

Rev. Proc. 2026-21

Other References:

Code Sec. 332
CCH Reference - FED ¶16,052.188

Other References:

Code Sec. 351
CCH Reference - FED ¶16,405.48

Other References:

Code Sec. 355
CCH Reference - FED ¶16,466.923

Other References:

Code Sec. 368
CCH Reference - FED ¶16,753.53

Other References:

Code Sec. 1036
CCH Reference - FED ¶29,702.11

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The IRS has announced a new time-limited settlement opportunity for eligible taxpayers involved in conservation easement and historic preservation easement disputes with the IRS. The program aims to resolve cases faster and on terms that are generally more favorable than recent Tax Court decisions.

The IRS has announced a new time-limited settlement opportunity for eligible taxpayers involved in conservation easement and historic preservation easement disputes with the IRS. The program aims to resolve cases faster and on terms that are generally more favorable than recent Tax Court decisions. Since 2020, the IRS has settled 405 cases through earlier initiatives, although taxpayers still had to pay penalties and were allowed only limited deductions for certain out-of-pocket costs. More than 1,100 conservation easement cases currently remain pending before the IRS and the Tax Court. Under the new initiative, many eligible partnerships will not have to make an upfront payment to participate. In addition, taxpayers whose earlier settlement offers expired or were rejected may now have another chance to resolve their cases, while some partnerships that were not previously eligible may also qualify. IRS Chief Executive Officer Frank J. Bisignano said Congress created the conservation easement deduction to encourage legitimate preservation efforts rather than tax shelters based on inflated property values.

The IRS said partnerships that accept the offer during the initial 90-day period generally will not be allowed a charitable contribution deduction, but they may qualify for a limited deduction tied to certain out-of-pocket expenses. Those partnerships generally would face a 10 percent gross valuation misstatement penalty, while partnerships settling during an additional 45-day period generally would face a 20 percent penalty. Interest also will continue to accrue as required by law. At the same time, the IRS noted that courts have repeatedly reduced claimed deductions and upheld significant penalties in conservation easement disputes. Certain cases, such as those already tried or currently under appeal, will not qualify for the initiative. The IRS added that eligibility will depend on the status and specific facts of each case.

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Following a 2026 tax filing season that was consistent with the 2025 season, the American Institute of CPAs offered legislators a series of recommendations to help improve filing season in the future.

“Based on limited and anecdotal information, many practitioners noted that the IRS appeared to operating consistently compared with the prior year’s service,” AICPA said in a recent letter to the Senate Finance Committee’s top leadership following a hearing on the 2026 tax filing season, adding that data currently available shows “tax return processing remained relatively consistent, though the quality of telephone services appeared to vary depending on the hotline.”

AICPA did observe that while Internal Revenue Service modernization efforts have allowed for consistent customer service levels compared to recent prior years, “IRS customer service has not returned to pre-COVID-19 pandemic levels according to IRS data and the AICPA’s most recent annual membership survey.”

With that, the industry organization offered recommendations in the areas of governance and oversight, taxpayer services, and dedicated practitioner services.

In the area of IRS governance and oversight, AICPA recommended the following:

Requiring a Government Accountability Office review to determine whether a private sector board with sufficient authority to hold the IRS accountable and oversee implementation of key recommendations from advisory groups;
Re-establish the annual joint hearing review to focus on strategic and business plans, taxpayer service and compliance, technology and modernization, and the filing season; and
The Joint Committee on Taxation should provide a bi-annual report on the overall state of the Federal tax system.

In the area of taxpayer service, the following recommendations were offered:

Hire more qualified and experienced professionals from the private sector, adequately train all agency employees, skillfully manage IRS resources, and ensure organizational alignment between Congress, the executive branch, and the IRS;
Congress should determine what the appropriate level of service is and then ensure that the appropriate resources are allocated to achieve that level;
Continue to improve the technology infrastructure modernization; and
Effectively utilize customer satisfaction surveys to assess IRS performance, improve the taxpayer experience, and effectuate modernization efforts or process improvement.

AICPA pushed for the passage of the Taxpayer Assistance and Services Act, which it states “would significantly improve IRS services, reinforce fairness and transparency in our tax system, and reduce tax administrative burdens on taxpayers and practitioners, including many critical tax provisions for which AICPA has previously advocated.”

In the area of dedicated practitioner services, AICPA recommended:

Create consolidated dedicated “executive-level” practitioner services comparable to private sector services that are implemented and adapted based on practitioner feedback solicited periodically; and
Continue to expand the functionality of a robust and enhanced tax professional account as part of the IRS’s online portal with account access to all of a practitioner’s client information, allowing for IRS to communicate directly with authorized practitioners, enable a centralized login system, and prioritize the protection and privacy of user identities and data;
Provide practitioners with a robust practitioner priority hotline with high-skilled employees capable of resolving complex technical and procedural issues; and
Assign customer service representatives to each geographic area to address unusual or complex issues that practitioners were unable to resolve through the priority hotlines.

The letter to the Senate Finance Committee leadership and other AICPA 2026 tax policy and advocacy comment letter can be found here.

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