Employment Taxes

In Notice 2025-62, released on November 5, the IRS provided temporary relief to employers and payors for failing to comply with certain reporting requirements added to the Internal Revenue Code by the One, Big, Beautiful Bill Act (OBBBA) in conjunction with sections 224 and 225 of the Internal Revenue Code (see prior coverage).  Subsequently, in Notice 2025-69, the IRS provided guidance to employees and payees as a result of the relief provided by the earlier notice to employers and payors.  Under sections 224 and 225 and subject to certain limitations, employees and payees are entitled to deductions for qualified tips and qualified overtime compensation in the amount employers and payors provide on statements furnished to employees and payees.  As part of that regime, the Act added new information reporting requirements that require employers and payors to report qualified tips and qualified overtime compensation to the IRS.  It also requires third party settlement organizations (TPSO) whose gross payments exceed a certain threshold to report qualified tip information to the IRS.Continue Reading IRS Notices Provides Relief from Qualified Tips and Qualified Overtime Reporting Requirements and Guidance for Employees and Payees

On September 19, 2025, the IRS published proposed regulations to implement and provide guidance regarding new Section 224, enacted as part of the One Big Beautiful Bill Act (P.L. 119-21).  The proposed regulations define qualifying payment methods, jobs that customarily receive tips, and exclusions from the deduction.

Section 224 would allow single filers who earn up to $150,000 annually or married couples who earn up to $300,000, to deduct up to $25,000 in qualified tips received during the tax year in an occupation that customarily and regularly received tips on or before December 31, 2024.  The deduction phases out for taxpayers with modified adjusted gross income over $150,000, and over $300,000 for joint filers.  The proposed regulations clarify that the maximum deduction is reduced (but now below zero) by $100 for each $1,000 by which the taxpayer’s modified adjusted gross income exceeds the $150,000 (or $300,000) limit.  To be deductible, tips must be included on reporting statements, such as the Form W-2 or Form 1099.  No deduction is allowed under section 224 for any year beginning after December 31, 2028.Continue Reading No Tax on “Qualified” Tips:  IRS Issues Proposed Regulations on Tipped Income Deduction

The House today passed the Senate-passed version of the One Big Beautiful Bill Act (H.R. 1) (“OBBBA”), which includes a number of major tax provisions, including a number of provisions that would affect withholding and information reporting obligations (see prior coverage here, here, here, here, here, and here—note that earlier coverage of some other provisions in the original House bill were dropped or modified from the legislation that was ultimately enacted).

One provision that was in the original House-proposed legislation but then removed before it passed the House found its way back into the final legislation that ultimately passed the House and Senate. Section 112205 of OBBBA includes enforcement provisions related to COVID-Related Employee Retention Credits. That credit was originally enacted as part of the Coronavirus Aid, Relief, and Economic Security (CARES) Act in 2020 and then extended and expanded in 2021. The credit, which was modeled on a credit previously used for physical disasters such as hurricanes and wildfires, was intended to cover a portion of employer’s payroll costs to encourage them to keep employees on payroll and was similar to programs enacted in other countries during the COVID-19 pandemic.

Unfortunately, the credit became mired in IRS delays as the IRS struggled to process the influx of claims amid staffing shortages of its own. The IRS released guidance in the form of FAQs, which this blogged detailed, and then later in more formal notices, which became more restrictive over time. (See our earlier three-part series on IRS guidance: here, here, and here.) In the face of this guidance, a cottage industry began advising employers on the credit, some of whom took increasingly aggressive positions in the view of the IRS—and in the views of some tax professionals. Section 112205 of OBBBA is a response to those perceived abuses.

OBBBA (1) retroactively suspends some pending claims for the employee retention credit; (2) extends the limitation period on assessments for some employee retention credit claims; (3) extends the penalty on excess refunds to employment taxes; and (4) adds a new of enforcement provisions targeting “COVID-ERTC Promoters.”Continue Reading Reconciliation Bill Affects Pending ERC Claims; Cracks Down on ERC Promoters

After being passed by the House of Representatives, this year’s reconciliation bill (H.R. 1) moved to the Senate, which passed its own version of the legislation today, July 1.  The Senate bill would preserve without significant change many tax-related items from the House bill.  There are several provisions, however, where the Senate bill varies from the version the passed the House earlier.  The Senate-passed legislation will now head back to the House, where its fate is somewhat uncertain.

We previously covered several of the relevant tax provisions when House passed its version of the reconciliation bill.  This article is part of a series of articles examining how those provisions would change under the Senate’s legislation.

The Senate-passed bill contains a new edition of the No Tax On Tips provision, adopting aspects of the provision included in both the House reconciliation bill passed by the House of Representatives (the “House Bill”) (see prior coverage) and in the previous standalone Senate bill on No Tax On Tips (“S. 129”) (see prior coverage).Continue Reading Senate Reconciliation Bill Retains No Tax on Tips Provision with Some Changes

After being passed by the House of Representatives, this year’s reconciliation bill (H.R. 1) moved to the Senate, which passed its own version of the legislation today, July 1.  The Senate bill would preserve without significant change many tax-related items from the House bill.  There are several provisions, however, where the Senate bill varies from the version the passed the House earlier.  The Senate-passed legislation will now head back to the House, where its fate is somewhat uncertain.

We previously covered several of the relevant tax provisions when House passed its version of the reconciliation bill.  This article is part of a series of articles examining how those provisions would change under the Senate’s legislation.

As discussed in our prior post, the House bill would provide a new deduction for “qualified overtime compensation” under a new section 225 of the Code.  The Senate bill preserves the deduction for qualified overtime compensation but makes some changes.  To begin, the Senate bill would limit the annual deduction for qualified overtime to compensation to $12,500 ($25,000 for taxpayers filing a joint return).  The House bill did not include a cap.Continue Reading Senate Reconciliation Bill Would Retain Tax Deduction for Overtime Pay, Subject to Certain Restrictions

The House of Representatives continues work on a reconciliation bill that would enact significant tax provisions and spending cuts.  The various legislative committees have completed work on the areas of the bill within their jurisdiction, including the Ways and Means Committee, which proposed language that would enact $3.8 trillion in tax cuts over the next ten years.  Over the weekend, the House Budget Committee consolidated the legislation, and the House Bill is now before the Rules Committee, where a managers’ amendment may be considered before it heads to the House floor.  This article is one of a series of articles discussing various proposals in the legislation that touch on tax withholding, reporting, and fringe benefits.

The House Bill includes legislative language that would implement President Trump’s campaign proposal to eliminate the taxation of tipped income, at least temporarily.  The language would allow a below-the-line deduction for certain tips received by an individual in an occupation in which tips are ordinarily received.  However, several requirements, including those relating to the nature of the tip, the characteristics of the individual receiving the tip, and the relevant industry, must be satisfied.  The provision would be effective for tips received on or after January 1, 2025, and would sunset after 2028—leaving its extension to a future Congress during a presidential election year.  In addition, the legislation would extend availability of the FICA tip tax credit under Section 45B of the Code, which currently applies to food and beverage establishments, to employers within the beauty service industry.Continue Reading House Reconciliation Bill Would Enact President Trump’s Campaign Promise to Eliminate Tax on Tips

The House of Representatives continues work on a reconciliation bill that would enact significant tax provisions and spending cuts.  The various legislative committees have completed work on the areas of the bill within their jurisdiction, including the Ways and Means Committee, which proposed language that would enact $3.8 trillion in tax cuts over the next ten years.  Over the weekend, the House Budget Committee consolidated the legislation, and the House Bill is now before the Rules Committee, where a managers’ amendment may be considered before it heads to the House floor.  This article is one of a series of articles discussing various proposals in the legislation that touch on tax withholding, reporting, and fringe benefits.

The House Bill proposes various changes to the Internal Revenue Code, including a new deduction for “qualified overtime compensation” under new section 225 of the Code.  The proposal would enact one of President Trump’s campaign promises.Continue Reading House Reconciliation Bill Would Enact Tax Deduction for Overtime Pay

The House of Representatives continues work on a reconciliation bill that would enact significant tax provisions and spending cuts.  The various legislative committees have completed work on the areas of the bill within their jurisdiction, including the Ways and Means Committee, which proposed language that would enact $3.8 trillion in tax cuts over the next ten years.  Over the weekend, the House Budget Committee consolidated the legislation and the House Bill is now before the Rules Committee, where a managers’ amendment may be considered before it heads to the House floor.  This article is one of a series of articles discussing various proposals in the legislation that touch on tax withholding, reporting, and fringe benefits.

Among other changes to the Internal Revenue Code, two of the House Bill’s changes revisit measures included in the 2017 tax reform package (commonly referred to as the “Tax Cuts and Jobs Act”) addressing commuter benefits provided by employers.Continue Reading What’s Old is New Again: House Bill Would Resurrect UBTI for Tax-Exempt Organization Transportation Fringes, Make Permanent Suspension of Bicycle Commuting Reimbursement Exclusion

The IRS issued Rev. Rul. 2025-4 on January 15, 2025, regarding the federal income and employment tax treatment and related reporting requirements of contributions to, and benefits paid under, a mandatory state paid family and medical leave (PFML) program. The ruling includes various tax treatment scenarios containing the IRS’ guidance with…

Continue Reading IRS Issues Ruling on Tax Treatment of Contributions and Benefits Under State Paid Family and Medical Leave Programs