New guidance regarding Trump accounts, which were enacted by the One Big, Beautiful Bill Act (OBBBA), has been issued by the IRS. (IRS Notice 2025-68) These accounts are essentially traditional IRA-type accounts established for U.S. citizen children under the age of 18. However, there are different rules as to what and how much can be contributed, and most distributions are prohibited until the year the child turns 18.

The guidance includes information concerning how the accounts are established, how contributions are made, when distributions are allowed, and reporting requirements.

This Flash E-mail focuses on the big question being asked by practitioners: “How do you set up a Trump account?” Additional information is included in the guidance, and will be covered in our tax update webinars and seminars, as well as the upcoming issue of Spidell’s Federal Taxletter^®.

Establishing the account

An initial account for an eligible child can only be established by the Treasury Department after an authorized individual (e.g., legal guardian, parent, etc., referred to as the “responsible party”) makes an election to do so.

The election to establish a Trump account will be made on IRS Form 4547, Trump Account Election(s) (yet to be released), or through an online tool or application. Form 4547 can be filed with a taxpayer’s 2025 tax return. The online tool/application will be available sometime in mid-2026. Remember that accounts cannot begin to take contributions until July 4, 2026.

The account can be established at the time the responsible party makes an election to accept the $1,000 pilot program contribution or at any time prior to the calendar year in which the child turns 18. Pilot program contributions are available only to children born in 2025 through 2028 and can only be claimed if elected by the taxpayer claiming the child as a dependent.

The initial Trump account will be held in one or more financial institutions to be chosen by the Treasury Department. Once a Trump account is established, the responsible party may make a qualified rollover contribution into another Trump account maintained by a bank or other qualified nonbank authorized to maintain IRA accounts (e.g., Fidelity, Vanguard, etc.). The entire account must be rolled over. Partial rollovers are not allowed. This means only one Trump account can be funded for an individual at any time.

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The Internal Revenue Service Math and Taxpayer Help Act (MATH Act; H.R. 998), which requires that the IRS provide specific information when it makes a tax return change due to a math or clerical error, was signed by President Trump today. Previously, when the IRS made a change to a taxpayer’s return due to a math or clerical error, the IRS could just make the change without providing much, if any, information to the taxpayer.

Pursuant to the MATH Act, a notice sent by the IRS containing changes due to a math or clerical error must include:

• A clear description of the error, including the type of error and the tax return line where the error was made;
• An itemized computation of adjustments that are required to correct the error;
• The phone number for the IRS’s automated transcript service; and
• The deadline for requesting an abatement of any penalties as a result of the error.

The MATH Act was supported by many professional tax organizations, including the AICPA.

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Today, the IRS issued guidance and transitional relief for individual taxpayers to calculate the new OBBBA deductions for qualified tips and overtime. (Notice 2025-69) This guidance follows the guidance previously issued via IR-2025-82 and Notice 2025-62, which provided similar information for employers and issuers of Forms 1099. All of this special guidance and transition relief is required for taxpayers to be able to claim these deductions, because the IRS did not update 2025 Forms W-2 or 1099 to account for these new OBBBA deductions.

For employees claiming the deduction for qualified tips under IRC §224, qualified tips can be calculated by using the total amount of:

• Social Security tips reported on their Form W-2, box 7;
• Tips reported by the employee to the employer on all Forms 4070, Employee’s Report of Tips to Employer (or any similar substitute form); or
• Cash tips reported on Form W-2, box 14 (or on a separate statement) if the employer voluntarily reports this information.

In addition to the three methods above, an employee can also include any amount listed on line 4 of Form 4137, Social Security and Medicare Tax On Unreported Tip Income, filed with the employee’s 2025 income tax return.

Self-employed taxpayers can calculate their qualified tips through either:

• A separate statement provided by a 1099 issuer (because 2025 Forms 1099 were not modified to separately report qualified tips); or
• Using earning statements or other documentation such as receipts, point-of-sale system reports, daily tip logs, third-party settlement organization records, or other documentary evidence, but only for those amounts that are actually included on a 1099.

The IRS has also created a transition period regarding the determination of whether qualified tips were received by a specified service trade or business (SSTB). At least for the 2025 tax year, the IRS will treat all employees who receive tips as if the tips were received in a non-SSTB. This will provide much welcome relief, especially for performing artists who typically received tips but may be ineligible for the tip deduction because of the SSTB determination. Forthcoming regulations should provide clearer guidance for performing artists and other taxpayers who are unsure whether they are an SSTB.

Notice 2025-69 similarly provides simple, alternate methods of calculating qualified overtime for those taxpayers whose employers do not provide a separate statement with Fair Labor Standards Act (FLSA) qualified overtime for 2025. The methods are too numerous to list, but the IRS has provided examples in the notice to help guide taxpayers and tax professionals through each of the different calculation methods. There is nothing in the guidance addressing overtime for the self-employed, but there is guidance on special FLSA overtime rules for certain workers such as firefighters, public safety officers, certain other government employees, and hospital and certain residential facility workers.

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The 2026 inflation-adjusted Medicare amounts have been announced. (U.S. Centers for Medicare and Medicaid Services Fact Sheet) For those with modified AGI of less than $109,000 ($218,000 MFJ), the Part B monthly premium amount will be $202.90. For those with modified AGI greater than $500,000 ($750,000 MFJ) the Part B monthly premium amount will be $689.90.

These changes represents a 9.7% increase from 2025 Medicare Part B premiums.

For charts of the premiums for all modified AGI levels for 2026 and 2025, go to:

www.spidell.com/files/2025/medicare.pdf

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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, employers face an additional 0.3% credit rate reduction (a.k.a. rate increase) for 2025, which will be paid by employers in 2026. This means for the 2025 tax year, paid in 2026, most employers will pay a FUTA rate of 1.8% per employee up to the $7,000 wage base.

This results in $126 maximum per employee, which is $84 more than they would pay without the FUTA credit reduction.

The good news, however, is that the potential 3.7% additional rate hike that was under consideration because California’s loan has been outstanding for more than five years will not go into effect. The federal government approved California’s waiver request on November 10, 2025, meaning the FUTA rate will remain at 1.8% for 2025.

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Inflation-adjusted retirement figures for 2026 have been announced by the IRS in Notice 2025-67. Key adjustments contained in the notice include, but are not limited to:

• The IRA contribution limit and catch-up contribution limit is increased from $7,000 to $7,500 and from $1,000 to $1,100, respectively. Also included in the Notice are the increased income phase-out ranges;
• The SIMPLE contribution limit for businesses with 25 or more employees is increased from $16,500 to $17,000, while the catch-up contribution amount for most employees age 50 and older is increased from $3,500 to $4,000 ($5,250 for employees aged 60, 61, 62, or 63). For businesses with fewer than 26 employees, the contribution limit is increased from $17,600 to $18,100 and the general catch-up contribution limit remains at $3,850;
• The annual contribution limit for IRC §§401(k), 403(b), 457 governmental plans, and the federal government’s Thrift Savings Plan is increased from $23,500 to $24,500, and the catch-up contribution limit for most employees 50 and older is increased from $7,500 to $8,000. However, employees aged 60, 61, 62, and 63 can make a catch-up contribution of up to $11,250; and
• The qualified charitable distribution limit is increased from $108,000 to $111,000.

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Early today, the IRS issued Notice 2025-62, which provides transition relief for issuers of Forms W-2, 1099-NEC, 1099-MISC, and 1099-K with respect to mandatory reporting of tip and overtime compensation under the One Big, Beautiful Bill Act (OBBBA). The transition relief is available for the 2025 taxable year only.

The notice provides that employers and other payors will not face penalties for failing to provide a separate accounting of any amounts reasonably designated as overtime compensation, cash tips, or the occupation of the person receiving cash tips.

The IRS previously announced that it would not be updating its 2025 Forms W-2, 1099-NEC, 1099-MISC, or 1099-K, so today’s transition relief is expected. Recently, however, the IRS released draft versions of these forms for the 2026 taxable year containing new lines for tips and overtime reporting.

The IRS encourages employers and other payors to provide employees and other payees with a separate accounting of tips, overtime compensation, and tipped occupation codes if they are able to. However, this is not required to receive the penalty relief provided in Notice 2025-62. The IRS suggests that employers and other payors provide this information through an online portal, additional written statements provided to the payee, or by using Form W-2, Box 14 in the case of employees.

Obviously missing from Notice 2025-62 is any guidance aimed for payees regarding claiming the qualified tips deduction or the qualified overtime deduction in the absence of information provided by an employer or payor.

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The EDD has informed Spidell that due to inflation adjustments, beginning January 1, 2026, the California personal income tax deposit (PIT) threshold will be reduced from $500 to $400 for next-day and semi-weekly deposits. A taxpayer’s deposit schedule (e.g., next-day, semi-weekly, etc.) is based on the taxpayer’s federal deposit schedule, but the threshold amounts are determined by the EDD based on California law.

For a chart summarizing the California payroll deposit requirements for both 2025 and 2026, go to:

www.spidell.com/files/2025/cadepositrequirements.pdf

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The IRS announced today that PTIN renewals for the 2026 tax season are now open. The renewal fee is $18.75. (IR-2025-108)

Taxpayers can renew their PTINs at:

http://rpr.irs.gov/ptin

Starting this year, the IRS’s PTIN system now uses the ID.me secure sign-in process. Tax professionals who have a Social Security number will automatically be routed to ID.me for identify verification.

Anyone who prepares or assists in preparing federal tax returns or claims for refunds for compensation must have a valid PTIN and must include it on all returns and claims filed with the IRS.

Additionally, all Enrolled Agents, regardless of whether they prepare tax returns, must renew their PTINs annually to maintain their active status.

PTINs expire on December 31 of the calendar year for which they are issued, so tax professionals must renew their PTIN by December 31, 2025.

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The CalAssist Mortgage Fund Program, which provides qualified disaster victims with grants of up to three months of mortgage payments (capped at $20,000), has increased its income eligibility limits. Households in Los Angeles County can now qualify if they have household income of up to $211,050 (a $70,000 increase).

To qualify for the grants:

• The applicant’s primary residence must have been destroyed as a result of a qualified California disaster that occurred between January 1, 2023, and January 8, 2025;
• The applicant must meet specified income limits; and
• The property must be an eligible property, which includes a single-family home, condo, or permanently affixed manufactured home.

Applications are free and submitted online. The funds are paid directly to mortgage servicers and never have to be repaid.

Additional information is available at:

www.calhfa.ca.gov/calassist/index.htm

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During the government shutdown, taxpayers are still required to meet filing and payment deadlines, but refunds will only be issued to individual taxpayers (and only if the return is filed electronically and is error-free, and the refund is direct deposited), according to a statement) released by the IRS on October 21, 2025. All tax deadlines remain in effect, and the IRS will continue to process electronically filed returns. Paper returns won’t be processed until full government operations resume, although checks sent in with these returns will be deposited.

The IRS will generally not be responding to taxpayer correspondence during the shutdown and will not be processing applications or determinations for tax-exempt status or pension plans.

Also closed during the shutdown are the:

• Taxpayer Assistance Centers;
• Taxpayer Advocate Services; and
• Independent Office of Appeals.

The following services are open during the shutdown:

• Limited IRS telephone customer service (automated telephone applications are still open);
• Automated tools that provide transcript services and full-service transcript services for disaster victims only;
• Testing and preparation activities for the 2026 filing season;
• IRS Income Verification Express Service (a.k.a. IVES); and
• Criminal investigation activities.

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The IRS announced anticipated transition relief guidance for both lenders and borrowers regarding the new below-the-line, non-itemized car loan interest deduction enacted by OBBBA. (IRS Notice 2025-57) This notice follows on the heels of the IRS releasing draft Form 1098-VLI, Vehicle Loan Interest Statement, on October 16, 2025.

Under this new provision, lenders have an information reporting requirement similar to the requirement for mortgage lenders to provide Form 1098, Mortgage Interest Statement, to borrowers by January 31 of the following tax year. The new Form 1098-VLI, must be issued if the taxpayer pays at least $600 in qualifying interest during the calendar year.

Because the IRS has only recently issued new Form 1098-VLI in draft form, Notice 2025-57 treats 2025 as a transition year and provides that lenders have met their reporting obligation for interest received on a qualified passenger car loan in 2025 if they make a statement available to the buyer indicating the total amount of interest received during 2025. Lenders can provide the statement via:

• An online portal that the buyer can easily access;
• A regular monthly statement;
• An annual statement that is provided to the buyer; or
• Any other similar means.

For individual taxpayers seeking to claim the new deduction for car loan interest, they can rely on the lender-provided information when claiming the deduction, even without receiving Form 1098-VLI.

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The IRS has released inflation adjustment figures for over 60 tax provisions, including the 2026 tax rate tables. (Rev. Proc. 2025-32) Other key adjustment figures include:

• Standard deduction: Increased to $32,200 for married filing joint (MFJ); $24,150 HOH; and $16,100 for single and married filing separate (MFS) taxpayers;
• Annual gift tax exclusion: The annual gift tax exclusion will remain $19,000;
• IRC §179 current expense limitations: The dollar limit is increased to $2,560,000 and the investment limit is increased to $4,090,000;
• IRC §199A threshold and phase-in range amounts: The threshold is increased to $201,750 ($403,500 MFJ; $201,775 MFS). The phase-in range amount is also increased to $276,750 ($553,500 MFJ; $276,775 MFS); and
• Excess business loss threshold: As a result of OBBBA’s resetting of the inflation amounts, the threshold is decreased beginning with the 2026 tax year to $256,000 ($512,000 MFJ).

The retirement-related inflation adjustment figures are not included in Rev. Proc. 2025-32. These are announced separately, usually in November.

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The Governor has signed SB 711, which means California will conform to the Internal Revenue Code as in effect on January 1, 2025 (previously January 1, 2015), with some significant exceptions, generally effective beginning with the 2025 tax year.

While this brings California into conformity with many of the Internal Revenue Code provisions enacted in the last 10 years, California will not conform to any of the changes made by OBBBA, most of the provisions enacted by the TCJA, or many of the federal disaster bills enacted over the last few years.

We will be covering all the details concerning this legislation and the new adjustments that will be required on the California return beginning with the 2025 tax year in upcoming issues of the California Taxletter and at our Federal and California Tax Update seminars and webinars.

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According to the 2026 Lapsed Appropriations Contingency Plan released by the IRS today, IRS operations would continue to be fully funded for the initial five days of a government shutdown.

The IRS would continue to fund their operations with appropriations remaining from the Inflation Reduction Act even if the government shutdown goes into effect tomorrow. This means there will be little to no impact on IRS operations from the government shutdown for these initial five days as we near the October 15 filing deadline.

We will send another Flash E-mail should this change.

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Paper refund checks for individual taxpayers will be phased out beginning on September 30, 2025. (IR-2025-94)

This latest announcement by the IRS is the first step in implementing President Trump’s Executive Order 14274, which directed the U.S. Treasury to stop issuing paper checks by September 30, 2025, as well as mandating all payments to the federal government be made electronically “as soon as practicable.”).

According to the news release, for those who are unable to receive direct deposits to a bank account, other options such as prepaid debit cards, digital wallets, or limited exceptions to the paper check prohibition will be available. However, no additional guidance has been provided yet as to how these alternatives may be requested.

To date, there are no changes being made to how payments to the U.S. Treasury should be made. Taxpayers should continue to use existing payment options until further notice. According to the IRS, additional guidance and information for filing 2025 taxes will be issued prior to the 2026 filing season.

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Individuals who are experiencing financial hardship that prevents them from making timely payments on a residential mortgage loan due directly to the Los Angeles County wildfire disaster may now apply to their mortgage servicer for up to one year in mortgage forbearance. This is a result of changes made by AB 238 (Ch. 25-128), which the Governor signed on September 22.

Taxpayers may apply for forbearance in 90-day increments, for up to one year in total. The one-year total includes any forbearance that a mortgage servicer may have already provided prior to AB 238’s enactment.

During the forbearance period, the mortgage servicer cannot charge late fees, nor a default rate of interest. Additionally, for borrowers who were current on their mortgage loan prior to entering into a forbearance agreement, the servicer cannot require a lump sum payment after the forbearance period ends.

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Proposed regulations for the new tips deduction under IRC §224, which include the mandated list of close to 70 occupations that customarily and regularly received tips on or before December 31, 2024, have been released by the IRS. (REG-110032-25) This qualified occupations list and accompanying Treasury tipped occupation codes mirror the draft list that was previously released, although some of the occupation codes have been changed.

In addition to the list of occupations that qualify for the deduction, the proposed regulations clarify:

• What is treated as a “cash tip;”
• When a tip is considered voluntary, with some surprising distinctions when electronic handheld point of sale (POS) devices are used;
• Which tips qualify when tips are reported pursuant to a Tipped Rate Determination Agreement or Gaming Industry Tip Compliance Agreement;
• Tips paid for services performed in an illegal activity (e.g., unlicensed bartender, prostitution) do not qualify for the deduction, nor do tips received by an employee or other service provider who has an ownership interest in or is employed by the tip payor; and
• Because performing artists are an IRC §199A specified service trade or business (SSTB), tips paid to performing artists such as comedians or musicians operating a SSBT do not qualify for the deduction, but they will qualify if the performing artist is working as an employee (e.g., a piano bar player working in a hotel).

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The California Legislature has passed SB 711, which would update California’s current specified conformity date from January 1, 2015, to January 1, 2025. The bill will now be sent to the Governor’s office. We will update you when the bill is signed into law.

As previously reported in an earlier Flash E-mail, while SB 711 will conform to some of the federal law provisions contained in federal legislation passed within this 10-year period such as TCJA, the SECURE and SECURE 2.0 Acts, etc., California will continue to not conform to many of these provisions. In addition, because the One Big, Beautiful Bill Act (OBBBA) was passed after January 1, 2025, California will not conform to the provisions contained in OBBBA.

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Spidell is aware of erroneous notices CP161, Notice of Balance Due, and CP504B, Notice of Intent to Levy, issued by the IRS. According to one IRS stakeholder liaison we have spoken with, as of right now these erroneous notices are impacting taxpayers filing Form 1041 and the Form 1120 series. The IRS is working on this issue and is planning an external communication on the issue soon.

We recommend that taxpayers who receive either a CP161 or CP504B in error call the IRS and request a hold on collection activities. When calling the IRS, reference “SERP Alert 25A0128” issued on May 2, 2025. That alert indicated that the IRS’s estimated tax penalty system incorrectly calculated penalties for many taxpayers.

We will send another Flash E-mail as soon as the IRS has issued its official communication on the matter.

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The FTB has adopted changes to California’s apportionment sales factor market-based sourcing regulation, effective for taxable years beginning on or after January 1, 2026. (18 Cal. Code Regs. §25136-2) These changes will significantly impact most multistate taxpayers with California customers, whether the taxpayer is located inside or outside California.

Some of the most significant changes include:

• Revamping the rules for sourcing revenues from services to provide one set of cascading rules for sourcing sales to both individuals and businesses, rather than separate rules, and providing clarity as to how these rules are applied;
• A new rule for sourcing sales of professional services, which includes, among other services, investment advisory services (other than asset management services) and tax and payroll and accounting services. Taxpayers who provide services to more than 250 customers in any single professional service can source the revenue from those services to each customer’s billing address. However, different rules apply to receipts from customers who generate more than 5% of the taxpayer’s receipts;
• Specific sourcing rules for revenues from asset management services other than those asset management services already covered under 18 Cal. Code Regs. §25137-14 (which addresses mutual fund service providers);
• A new rule as to how to source revenues from a sale when the sale involves both sales of services and property or sales of both tangible and intangible property; and
• Clarifying rules for sales of intangible property, including marketable securities.

The revised regulation includes additional examples to illustrate how these rules are applied.

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The U.S. Treasury released a draft of the proposed 68 occupations that will qualify workers for the $25,000 below-the-line tips deduction during the 2025 through 2028 tax years.

The chart linked below summarizes the proposed occupations, but this is not the official list. The list will be published as proposed regulations in the Federal Register. Under OBBBA, the Treasury Department is required to publish a formal list of occupations that customarily and regularly receive tips by October 2, 2025.

The draft list is available on the Treasury’s website at:

http://home.treasury.gov/system/files/136/Tipped-Occupations-Detailed-8-27-2025.pdf

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SB 711, which would update California’s specified conformity date from January 1, 2015, to January 1, 2025, moved out of the California Assembly’s Appropriation Committee on August 29, 2025. This means it will be voted on by the California Assembly next week and then will go back to the Senate to concur on the changes made in the Assembly.

It’s important to note that if SB 711 is enacted, the January 1, 2025, conformity date means that California will not conform to the changes made by the One Big, Beautiful Bill Act (P.L. 119-21), because that was enacted on July 4, 2025.

However, SB 711 would conform to hundreds, but not all, of the federal tax changes that were enacted since January 1, 2015, including:

• SECURE Act and SECURE 2.0 Act provisions that allow deductions for IRA contributions for individuals age 70½ and older as well as increased deductible catch-up contribution amounts and SIMPLE contribution amounts;
• The TCJA’s treatment of alimony; and
• The federal alternative simplified Research Credit (with modifications).

SB 711 specifically does not conform to many of the big ticket items enacted by the TCJA, such as the:

• Qualified business income deduction under IRC §199A;
• Repeal of the 2% miscellaneous itemized deduction;
• Business interest limitation under IRC §163(j); and
• $750,000 cap on mortgage interest expenses.

In addition, California would still not conform to health savings account treatment, MACRs for corporations, bonus depreciation, and increased IRC §179 expenses.

Taxpayers and tax professionals who would like to see California tax preparation simplified as a result of this proposed conformity legislation should contact their state assemblymembers and senators as soon as possible to request their support for SB 711.

You can look up your state legislator’s contact information at:

http://findyourrep.legislature.ca.gov

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The IRS has issued guidance on how taxpayers can deduct domestic research expenses as a result of changes made by OBBBA. (Rev. Proc. 2025-28) The guidance addresses how small businesses can currently deduct these expenses retroactive to the 2022 tax year, as well as the accounting method changes required for all taxpayers as a result of the OBBBA changes (which also allow taxpayers to amortize such expenses over a period of at least 60 months rather than deducting them in the year incurred).

Revenue Procedure 2025-28 describes two methods for eligible small taxpayers to make the election:

1. Attach an election statement to their amended 2022, 2023, or 2024 income tax returns (AARs for partnerships); or
2. For taxpayers who haven’t yet filed their 2024 income tax returns (such as calendar-year taxpayers currently on extension), if they deduct their 2024 research expenses on their timely filed returns, then they are deemed to have made the election, even without attaching an election statement to their return. For this deemed election, returns must be filed by November 15, 2025.

Caution: Eligible small taxpayers who make the election to deduct their research expenses on their 2024 income tax returns, who also had research expenses in 2022 and 2023, must also file amended 2022 and 2023 income tax returns to deduct their research expenses from those years because the election applies to all retroactive tax years in which research expenses were paid or incurred.

For the 2022 taxable year, eligible calendar-year small taxpayers are subject to the standard three-year statute of limitations period to file a refund claim. For the 2023 taxable year, taxpayers only have until July 6, 2026, to amend their returns to apply this election.

Alternatively, all taxpayers, including small taxpayers, can elect to deduct their remaining unamortized research expenses from the 2022, 2023, and 2024 taxable years on either their 2025 income tax return or spread the deductions over their 2025 and 2026 taxable years. This election is made on the taxpayer’s 2025 income tax return.

Note that the IRS’s processing times for amended income tax returns is at least nine months, so amended prior-year returns may not provide refunds faster than applying the alternate election to deduct unamortized domestic research expenses on the taxpayer’s originally filed 2025 income tax return.

There are many more points of guidance available under Revenue Procedure 2025-28, which we will cover in future webinars and seminars, including our Federal and California Tax Update.

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The IRS has confirmed that the mailing address for IRS Form 1040-V, Payment Voucher for Individuals, has been changed to P.O. Box 931000, Louisville, KY, 40293-1000, for taxpayers in the following states:

This is similar to the changes made for other forms that we announced last week (see Flash E-Mail #2025-51) and was announced in IRS Publication 3891, Lockbox Addresses for 2026. However, the IRS has verified that this applies to Forms 1040-V for the 2024 tax year as well as the 2025 tax year (absent any further changes).

Previously, taxpayers in these states sent their payments along with Form 1040-V to a P.O. Box in Cincinnati, Ohio.

Payments for the 2024 tax year that are sent to the Cincinnati P.O. Box should be automatically forwarded to the Louisville P.O. Box and no late-payment penalties should be imposed. However, should this not occur, and penalties are imposed, taxpayers will have any associated penalties abated if they can provide proof of timely payment.

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Because California’s loan of over $18 billion from the federal government to cover California’s unemployment insurance claims during the COVID-19 pandemic has not been paid, employers will 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 will bring the cumulative rate increase to 1.2%, which is the equivalent of an additional $84 per employee ($7,000 wage base × 1.2%). When combined with the standard 0.6% rate, this will be a total rate of 1.8%.

This means most employers will be paying $126 per employee next year for California employees with $7,000 or more in wages (less for those with wages under $7,000).

In addition, because the loan has been outstanding for over five years now, employers may face an additional 3.7% rate hike, referred to as a Benefit Cost Reduction (BCR) add-on. If imposed, this would amount to a total rate of 4.9%, or up to $238 per employee.

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). 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.

We will send another Flash E-mail when a decision is made on California’s waiver request.

Sign up for Spidell’s 2025/2026 Federal and California Tax Update webinar and get details on OBBBA’s many tax provisions. Click here and register today.

The IRS has confirmed that it is now requiring taxpayers in certain states to send payments with the following forms to new mailing addresses (noted below):

• Form 1040-ES, Estimated Tax Payments for Individuals; and
• Form 941, Employers Quarterly Federal Tax Return.

Previously, taxpayers in the states listed below made these payments to P.O. boxes in Cincinnati, Ohio. 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.

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.

This change was announced in IRS Publication 3891, Lockbox Addresses for 2026. However, we have confirmed with the IRS that these changes do apply to 2025 filings and payments. The mailing addresses for the following forms for taxpayers in the listed states have changed to the address noted.

Form 1040-ES (Estimated Tax) with payment

Alaska, California, Colorado, Hawaii, Idaho, Kansas, Michigan, Montana, Nebraska, Nevada, North Dakota, Ohio, Oregon, Pennsylvania, South Dakota, Utah, Washington, Wyoming:

P.O. Box 1300, Charlotte, NC 28201-1300

Form 941 (Employer’s Quarterly Tax) with payment

Connecticut, Delaware, District of Columbia, Georgia, Illinois, Indiana, Kentucky, Maine, Maryland, Massachusetts, Michigan, New Hampshire, New Jersey, New York, North Carolina, Ohio, Pennsylvania, Rhode Island, South Carolina, Tennessee, Vermont, West Virginia, Wisconsin:

P.O. Box 932100, Louisville, KY 40293-2100

Note: 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 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.

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The IRS issued updated FAQs addressing issues related to the early termination of various energy incentives under the One Big, Beautiful Bill Act (OBBBA; P.L. 119-21). (FS-2025-05)

OBBBA terminates all three clean vehicle credits for vehicles acquired after September 30, 2025. The IRS’s FAQs define the term “acquired” to mean that the taxpayer has entered into a binding written contract to purchase a qualifying vehicle and made a payment. A payment can include a nominal downpayment or a vehicle trade-in. As long as the taxpayer has acquired a qualifying vehicle under this definition, then the taxpayer can claim a clean vehicle credit even if they take delivery of the vehicle after September 30, 2025.

OBBBA terminates the Residential Clean Energy Credit under IRC §25D (solar, etc.) with respect to any expenditures made after December 31, 2025. Many people have taken the language of OBBBA to mean that a taxpayer can pay for their residential clean energy project by December 31 and still claim a credit if the project is completed after December 31, 2025. The IRS’s FAQs lay waste to this claim by pointing out that IRC §25D(e)(8) was left unchanged by OBBBA. That section provides that all expenditures with respect to a residential clean energy project are deemed paid when the original installation of the project is completed.

For car dealers, new user registrations for the IRS’s Energy Credit Online portal will close on September 30, 2025. The portal will remain open after that day for limited usage by previously registered users to submit time-of-sale reports and updates to such reports, such as when a vehicle has been returned.

Sign up for Spidell’s 2025/2026 Federal and California Tax Update webinar and get details on OBBBA’s many tax provisions. Click here and register today.

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Guidance outlining the “beginning of construction” requirements that must be met for a solar or wind facility to qualify for the nonresidential IRC §45Y Clean Electricity Production Credit or §48E Clean Electricity Investment Credit has been issued. (IRS Notice 2025-42) The guidance applies to applicable wind and solar facilities, where construction begins after September 1, 2025.

Under OBBBA, solar and wind facilities are generally only eligible for the credits if they are placed in service by the end of 2027. (OBBBA §§70512, 70513) However, an exception applies if the construction of the facility begins prior to July 5, 2026, referred to as the beginning of construction deadline.

Prior to OBBBA’s passage, the IRS had provided guidance via various notices as to when construction begins, which could be satisfied by either meeting:

• A physical work test (which also requires taxpayers to satisfy a continuity requirement); or
• A 5% safe harbor test.

Notice 2025-42 eliminates the 5% safe harbor test for all facilities other than low-output solar facilities, which are defined as facilities generating 1.5 megawatts or less. Under the 5% safe harbor test a taxpayer can establish that construction has begun when the taxpayer incurs 5% or more of the total cost of the energy property.

For all other facilities, taxpayers must now establish via a facts and circumstances analysis that physical work of a “significant nature” has begun to qualify for the credits. Highlights of the guidance include:

• Specifying that, as before, the focus is on the nature of the actual work performed (other than preliminary activities), not the amount or the cost, and both off-site and on-site work may be taken into account. The notice provides nonexclusive lists of types of activities that would constitute work of a significant nature and ineligible preliminary activities (e.g., planning and permitting); and
• Clarifying that the continuity requirement, which requires that the taxpayer continue to make progress toward completion of the project, will continue to be satisfied if the facility is placed in service by the end of the fourth calendar year after construction began. The notice also provides a list of excusable disruptions to the continuity requirement.

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The FTB has confirmed that California will conform to the IRS disaster filing and payment postponement relief available to victims of disasters outlined in the following chart:

This means that California residents who were affected by these disasters qualify for postponement relief for their California filing and payment requirements, as well as nonresidents who have a California filing and payment requirement.

For the latest list of out-of-state disasters for which California provides filing and payment postponement relief, see the FTB’s webpage at:

www.ftb.ca.gov/file/when-to-file/disasters-outside-california.html

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As part of the IRS’s phased implementation of the One Big, Beautiful Bill Act, they have announced that there will be no changes to certain 2025 tax year information returns or withholding tables related to the new law. (IR-2025-82)

Pursuant to the IRS announcement:

• Form W-2, existing Forms 1099, and Form 941 and other payroll return forms will remain unchanged for tax year 2025;
• Federal income tax withholding tables will not be updated for these provisions for tax year 2025; and
• Employers and payroll providers should continue using current procedures for reporting and withholding.

Taxpayers have been particularly concerned about whether changes to information returns or withholding tables would be made to reflect the new deductions for tips, overtime, and passenger vehicle loan interest. Though there will be no changes to the information returns for 2025, the IRS did state that it will be providing additional information in the coming months about how taxpayers can claim OBBBA-related tax benefits when they file their returns.

In addition, the IRS is working on new guidance and form updates for the 2026 tax year.

The IRS directs taxpayers and tax professionals to its new web page covering the OBBBA 2025 tax provisions:

www.irs.gov/newsroom/one-big-beautiful-bill-act-of-2025-provisions

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The IRS has updated its FAQs on the One Big, Beautiful Bill Act’s (OBBBA’s) new deduction for interest paid on auto loans. (FS-2025-03)

The new auto loan interest deduction is available to individual taxpayers for personal use vehicles purchased after December 31, 2024. (OBBBA §70203; IRC §§63(b)(7), 163(h)(4)) The deduction is available for the 2025 through 2028 taxable years only. Among other requirements, the loan must be for the acquisition of a vehicle with a final assembly point in the United States.

The IRS’s updated FAQs provide that taxpayers can rely on either:

• The window sticker of a new vehicle, which must identify the vehicle’s final point of assembly; or
• The vehicle’s plant of manufacture as reported on the vehicle identification number (VIN).

Taxpayers can look up a vehicle’s plant of manufacture using its VIN number at the United States Department of Transportation website:

https://vpic.nhtsa.dot.gov/decoder

The IRS’s updated FAQs are available at:

www.irs.gov/newsroom/one-big-beautiful-bill-act-tax-deductions-for-working-americans-and-seniors

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The IRS announced yesterday that a business’s designated officials who access the IRS’s Business Tax Account online must revalidate their accounts by July 29 in order to maintain access. (FS-2025-04) The revalidation process applies only to those designated officials who originally gained account access in December 2024 or earlier.

Designated officials who fail to revalidate their account by July 29 must restart the identity verification process through ID.me

In order to revalidate an account, designated officials must log in to their Business Tax Account online and follow the revalidation prompts.

Designated officials include:

• Partners;
• LLC members;
• Corporate officers (but only if they also received a W-2 from the business for the most recent tax filing year and are authorized to bind the business or entity).

The IRS’s announcement can be found at: www.irs.gov/newsroom/designated-officials-must-revalidate-their-business-tax-account-by-july-29-or-risk-losing-access

Taxpayers can login to their business tax account online to revalidate their access at: www.irs.gov/businesses/business-tax-account

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Two major cryptocurrency bills have now passed the House: the Guiding and Establishing  National Innovation for U.S. Stablecoins Act (GENIUS Act, S. 1582) and the Digital Asset Market Clarity Act (Clarity Act, H.R. 3633). President Trump signed the GENIUS Act this afternoon and the Clarity Act still has to pass the Senate.

The GENIUS Act addresses the treatment and regulation of stable coins and the Clarity Act would address whether cryptocurrency will be treated as commodities or as securities, depending on various factors.

Together both bills, if enacted, will impact the tax reporting and tax treatment of cryptocurrencies.

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The IRS has released FS-2025-03, which provides an overview of the eligibility requirements for the new personal exemption deduction for seniors and the following new deductions that were enacted by the One Big, Beautiful Bill Act (OBBBA):

• “No tax on tips;”
• “No tax on overtime;” and
• “No tax on car loan interest.”

The fact sheet summarizes the basic eligibility requirements for claiming these new deductions and also clarifies that for purposes of:

• All of the new deductions, other than the personal exemption deduction, the IRS will provide transitional relief for tax year 2025 for taxpayers claiming the deductions and for employers and other payors subject to the new reporting requirements, but the Fact Sheet does not specifically outline what the relief will entail; and
• The “no tax on overtime” deduction, the amount that qualifies for the deduction is only the pay that exceeds a taxpayer’s regular rate of pay, such as the “half” portion of “time-and-a-half” compensation, that is required by the Fair Labor Standards Act.

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The Filing Relief for Natural Disasters Act (H.R. 517) was passed by Congress and is now awaiting the President’s anticipated signature.

The Act will:

• Extend the mandatory 60-day filing and payment extension period to 120 days for disaster victims, regardless of whether the IRS grants additional filing and payment relief; and
• Grant the Secretary of the Treasury the authority, upon request by a state’s governor, to apply the disaster-related filing and payment relief available to federally declared disasters to state-declared disasters as well.

The Act will apply to all state and federal disaster declarations made after the date of the Act’s enactment.

Additional Texas counties eligible for relief

The IRS has added the following Texas counties to their disaster relief declaration:

• Burnet;
• Kendall;
• Kimble;
• Menard;
• San Saba;
• Tom Green;
• Travis; and
• Williamson.
  (TX-2025-04)

This means affected taxpayers in these counties now have until February 2, 2026, to file and pay taxes normally due between the period July 2, 2025, and February 2, 2026. See Spidell’s July 10 Flash E-mail for more details.

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Taxpayers located in Kerr County, Texas, have until February 2, 2026, to meet filing and payment deadlines that normally fall within the July 2, 2025, through February 2, 2026, time period. (IRS TX-2025-04)

Note: With the additional storms and flooding that occurred after July 2, 2025, this disaster relief may be expanded beyond Kerr County. We will send updates should this occur.

The disaster relief includes, but is not limited to:

• Any individual, business, or tax-exempt organization that has a valid extension to file their 2024 return due to run out on October 15, 2025;
• Quarterly estimated income tax payments normally due on September 15, 2025, and January 15, 2026;
• Quarterly payroll and excise tax returns normally due on July 31 and October 31, 2025, and January 31, 2026;
• Calendar-year partnerships and S corporations whose 2024 extensions run out on September 15, 2025;
• Calendar-year corporations whose 2024 extensions run out on October 15, 2025; and
• Calendar-year tax exempt organizations whose extensions run out on November 17, 2025.

The IRS notes, however, that payments for returns on a filing extension are not eligible for additional time to pay as filing extensions only apply to the filing of the return and not to payments.

Taxpayers who have an address of record in Kerr County will automatically qualify for relief. Taxpayers who live outside of Kerr County whose records are located in Kerr County, such as taxpayers with tax preparers in Kerr County or who own businesses located in Kerr County, also qualify for relief, but must contact the IRS disaster hotline at (866) 562-5227 to obtain relief.

Disaster area tax preparers with clients located outside the disaster area can choose to file bulk requests. Information about bulk requests is available at:

www.irs.gov/tax-professionals/bulk-requests-from-practitioners-for-disaster-relief

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Today, the House of Representatives passed the One Big, Beautiful Bill Act (OBBBA; H.R. 1) and sent the bill to President Trump for his signature by his July 4th deadline.

The House agreed to the 870-page Senate bill, which would not only make the TCJA individual provisions permanent (with some modifications), but would also make permanent 100% bonus depreciation, IRC §174 domestic research expensing, and the easing of the business interest limitations . The SALT limitation is increased to $40,000 without any restrictions for passthrough entity elective taxes or other SALT limitation workarounds.

Also included are the President’s campaign pledges of “no tax” on tips, “no tax” on overtime, a personal interest deduction for loans on domestic vehicle purchases, and an early end to many of the energy credits and incentives enacted by the Inflation Reduction Act.

The bill also provides expanded disaster relief for victims of federal disasters that occurred this year and prior to 60 days of OBBBA’s enactment (if the disaster incident period ends within 30 days of OBBBA’s enactment). This will allow Los Angeles and Kentucky wildfire victims and storm victims in various states where federal disasters occurred in 2025 to claim personal casualty losses even if they don’t itemize deductions and would eliminate the 10% AGI limit and increase the $100 limit per casualty to $500.

Spidell is offering a two-hour webinar on July 15 to cover key highlights and planning opportunities from the bill. Register here.

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This morning the Senate passed their version of the One Big, Beautiful Bill Act that mirrors much of the House’s bill (H.R. 1) in terms of the tax provisions. However, there are differences in some of the provisions that will have to be resolved. Some of the key differences include:

• Although both versions would increase the SALT limitation to $40,000, the House version, but not the Senate version, would place restrictions on the SALT limitation for passthrough entity owners;
• The House version would increase the IRC §199A deduction to 23%, while the Senate version would keep it at 20%;
• The House version provides for a temporary senior bonus deduction of $4,000, while in the Senate version the deduction is $6,000; and
• The House version would only temporarily reinstate 100% bonus depreciation, full expensing of IRC §174 research expenses, and easing of the business interest limitation, whereas the Senate version would make these changes permanent.

The fastest path for the House to take to meet President Trump’s self-imposed July 4 deadline is for the House to pass the Senate version of the bill. It is unclear whether this is the course of action the House will take or if they will seek a compromise bill that will require an additional vote before both the House and Senate. We will continue to provide updates with the latest developments.

The latest version of the bill is available at:

www.spidell.com/files/2025/taxbilldraft4.pdf

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SB 132 (Ch. 25-17) was signed by the Governor on June 27, 2025, as part of the larger budget deal negotiated between California legislators and the Governor. As we reported earlier, key items included in the bill are provisions that:

• Extend the passthrough entity elective tax and Passthrough Entity Elective Tax Credit for an additional five years if the federal SALT limitation is extended. During this extended period, entities that do not make the required June 15 prepayment would still be able to make the election, but the amount of credit that can be claimed by the owners would be reduced by 12.5%. Note: Under both the House and Senate versions of the One Big, Beautiful Bill Act under consideration, the SALT limitation would be extended, but at higher amounts;
• Enact a new $20,000 military retirement pay exclusion for taxpayers with AGI of $125,000 or less ($250,000 MFJ and surviving spouses) for the 2025 through 2029 tax years;
• Exclude wildfire settlements received from a class action settlement administrator during the 2021 through 2030 taxable years; and
• More than double the allocation available for the Motion Picture and Television Credits.

We will provide further details in an upcoming issue of Spidell’s California Taxletter.^®

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Today the Senate is debating a revised One Big, Beautiful Bill Act (H.R. 1) that contains significant changes from some of the provisions contained in the draft bill released Friday. The changes that will have the most impact on our clients include:

• An increase in the SALT limitation of up to $40,000 for the 2025 through 2029 tax years (adjusted annually for inflation). The proposals that would have limited the deduction for passthrough entity owners and other SALT limitation workaround strategies have been removed from the bill;
• Retention of the current treatment of excess business loss carryovers. This means the carryovers would continue to be treated as a net operating loss;
• An acceleration of the repeal of various energy credits as follows:
  • The New Clean Vehicle Credit, the Previously-Owned Vehicle Credit, and the Qualified Commercial Clean Vehicle Credit would all be repealed for vehicles acquired after September 30, 2025;
  • The Energy Efficient Home Improvement Credit and the Residential Clean Energy Credit would be repealed for property placed in service after 2025; and
  • The Clean Electricity Investment Credit and the Clean Electricity Production Credits would be repealed for solar and wind energy technology facilities placed in service after 2027. In addition, restrictions on supply sourcing for foreign countries of concern may make many of these investments ineligible once OBBBA is enacted.

The bill must be passed by the Senate and then sent back to the House for approval. It is unclear what, if any, additional changes will be made by the House. If changes are made by the House, they will have to be sent back to the Senate once again for approval.

We will send additional updates as the bill moves through this process.

The latest version of the bill, released on Friday, June 27, 2025, is available at:

www.spidell.com/files/2025/taxbilldraft3.pdf

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AB 132 and SB 132 were introduced on June 24, 2025, as part of the larger budget deal being negotiated in Sacramento between California legislators and the Governor. Key items included in the bills are provisions that would:

• Extend the passthrough entity elective tax and Passthrough Entity Elective Tax Credit for an additional five years if the federal SALT limitation is extended. During this extended period, entities that do not make the required June 15 prepayment would still be able to make the election, but the amount of credit that could be claimed by the owners would be reduced by 12.5%;
• Enact a new $20,000 military retirement pay exclusion for taxpayers with AGI of $125,000 or less ($250,000 MFJ and surviving spouses);
• Exclude wildfire settlements received from a class action settlement administrator during the 2021 through 2030 taxable years; and
• More than double the allocation available for the Motion Picture and Television Credits.

We will provide updates concerning these bills as they move through the legislative process.

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The IRS confirmed that, due to delays in processing electronic payments, it has been sending out erroneous balance due notices even though taxpayers timely made their payments. Taxpayers who paid tax reported due on their tax return electronically may see payments on their accounts as pending, although the IRS has received payment through the taxpayer’s banking institution.

According to the IRS, taxpayers who receive a notice but electronically paid the tax they owed in full and on time do not need to respond to the notice at this time. Taxpayers may monitor the status of their payments by viewing the payment activity page in their IRS online account. If the online account does not show the payment as processed by July 15, 2025, they may call the number on the notice.

The IRS has stated that any associated penalties and interest will be automatically adjusted when the payment(s) are applied correctly by the IRS.

Additional information is available at:

www.irs.gov/newsroom/irs-statement-on-delay-in-processing-some-electronic-payments

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Yesterday the Senate Finance Committee released their proposed tax changes to include in the reconciliation bill (aka the One Big, Beautiful Bill Act). Many of these provisions are similar to those that were passed by the House. However, there are some substantial differences, as outlined below.

At this stage it is unclear which version may make it across the finish line or when (if at all). We will continue to provide updates as these developments unfold.

Key differences from the House bill that are contained in the Senate version that would have the greatest impact on our clients include:

• An additional $1,000 ($1,500 HOH and $2,000 MFJ) increase in the standard deduction and a $6,000 deduction for seniors (rather than the $4,000 senior bonus deduction in the House bill);
• The SALT limitation would remain at $10,000 and be made permanent (rather than the $40,000 limitation contained in the House bill), although similar to the House bill there would be limitations on how passthrough entity elective taxes are treated;
• The Child Tax Credit would be increased to $2,200 beginning with 2025 tax year (increased from the $2,000 CTC adopted by the TCJA) and increased for inflation thereafter. The House version would make the TCJA inflation-adjusted $2,000 credit permanent, but would also increase the credit further to $2,500 for the 2025 through 2028 tax years;
• The IRC §199A qualified business income deduction would be made permanent, but would retain the current 20% deduction cap rather than increase it to 23%, and a minimum deduction would apply to small businesses;
• The No Tax on Tips deduction would be capped at $25,000 per individual, No Tax on Overtime would be capped at $12,500 ($25,000 MFJ), and both would begin to phase out at $150,000 ($300,000, MFJ);
• The 100% bonus depreciation deduction, IRC §174 current expensing for domestic research activities, and decreased business interest limitations would be made permanent, rather than temporary as in the House bill, but retroactive provisions would apply for the IRC §174 current expense deduction for certain taxpayers;
• The dependent care assistance exclusion would increase from $5,000 to $7,500 beginning with the 2026 tax year and the Child and Dependent Care Tax Credit would increase from a maximum 35% to 50%;
• Nonitemizers would be able to claim charitable deductions of up to $1,000 ($2,000 MFJ) rather than the $300/$600 cap in the House bill, but the deduction would be subject to additional limits for both individuals and corporations;
• The Senate bill does not contain many of the health savings account expansion provisions contained in the House bill;
• The qualified small business stock gain exclusion would be revised; and
• Different repeal dates would apply to the various clean vehicle and clean energy credits and deductions.

The draft language from the Senate Finance Committee is available at:

www.finance.senate.gov/imo/media/doc/finance_committee_legislative_text_title_vii.pdf

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In Notice 2025-33, the IRS extended some transitional relief for digital asset brokers by one additional year, meaning no penalties will be imposed for an additional year related to the backup withholding requirements.

Under the final regulations adopted in 2024 (89 FR 56480), digital asset brokers are not only required to report digital asset sales on Form 1099-DA but also perform backup withholding.

The relief in Notice 2025-33 extends certain relief provided last year in Notice 2024-56, including:

• Extending through the 2026 tax year an exemption from backup withholding requirements generally; and
• Extending through 2027:
  • The relief from backup withholding if the broker utilizes the IRS TIN Matching Program alternative procedure for obtaining taxpayer identification numbers (TINs) from preexisting customers who opened accounts prior to 2026;
  • The ability to treat certain preexisting customers as exempt foreign persons based solely on non-U.S. addresses; and
  • The ability to limit the amount of backup withholding in situations involving sales of digital assets for other digital assets.

The relief provided only applies to the backup withholding requirements. The broker reporting requirements remain unchanged. Brokers were required to file Form 1099-DA to report gross proceeds received from post-2024 sales of digital assets and will continue to be required to report the adjusted basis on certain digital assets after 2025 unless the sales are undertaken for a customer that is an exempt foreign person.

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The FTB has just announced that all of their online services are now back up and running. This includes MyFTB. FTB staff should now also be able to provide taxpayer information over the phone again.

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The FTB has announced that they are experiencing technical difficulties with some of their online services, such as MyFTB and the Minimum Essential Coverage information reporting. The biggest issues for tax professionals as the June 16 deadline approaches for passthrough entity elective tax prepayments and LLC fee estimated payments are:

• They cannot access MyFTB and will not be able to make payments on behalf of their clients through MyFTB, although they can continue to make payments through WebPay and electronic fund withdrawals (EFW) through their software; and
• FTB phone staff may not be able to access needed information to provide to tax professionals.

According to the FTB, these technical difficulties should not impact the ability to e-file returns or to accept payments through Web Pay and EFW.

The FTB is working diligently to get these systems back up as soon as possible.

In addition, FTB’s Santa Ana and Los Angeles field offices are temporarily closed, and as such, walk-in payment services in these offices may not be available.

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