The Department of Justice issued an order on April 22, 2026, immediately rescheduling FDA-approved marijuana products and state-licensed medical marijuana from Schedule I to Schedule III, which means that:

• The IRC §280E limitations on cannabis businesses no longer apply; and
• Taxpayers can now claim a medical expense deduction for marijuana.

The order is available at:

www.justice.gov/opa/media/1437441/dl

The order follows President Trump’s December 18, 2025, executive order directing expedited completion of the cannabis rescheduling.

It’s important to note that the DOJ’s order does not legalize recreational use at the federal level, override state laws, or end all restrictions. This order also does not reclassify recreational cannabis as a Schedule III drug, which means the IRC §280E limitations still apply and these items do not qualify for medical expense deductions.

However, the Department is expediting the ongoing rulemaking process to fully remove marijuana from Schedule I and place it into Schedule III and will hold an administrative hearing on this issue beginning June 29, 2026.

In the meantime, we assume that taxpayers will be able to begin claiming medical marijuana business expenses and medical expense deductions as of April 22, 2026, but we await IRS guidance to confirm. We will continue to update you as news develops.

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On April 20, 2026, importers and brokers can start filing for refunds of the International Emergency Economic Powers Act (IEEPA) tariffs imposed by the Trump administration and struck down by the U.S. Supreme Court in Learning Resources, Inc. v. Trump (February 20, 2026) U.S. Supreme Court, Case No. 24-1287.

The Customs Border Patrol (CBP) has established a multi-phase process for issuing refunds. During the first phase CBP is accepting claims for unliquidated tariffs (aka nonfinalized) and recently liquidated entries still within the 80-day reliquidation period.

Payees must apply for these refunds electronically by submitting a declaration/application through a new Consolidated Administration and Processing of Entries (CAPE) tab in CBP’s Automated Commercial Environment system. Refunds, along with interest, will be issued electronically within 60–90 days of the CAPE declaration’s acceptance.

Additional information is available on the CBP’s website at:

www.cbp.gov/trade/programs-administration/trade-remedies/ieepa-duty-refunds

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The FTB has finally entered into a class action settlement agreement to refund the $800 minimum franchise tax, penalties, and interest paid by out-of-state passive investors in LLCs doing business in California. (Bahl Media LLC v. FTB, San Francisco Superior Court, Case No. CGC-16-554150) However, the FTB “denies any wrongdoing or liability in connection with any facts or claims” alleged in the case.

The settlement follows years of FTB resistance to refund claims stemming from Swart Enterprises, where the court held that a 0.2% passive interest in a manager-managed California LLC did not constitute “doing business” in California. (Swart Enterprises, Inc. v. FTB (2017) 7 Cal.App.5th 497)

This resulted in the Bahl class action suit. Members on the “class list” prepared during the litigation have previously been notified that they were on the class list, and will automatically receive refunds, unless they opt out.

Members of the class are taxpayers who:

• Paid the minimum tax and related interest and penalties, if any, to the FTB;
• Timely field a refund claim of the amounts paid;
• Either had their refund claimed denied after June 10, 2016, and before July 21, 2023 (the date of class certification), or did not have their claim approved or denied at least six months prior to July 21, 2023;
• Are not doing business in California because their only connection to California is holding a passive interest in an LLC doing business in California; and
• Only held a 50% or less interest in an LLC doing business in California.

If you have a client who was not notified, but meets the requirements listed above, see the terms of the settlement agreement for instructions on filing a claim:

www.ftb.ca.gov/tax-pros/law/Preliminarily-approved-bahl-settlement-agreement-w-addendum.pdf

Or see the FTB’s Notice of Proposed Settlement of Class Action:

www.ftb.ca.gov/tax-pros/law/Bahl-media-vs-FTB-notice-of-proposed-settlement.pdf

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The IRS has released final Treas. Regs. §1.224-1 that:

• Defines qualified tips for purposes of the deduction;
• Provides a complete listing of qualified occupations and their corresponding codes (aka Treasury Tipped Occupations Codes (TTOCs)). These are essentially the same as the original proposed list with the addition of TTOCs for floral designers, visual artists, and gas pump attendants as well as more “illustrative examples” of the 70 or so TTOC categories; and
• Continues to defer providing guidance regarding the IRC §224 specified service trade or business exclusion, which means that the transitional relief provided in IRS Notice 2025-69 still applies and taxpayers will continue to qualify for the tips deduction even if they or their employer are engaged in an SSTB as defined in IRC §199A.

The final regulations generally retain the IRS’s position outlined in the proposed regulations concerning what is a qualified tip and what is a cash tip (only cash tips continue to qualify, including cash tips paid electronically), with additional clarifications as noted below.

The following are some of the more interesting items included in the final regulation and its accompanying supplementary information:

• The definition of “cash tips” from the proposed regulations is modified to exclude all digital assets (as defined in IRC §6045(g)(3)(D) and Treas. Regs. §1.6045-1(a)(19)) such as bitcoin, stablecoins, etc. However, tips paid with credit and debit card transactions and through payment apps such as Venmo or Zelle still qualify,  as do tips paid in foreign currency;
• Additional examples are provided clarifying:
  • Whether a tip is mandatory or voluntary for different types of point of sale (POS) systems and contracts for services; and
  • When payments to digital service providers are treated as compensation or deductible tips, including how digital rewards are treated and the impact of audience engagement mechanisms;
• The IRS makes clear that the job descriptions included in the TTOC chart are “illustrative” only and are not an “exhaustive list,” which means taxpayers working in certain jobs may still qualify for the deduction even if the job is not specifically listed;
• The IRS stated that whether the self-employed health insurance deduction, the one-half of self-employment tax deduction, and the self-employed retirement deduction should be deducted for purposes of determining the net income limitation for self-employed taxpayers is beyond the scope of the regulation. Remember that the original version of the Schedule 1-A instructions did not require these items to be deducted for purposes of calculating the net income limitation, whereas the current instructions do; and
• Taxpayers who are involved in the cannabis industry are engaged in an illegal activity under federal law and are therefore ineligible for the deduction even if they are engaged in an occupation that is otherwise listed in the TTOC chart and cannabis is legal in the state in which they work.

The final regulations maintain the positions that:

• Self-employed taxpayers can only claim the deduction for tips included on Form 1099; and
• Partners cannot claim a deduction for tips reported on an information return provided to the partnership.

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Farmers and fishermen will not be subject to an addition to tax for failure to make an estimated tax payment for 2025 as long as they file a calendar-year 2025 tax return and pay any tax due by April 15, 2026. (IRS Notice 2026-24)

Special estimated tax rules normally apply to qualified farmers and fishermen. Rather than paying four equal estimated tax payments throughout the year, qualified farmers and fishermen (those with two-thirds of their total gross income from farming or fishing) can make one single estimated tax payment on January 15 following the close of their taxable year. No addition to tax is applied if the taxpayer files the return and pays the full amount of tax reported by March 1.

However, many farmers and fishermen were unable to make the March 1 deadline due to difficulties with Form 8995, Qualified Business Income Deduction Simplified Computation, which was not corrected until a February 23, 2026, software update.

The tax relief will be automatically applied if the taxpayer files the return and pays any tax due by April 15, 2026. The IRS will not issue any notices for underpayment of estimated tax. Those farmers and fishermen who already filed and reported an addition to tax can request abatement by filing Form 843, Claim for Refund and Request for Abatement, and following the instructions provided in the notice.

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IRS Notice 2026-20 extends for an additional year, through December 31, 2026, the temporary relief for digital asset lot identification initially provided by IRS Notice 2025-7. During this relief period, eligible taxpayers may bypass the requirement to communicate specific lot selections to their custodial broker.

Under IRS regulations, when a taxpayer fails to make an adequate identification of units sold through a broker, the default rule is that the first-in-first-out method (FIFO) of identification must be used. (Treas. Regs. §1.1012-1(j)(3)(i))

The IRS recognizes that many digital asset brokers do not have systems in place to track a taxpayer’s specific identification of assets sold. For digital assets sold during the 2026 calendar year, taxpayers can make an adequate identification by:

• Identifying in the taxpayer’s own books and records by reference to any identifier, such as the purchase date and time or the purchase price for the unit sold, that is sufficient to identify the basis and holding period of the digital assets sold; or
• Recording a standing order on the taxpayer’s own books and records (e.g., an e-mail to their broker), provided that the recorded standing order includes sufficient information to identify any digital asset units sold.

To qualify for relief, the taxpayer must make the identification using either of the methods outlined above prior to the time of sale, disposition, or transfer.

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Rev. Proc. 2026-17 provides transition guidance for taxpayers who previously elected to be treated as an electing real property trade or business, electing farming business, or excepted regulated utility trade or business, but who now wish to withdraw that election in light of OBBBA amendments. By making these elections, these taxpayers chose to:

• Not have the business interest expense limitation apply; and
• Use ADS rather than MACRS for purposes of computing their depreciation deductions and therefore are prohibited from claiming bonus depreciation in the future.

Because OBBBA eased the business interest expense adjusted income limit and allows taxpayers to claim 100% bonus depreciation, many taxpayers who previously elected out of having the business interest expense limitation apply are no longer finding these elections advantageous.

Key provisions of Rev. Proc. 2016-17 allow taxpayers to:

• Withdraw a prior IRC §163(j)(7) election made for tax years beginning in 2022, 2023, or 2024 by filing an election withdrawal by the earlier of:
  • October 15, 2026; or
  • The statute of limitations period for issuing an assessment for the taxable yar for which the amended return is being filed;
• Make a late election under IRC §168(k)(7) to opt out of bonus depreciation for any class of property affected by the withdrawn election; and
• File an amended Form 1065, U.S. Return of Partnership Income, rather than an administrative adjustment request (AAR) to make the above elections.

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Today the IRS issued proposed regulations under new IRC §§530A and 6434, which govern Trump account pilot program contribution elections. (REG-117002-25, REG-117270-25)

The proposed regulations govern how to open a Trump account and elect the $1,000 pilot contribution for eligible children and generally follow the initial guidance issued in IRS Notice 2025-68. The IRS will be issuing future proposed regulations governing Trump account contributions, investments, distributions, reporting, and coordination with IRA rules.

Here are some of the key points of the proposed regulations:

• Pilot program elections can be made at any point during the year for an eligible child. This allows an eligible individual (generally the child’s parent) to elect to open a Trump account for their child as soon as the child becomes eligible, instead of waiting until the close of the taxable year;
• A pilot program contribution can only be made to a Trump account that has been set up for a child. So, for example, even if a child is born in tax years 2025 through 2028 and is eligible to receive a pilot program contribution, no contribution will be made to the child unless a Trump account is set up for the child and an election has been made to receive a pilot program contribution. The election to claim the pilot program contribution must be made by an individual who anticipates that the child will be the individual’s qualifying child for the taxable year in which the election is made; and
• Only one pilot program contribution can be made per child, but the election can be made at any time during the growth period for a child. For example, a child who is born in 2025 is eligible to have a Trump account opened for them and receive a pilot program contribution. Both the election to open a Trump account and receive a pilot program contribution for the eligible child can be made up to December 31 of the year the child turns age 17.

A child becomes eligible to have a Trump account opened for them as soon as they become a U.S citizen and have a Social Security number. In order to receive a $1,000 pilot program contribution, there is one additional requirement: The child must be born in calendar years 2025 through 2028.

The election can be made by:

• Filing Form 4547, Trump Account Election(s), either as a stand-alone form or with the return filed by the individual making the election; or
• Submitting an electronic application at: www.trumpaccounts.gov.

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For purposes of calculating the qualified tips deduction for self-employed individuals, the IRS has adopted a similar approach to the one used to calculate the IRC §199A qualified business income net income limitation for sole proprietors.

Self-employed individuals cannot claim a qualified tips deduction that is greater than the taxpayer’s gross income from the trade or business (including tips), less other deductions allocable to the trade or business.

According to the recently released instructions for Schedule A-1 (contained in the Form 1040 instructions), like the QBI net income limitation calculation, deductions allocable to the trade or business include:

• The deductible part of self-employment tax;
• The deduction for contributions to self-employed SEP, SIMPLE, and qualified plans; and
• The self-employed health insurance deduction.

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We’ve heard from numerous tax professionals who are frustrated because many of the final business entity tax forms are still not available through their tax software provider. This is not a universal issue with all tax software providers, because we have heard from other tax professionals that they have been able to access final forms through their providers. The final FTB forms are also available on the FTB’s website.

When we reached out to the FTB, we were informed that taxpayers can e-file forms with a watermark. A watermark only indicates that the form has not yet been approved for paper filing. However, we recognize that some software products will not allow professionals to print forms that are watermarked, which prevents clients from reviewing their complete tax returns.

The taxing agencies (IRS, FTB, and others) create the forms and set parameters for software developers to recreate the forms and set e-file standards. The reason why one software developer may have a particular form available before another provider is a matter of the software provider managing resources, such as the number of developers and which forms the software company prioritizes.

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The IRC §168(n) special depreciation deduction for qualified production property allows taxpayers to claim a 100% depreciation allowance for certain real property placed in service after July 4, 2025, and before January 1, 2031. Eligible property must be used in qualified production activity and meet other specified criteria.

New taxpayer-friendly guidance issued by the IRS, which may be relied upon while proposed regulations are promulgated, provides clarity to many unanswered questions regarding this new deduction. (IRS Notice 2026-16)

Highlights of the guidance clarify that:

• To qualify, the property (or portion of the property) must be an integral part of a qualified production activity, defined as at least 95% of the property’s space is used in the activity;
• Improvements and additions made to existing property can be treated as qualified production property;
• Lessors are generally not eligible to claim the deduction, but an exception is available if the lessor and lessee are under common control or members of a consolidated group;
• Taxpayers can designate on an election the entire unadjusted depreciable basis of eligible property as qualified production property or a designated specific dollar amount (up to the amount of the property’s unadjusted basis); and
• For the 2025 tax year only, taxpayers can establish that they are engaged in a qualified activity if the principal business activity code that the taxpayer lists on its 2025 federal income tax return is any of the NAICS codes listed under sectors 31, 32, or 33, or under subsectors 111 or 112, that appear in the 2022 North American Industry Classification System (NAICS) Manual (2022).

The guidance provides numerous examples of the concepts listed above, and outlines how a taxpayer makes the election to claim the deduction and when and how the deduction is subject to recapture.

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The Governor has announced that the state is expanding its CalAssist Mortgage Relief Program to provide up to one year (previously three months) of mortgage assistance grants, up to $100,000 (previously $20,000). The state has also increased the income limits that residents must meet to qualify for the program (e.g., up to $70,000 higher for taxpayers in Los Angeles County).

Residents who previously received three months of assistance will be offered additional support, bringing total assistance to a full year.

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;
• The applicant must only own one residential property; 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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We have received numerous inquiries from tax professionals alerting us that the Form 1040-ES mailing address for payments had been changed for certain taxpayers in the 2026 instructions. We reached out to the IRS for clarification because no announcement had been made. Since that time, the IRS has removed the 2026 Form 1040-ES from their website.

We’ve been informed by the IRS that taxpayers and tax professionals should use the addresses listed on the following IRS webpages for the appropriate mailing address depending on the state in which the taxpayer is located:

www.irs.gov/filing/where-to-file-paper-tax-returns-with-or-without-a-payment
www.irs.gov/filing/where-to-file-addresses-for-taxpayers-and-tax-professionals-filing-form-1040-es

If payments were made to the wrong address, the IRS will forward the payments to the correct address. However, this is an important reminder that taxpayers should always send payments to the IRS through certified mail. This is also another reason to encourage clients to make payments electronically, to avoid these mailing address concerns.

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According to the updated 2026 Lapsed Appropriations Contingency Plan, IRS operations will continue to be fully funded for the first five days of a government shutdown.

The IRS will continue to fund their operations with appropriations remaining from the Inflation Reduction Act. This means there will be little to no impact on IRS operations from the government shutdown for these initial five days as filing season gets underway.

The Contingency Plan also outlines identifies which functions may continue beyond day five. However, if a shutdown is prolonged, disruptions are possible. When the government shut down for 43 days in late 2025, the IRS furloughed almost half of its workforce and paused most operations, including taxpayer call sites.

We will continue to keep you posted as news develops.

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The FTB’s network access has been restored and systems are currently back online.

Due to the network outage, the FTB is experiencing a higher volume of calls and is encouraging taxpayers and tax professionals to use MyFTB or online services to address their issues if possible.

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The FTB has notified Spidell that their systems are currently down. They have stated that this does not appear to be a security-related issue.

However, FTB staff will not be able to assist taxpayers or tax professionals while their systems are down because they will be unable to access taxpayer information.

We will send another Flash E-mail when their systems are back up.

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The IRS has announced that Monday, January 26, 2026, is the opening day of the 2026 income tax filing season. This is the date when the IRS officially begins accepting and processing 2025 federal income tax returns. The California Franchise Tax Board is already accepting e-filed returns.

Tax returns filed early in the filing season are generally processed faster, so filing easier returns as early as possible will help keep the filing season as smooth as possible. However, just because filing season opens on January 26 does not mean that all forms and schedules will be available by that date. Be sure to check with your software provider for release dates for any forms that are not available.

With the passage of the One Big, Beautiful Bill Act (OBBBA), the 2026 filing season contains many changes from last year. Be sure to attend Spidell’s Federal and California Tax Update webinar for a complete rundown of all the changes you need to know, including:

• The IRS’s phaseout of paper refund checks (but not payments … yet);
• How to open Trump accounts and elect federal government seed money for newborns;
• OBBBA’s new tax provisions as well as those provisions that were extended by OBBBA;
• Form updates; and
• Many more changes that occurred in 2025.

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President Trump has signed the Disaster Related Extension of Deadlines Act (HR 1491), which makes two key changes for disaster victims. The act:

• Extends the statute of limitations period for disaster victims to file a refund claim; and
• Prohibits the IRS from mailing a payment due notice to disaster victims until 60 days after the disaster postponement period.

Federal law allows taxpayers to file a refund claim within three years from the time the taxpayer’s return was filed or two years from the time the tax was paid, whichever expires later. However, the amount that may be refunded is limited to the amount of tax paid within the statutory lookback period. The lookback period for taxpayers who file a refund claim within three years of filing the taxpayer’s return is equal to three years plus the period of any extension of time for claiming the return. Otherwise, the lookback period is two years.

Under prior law, disaster postponements were not treated as an “extension,” so even though taxpayers were granted postponements to pay the tax, the lookback period was not extended to include the disaster postponement period. This frequently resulted in taxpayers being unable to claim excess withholding or estimated tax payments which were deemed paid as of the original due date, without regard to the postponement period.

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Proposed regulations clarify the eligibility requirements for the new IRC §163(h)(4) deduction for interest paid on qualified passenger loan vehicles purchased for personal use that is available for the 2025 through 2028 tax years. (REG-113515-25) The deduction is capped at $10,000 annually and is subject to phaseout for taxpayers with modified AGI above $150,000 ($250,000 MFJ). One of the requirements for the deduction is that the original use of the vehicle must commence with the taxpayer.

Highlights of the proposed regulations clarify that:

• Only an individual, decedent’s estate, nongrantor trust, or disregarded entity (e.g., nongrantor trust or SMLLC) owned by one of these taxpayers can claim the deduction (assuming the other requirements are met);
• The personal use requirement is met if at the time of purchase the taxpayer estimates that the vehicle will be used more than 50% of the time for personal use. Taxpayers do not have to reevaluate the personal use requirement in subsequent years. For disregarded entities the determination is made at the owner level, and for estates and trusts this is determined based on the expected use by the heirs or beneficiaries;
• A taxpayer that uses a vehicle partially for business use can choose to deduct the interest as a business expense, but must reduce the auto loan interest deduction claimed on Schedule 1-A by the amount of business interest claimed;
• The $10,000 limit applies per return, so MFJ filers are limited to a $10,000 deduction, while taxpayers who file MFS would be entitled to up to $10,000 per spouse;
• Interest attributable to amounts directly related to the purchase of the vehicle (e.g., vehicle service plans, extended warranties, sales taxes, and vehicle-related fees) qualifies for the deduction; and
• Although interest paid on refinanced loans qualifies for the deduction, the deduction is limited to interest paid on the outstanding balance of the refinanced loan as of the date of the refinancing.

The proposed regulations also outline the reporting requirements for lenders, but lenders were given transitional relief for the 2025 tax year. (IRS Notice 2025-57) See our October 21, 2025, Flash E-mail for details.

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Beginning January 1, 2026, the standard mileage rates for the use of a car, van, pickup truck, or panel truck are:

• 72.5 cents per mile driven for business use, up 2.5 cents from 2025;
• 20.5 cents per mile driven for medical purposes, down 0.5 cents from 2025;
• 20.5 cents per mile for moving purposes for qualified active-duty members of the Armed Forces and intelligence community, down 0.5 cents from 2025; and
• 14 cents per mile driven in service of charitable organizations, unchanged from 2025.
  (IRS Notice 2026-10)

The rates apply to fully electric and hybrid vehicles, as well as gasoline and diesel-powered vehicles.

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President Trump issued an Executive Order directing the Attorney General to take all necessary steps to complete the rulemaking process related to rescheduling cannabis from a Schedule I drug to a Schedule III drug under the Controlled Substances Act (CSA).

Rescheduling cannabis as a Schedule III drug is significant for taxpayers involved in the cannabis industry because under IRC §280E businesses trafficking in Schedule I or II drugs under the CSA cannot claim any business-related deductions or credits, except cost of goods sold.

It’s important to recognize that the Executive Order does not, in and of itself, reclassify cannabis as a Schedule III drug. The Attorney General’s office must issue regulations to complete the reclassification process, which likely wouldn’t happen until sometime during the 2026 calendar year.

Despite reclassification as a Schedule III drug, cannabis would remain illegal at the federal level, so it’s unlikely that the reclassification would open up more banking opportunities to cannabis businesses.

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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 on November 25, 2025. 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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