Inside This Issue

1. New Tax Benefits for Health Savings Account Participants
2. 2025 Nationwide Tax Forum Online: Distributions from Retirement Plans and IRAs
3. New Contact Information for Collection Advisory Offices
4. Technical Guidance

1.  New Tax Benefits for Health Savings Account Participants

The Department of the Treasury and the IRS issued Notice 2026-05 providing guidance on new tax benefits for Health Savings Account participants under the One, Big, Beautiful Bill (OBBB). These changes expand HSA eligibility, which allows more clients to save and to pay for healthcare costs through tax-free HSAs.

The OBBB expands access to HSAs by making the following changes:

• Telehealth and Remote Care Services: The OBBB made permanent the ability to receive telehealth and other remote care services before meeting the high-deductible health plan (HDHP) deductible while remaining eligible to contribute to an HSA, effective for plan years beginning on or after Jan. 1, 2025.
• Bronze and Catastrophic Plans Treated as HDHPs: As of Jan. 1, 2026, bronze and catastrophic plans available through an Exchange are considered HSA-compatible, regardless of whether the plans satisfy the general definition of an HDHP. This designation expands the ability of people enrolled in these plans to contribute to HSAs, which they generally have not been able to do in the past. Notice 2026-05 clarifies that bronze and catastrophic plans do not have to be purchased through an Exchange to qualify for the new relief.
• Direct Primary Care Service Arrangements: Beginning Jan. 1, 2026, an otherwise eligible individual enrolled in certain direct primary care (DPC) service arrangements may contribute to an HSA. In addition, they may use their HSA funds tax-free to pay periodic DPC fees.

Notice 2026-05 addresses each of these changes. Treasury and the IRS invite comments on all aspects of this Notice by Mar. 6, 2026. Commentors are encouraged to use the Federal e-Rulemaking portal to submit comments online (indicate “IRS-2025-0335”). Paper submissions should be sent to: Internal Revenue Service, CC:PA:01:PR (Notice 2026-05), Room 5503, P.O. Box 7604, Ben Franklin Station, Washington, DC 20044.

For more information, please see the One, Big, Beautiful Bill provisions page on IRS.gov.

Back to top

2.  2025 Nationwide Tax Forum Online: Distributions from Retirement Plans and IRAs

Tax professionals may want to review the IRS Nationwide Tax Forum Online (NTFO) seminar Distributions from Retirement Plans and IRAs: A Crash Course before the end of the year. This seminar explains when clients may be required to take distributions from retirement plans and IRA accounts and when they are allowed to access retirement savings while still working. The seminar also covers exclusions, distribution codes, expanded contribution options for Roth accounts and more.

All NTFO self-study seminars cost $29 each. Tax pros can earn one continuing education credit for each NTFO self-study seminar or audit a presentation for free. For more information, visit irstaxforumonline.com.

Back to top

3.  New Contact Information for Collection Advisory Offices

Tax professionals can use Publication 4235, Collection Advisory Offices Contact Information, to determine which IRS office to contact with questions about certain collection-related topics, notices of federal tax lien and where to submit requests for lien-related certificates. Tax professionals and their clients generally should not send correspondence to their local office.

In addition to contact information for IRS offices, Publication 4235 also includes updated information about where to file certain applications and forms, along with IRS resources for a variety of topics. For example, it includes links to the understanding a federal tax lien webpage, online account where clients can check the total amount of their tax debt, frequently asked questions on estate taxes and more.

Back to top

4.  Technical Guidance

The IRS released draft versions of Form 8964-ELE, Section 987 Elections, and Form 8964-TRA, Section 987 Transition Information, as well as draft versions of the Instruction 8964-ELE and Instruction 8964-TRA.

On Dec. 11, 2024, Treasury and the IRS issued final regulations under section 987 of the Internal Revenue Code. The regulations generally apply to taxable years beginning after Dec. 31, 2024. The Treasury Department and the IRS are considering possible modifications to the 2024 final regulations in connection with deregulatory efforts.

Tax professionals and taxpayers can use the new Form 8964-ELE to make or revoke elections under the 2024 final regulations as required under Regulations section 1.987-1(g). Individuals can use the new Form 8964-TRA to report the section 987 transition information required under Regulations section 1.987-10(k).

The IRS is developing another new form, Form 8964, to report amounts computed under the 2024 final regulations. The IRS expects to release a draft version of Form 8964 for comments in the first half of 2026. The published form is expected to be applicable to tax year 2027. This timing provides taxpayers sufficient notice and opportunity to comment and allows time for consideration of modifications to the 2024 final regulations.

To minimize taxpayer burden, until tax year 2027, taxpayers should continue to report section 987 gain or loss amounts on Form 8858, Information Return of U.S. Persons With Respect to Foreign Disregarded Entities and Foreign Branches. Taxpayers should also complete the new Form 8964-ELE and Form 8964-TRA, as applicable.

The IRS expects to publish final versions of Form 8964-ELE, Form 8964-TRA and the related instructions in the first quarter of 2026.

Three recent IRS notices detail international tax law provisions under Public Law 119-21, 139 Stat. 72 (July 4, 2025), commonly known as the One, Big, Beautiful Bill Act:

• Notice 2025-75 announces that the Department of the Treasury and the Internal Revenue Service intend to issue proposed regulations regarding the transition rule for dividends (the “transition rule”) in section 70354(c)(2). The transition rule modifies the application of section 951(a)(2)(B) of the Internal Revenue Code for certain taxable years of foreign corporations beginning before Jan. 1, 2026.
• Notice 2025-77 describes proposed regulations Treasury and the IRS intend to issue under section 70312, providing guidance on the effective date and application of section 960(d)(4) of the Internal Revenue Code.
• Notice 2025-78 announces that Treasury and the IRS intend to issue regulations regarding the new rules for calculating DEI. This notice primarily addresses the meanings of intangible property, “any other property of a type,” and sale or other disposition for section 250.

Notice 2025-75, Notice 2025-77 and Notice 2025-78 will be in Internal Revenue Bulletin 2025-52, dated Dec. 22, 2025.

Treasury, IRS allow States to make an Advance Election to participate in the new federal tax credit for individual contributions to Scholarship Granting Organizations under the One, Big, Beautiful Bill

IR-2025-121, Dec. 12, 2025

WASHINGTON — The Department of the Treasury and the Internal Revenue Service today issued

Revenue Procedure 2026-6 allowing States, including the District of Columbia, to make an Advance Election to participate in a new tax credit for calendar year 2027. This new credit, established under the One, Big, Beautiful Bill, is for contributions to Scholarship Granting Organizations that serve elementary and secondary school students from low- and middle-income families.

Beginning Jan. 1, 2027, individual taxpayers may claim a nonrefundable federal tax credit for cash contributions to SGOs providing scholarships for elementary and secondary education expenses. The credit allowed to any taxpayer is limited to $1,700. However, for contributions to an SGO to be eligible for this credit, the SGO must be listed on a State list of one or more covered states for the applicable calendar year. A covered state is defined as one of the States, or the District of Columbia, that, for a calendar year, voluntarily elects to participate in the credit and identifies SGOs in the State.

Revenue Procedure 2026-6 provides that a State may choose to be a covered State for calendar year 2027 before it provides the IRS with a list of the SGOs located in the State, allowing SGOs additional time to prepare for the commencement of this new credit in 2027. To make this Advance Election, States must submit Form 15714, Advance Election to Participate Under Section 25F for 2027, on or after Jan. 1, 2026, and before the final date on which the State is permitted to submit the State SGO list. Form 15714 and its Instructions are now available on IRS.gov.

The deadline and procedure for perfecting the Advance Election by submitting the State SGO list will be provided in future guidance.  Future guidance also will address how to make an election to participate in the new tax credit for calendar year 2027 at the same time the State submits the State SGO list, and how to make elections, including Advance Elections, to participate in the credit for subsequent calendar years.

Notice 2025-70 provides additional guidance and a request for comments regarding State SGO lists and certifications necessary for State elections.

For more information, please see the One, Big, Beautiful Bill provisions page on IRS.gov.

1. National Tax Security Awareness Week Recap
2. Treasury, IRS Issue Guidance on Trump Accounts Established Under the Working Families Tax Cuts; Notice Announces Upcoming Regulations
3. IRS Webinar: Professional Conduct in Tax Practice – A Circular 230 Overview
4. 2025 Nationwide Tax Forum Online: New Features for Tax Pros – Do Business Faster and Easier with IRS Online
5. Technical Guidance

1.  National Tax Security Awareness Week Recap

During the 10th National Tax Security Awareness Week, the Internal Revenue Service and the Security Summit partners raised awareness about tax-related identity theft and scams as the holidays and the upcoming tax season approach.

As the IRS and the Summit partners have strengthened their systems, identity thieves have increasingly turned their attention to stealing underlying tax and financial information from taxpayers, businesses, and tax professionals in hopes of slipping authentic-looking tax returns through the defenses. The IRS and Summit partners continue to focus on combating identity thieves and their increasingly sophisticated scams.

The IRS.gov/ntsaw webpage on IRS.gov includes tips and resources, including ready-to-use articles and e-posters tax professionals can share with clients. Tax professionals can also view a recorded IRS webinar: National Tax Security Awareness Week – Real-life Threats and Steps to Protect Your Business and Your Clients.

2.  Treasury, IRS Issue Guidance on Trump Accounts Established Under the Working Families Tax Cuts; Notice Announces Upcoming Regulations

The Department of the Treasury and the Internal Revenue Service issued a notice announcing upcoming regulations and providing guidance regarding Trump Accounts, which are a new type of individual retirement account (IRA) for eligible children.

Notice 2025-68 provides a general overview of how Trump Accounts work and addresses certain initial questions about creating initial and rollover Trump Accounts, the $1,000 pilot program contribution, other contributions – including qualified general contributions and section 128 employer contributions – eligible investments, distributions, reporting, and coordination with the rules applicable to other types of IRAs.

The Working Families Tax Cuts Act provides for establishing a Trump Account on behalf of every eligible child for whom an election is made, generally by a parent or guardian, and who has not turned age 18 before the end of the calendar year in which the election is made. Taxpayers cannot make contributions to Trump Accounts before July 4, 2026.

Additionally, the federal government will make a one-time $1,000 pilot program contribution to the Trump Account of each eligible child for whom an election is made, who is a U.S. citizen and who is born on or after Jan. 1, 2025, through Dec. 31, 2028.

Certain governmental entities and charities may also make qualified general contributions to Trump Accounts, if given to a qualified class of account beneficiaries. Other persons are also able to make contributions up to an aggregate limit of $5,000 per year. Furthermore, an employer may contribute to a Trump Account of the employee or the employee’s dependent up to $2,500 per year (which counts against the $5,000 annual limit) under an employer’s Trump Account contribution program, and the contribution will not count toward the employee’s taxable income. The annual contribution limits are indexed to inflation and will adjust starting after 2027.

The funds in Trump Accounts must be invested in certain mutual funds or exchange-traded funds that track the S&P 500 or another index of primarily American equities.

Amounts generally cannot be withdrawn from Trump Accounts before Jan. 1 of the calendar year in which the child turns 18 years old. After that point, the account generally is treated as a traditional IRA and generally is subject to the same rules as other traditional IRAs.

The notice addresses certain areas of interest to prospective trustees of Trump Accounts and to those individuals, such as parents and guardians, who would like to establish and/or contribute to these accounts. The notice requests comments on numerous issues related to Trump Accounts.

The IRS is posting a draft version of Form 4547, Trump Account Election(s), to Draft tax forms. When final, the new form can be used to establish a Trump Account and to enroll in the pilot program.

The IRS continues to provide updates and additional information related to the tax benefits from the Working Families Tax Cuts Act at IRS.gov.

Please visit http://trumpaccounts.gov and IRS.gov/trumpaccounts for more information on Trump Accounts.

3.  IRS Webinar: Professional Conduct in Tax Practice – A Circular 230 Overview

Register now for the Internal Revenue Service webinar on “Professional Conduct in Tax Practice: A Circular 230 Overview.”

The IRS is holding the webinar on Wednesday, Dec. 17, 2025, at 2 p.m. ET (1 p.m. CT, noon AZ and MT, 11 a.m. Pacific, 10 a.m. AK, 9 a.m. HI). The session will last 120 minutes, including a live Q&A.

After completing this session, participants will be able to:

• Identify key statutory and regulatory authorities underlying Circular 230 and enforcement by the IRS Office of Professional Responsibility (OPR);
• Describe OPR’s mission, structure, and investigatory process;
• Explain the scope and structure of Circular 230 as it governs “practice” before the IRS by “practitioners”;
• Identify the key provisions of Circular 230 relating to standards of competency and due diligence expected of practitioners, and;
• Locate reliable IRS and OPR resources and contact information to support continued ethical practice.

Tax professionals can earn 2 CE credits by participating in this live webinar. The category is Ethics.

This webinar will be recorded as an archival video.

The webinar is offered with closed captioning. Closed captioning displays the words that describe the audio portion of the program for viewers who are deaf or hard of hearing. Captions are available in English only.

IRS webinars can be viewed the day they air on smartphones and tablets.

Send any questions in advance of the program to cl.sl.web.conference.team@irs.gov.

4.  2025 Nationwide Tax Forum Online: New Features for Tax Pros – Do Business Faster and Easier with IRS Online

One highlight of the IRS Nationwide Tax Forum Online (NTFO) is the seminar, New Features for Tax Pros: Do Business Faster and Easier with IRS Online. This session explains new features in IRS online accounts that help transform the digital experience with the IRS. Tax professionals will learn about the Tax Pro Account to view their clients’ tax information, manage and submit authorizations, and make payments or create payment plans on behalf of individual clients.

All NTFO self-study seminars cost $29 each. Tax pros can earn one continuing education credit for each NTFO self-study seminar or audit a presentation for free. For more information, visit irstaxforumonline.com.

5.  Technical Guidance

Notice 2025-60 sets forth the 2025 Required Amendments List (2025 RA List). The 2025 RA List applies to individually designed plans qualified under section 401(a) of the Internal Revenue Code and individually designed plans that satisfy the requirements of section 403(b). The 2025 RA List also applies to pre-approved plans with respect to interim amendments.

Notice 2025-60 will be in Internal Revenue Bulletin 2025-52, dated Dec. 22, 2025.

The IRS recently issued certifications for Rounds 1 & 2 of the Qualifying Advanced Energy Project Credit Allocation Program. Announcement 2025-22 provides the initial disclosure of each taxpayer that has been allocated a § 48C credit under Round 1 of the § 48C(e) program. Announcement 2025-23 provides the initial disclosure of each taxpayer that has been allocated a § 48C credit under Round 2 of the program. Both announcements include the amount of such credits allocated to each taxpayer, as required by § 48C(e)(7). Notice 2023-18 established the § 48C(e) program, which considers and awards certifications for qualified investments eligible for § 48C credits to qualifying advanced energy project sponsors and provided two allocation rounds. For Round 1, the IRS allocated approximately $4 billion. The IRS issued Round 1 allocation notification letters on March 29, 2024. For Round 2, the IRS allocated approximately $6 billion and issued notification letters on Jan. 10, 2025. Announcement 2025-22 is for projects certified during the period beginning on March 29, 2024, and September 30, 2025. Announcement 2025-23 is for projects certified during the period beginning on Jan. 10, 2025, and Sept. 30, 2025. The announcements also provide that the IRS will publish additional such announcements annually for certifications issued during each successive 12-month period beginning on Oct. 1, 2025.

IRS and Security Summit partners announce 10th Annual National Tax Security Awareness Week

IR-2025-118, Dec. 3, 2025

WASHINGTON —The Internal Revenue Service working with the Security Summit partners today announced that the 10th National Tax Security Awareness Week began this week to raise awareness about tax-related identity theft and scams as the holidays and the upcoming tax season approach.

The Security Summit is coalition of the IRS, state tax administrators, tax software companies, the tax professional community and others in the larger tax community, organized to combat tax-related identity theft through a public-private sector partnership that strengthened internal protections and raised awareness about security threats.

“With the holiday shopping season underway and tax season quickly approaching, we are urging taxpayers and tax professionals to take extra steps to protect their financial and tax information,” said IRS CEO Frank Bisignano. “During this holiday season, people face the heightened risk of identity theft as criminals ramp up efforts to trick people into sharing sensitive personal information: identity thieves might use this information to try filing false tax returns and stealing refunds.”

The work of the Security Summit to strengthen internal systems and share information across the tax system about fraudsters continues to show results. Since its inception, the work of the Security Summit has helped protect millions of taxpayers against identity theft and prevented billions of dollars from being wrongly paid out to fraudsters.

As the IRS and the Summit partners have strengthened their systems, identity thieves have increasingly turned their attention to stealing underlying tax and financial information from taxpayers, businesses, and tax professionals in hopes of slipping authentic-looking tax returns through the defenses.

The IRS and Summit partners continue to focus on combating identity thieves and their increasingly sophisticated scams. Identity thieves often impersonate the IRS and others in the tax community using fake emails, texts and online scams. These schemes frequently use recent tragedies or imitate charitable groups to coax people into sharing sensitive financial data, which can lead to tax-related identity theft.

There has been an increase of these activities on social media, including inaccurate tax advice that continues to mislead taxpayers. To help counter this, many of the Security Summit partners have joined together to form the Coalition Against Scam and Scheme Threats. This group will be increasingly active during the upcoming tax season.

A key tool in identifying and defending against these identity theft scams is the Identity Theft Information Sharing and Analysis Center, which was developed by the IRS and Security Summit partners to better identify and coordinate against fraudsters. As the group has strengthened defenses inside the tax system to spot emerging scams, identity thieves continue to look for new ways to obtain sensitive personal financial information to file fraudulent tax returns, making tax professionals and the sensitive tax information of their clients a target for scam artists.

Focus Areas

The IRS and Security Summit partners want taxpayers, tax professionals and businesses to be extra aware during the upcoming holiday season for the threats listed below.

• Social media scams: Bad tax advice on social media can mislead taxpayers about their credit or refund eligibility. Influencers may convince taxpayers to lie on tax forms or suggest the IRS is keeping a tax credit secret from them. Social media posts may put taxpayers in touch with scammers.
• Phishing and smishing: The IRS frequently warns against phishing emails and smishing texts, which are common tactics used by criminals to steal personal and financial information. The impersonator wants taxpayers to send them money. Opening links and attachments may harm their computer.
• Protection for seniors: Scammers target people over age 65 or nearing retirement for personal or financial information or money. Often, once seniors give them money, they ask for more. When scammers trick them to withdraw from their retirement account, it could affect their taxes.
• Protections for businesses and tax professionals: The IRS reminds tax professionals of their legal obligation to have a Written Information Security Plan and to use multi-factor authentication. Businesses are also advised to update their security measures and remain vigilant against cyberattacks.
• Identity Protection PIN: An identity protection PIN is a six-digit number that prevents someone else from filing a tax return using a taxpayers Social Security number or individual taxpayer identification number. If taxpayers don't already have an IP PIN, they may get an IP PIN as a proactive step to protect themselves from tax-related identity theft. Anyone with an SSN or an ITIN can get an IP PIN including individuals living abroad.

More resources

For more information on preventing tax information theft, visit Security Summit.

Victims of identity theft can visit Identity Theft Central.

Find additional information at Tax Scams.

Treasury, IRS issue guidance on Trump Accounts established under the Working Families Tax Cuts; notice announces upcoming regulations

IR-2025-117, Dec. 2, 2025

WASHINGTON – The Department of the Treasury and the Internal Revenue Service today issued a notice announcing upcoming regulations and providing guidance regarding Trump Accounts, which are a new type of individual retirement account (IRA) for eligible children.

Notice 2025-68 provides a general overview of how Trump Accounts work and addresses certain initial questions about creating initial and rollover Trump Accounts, the $1,000 pilot program contribution, other contributions – including qualified general contributions and section 128 employer contributions – eligible investments, distributions, reporting, and coordination with the rules applicable to other types of IRAs.

The Working Families Tax Cuts provides for establishing a Trump Account on behalf of every eligible child for whom an election is made, generally by a parent or guardian, and who has not turned age 18 before the end of the calendar year in which the election is made. Contributions to Trump Accounts cannot be made before July 4, 2026.

Additionally, the federal government will make a one-time $1,000 pilot program contribution to the Trump Account of each eligible child for whom an election is made, who is a U.S. citizen and who is born on or after Jan. 1, 2025, through Dec. 31, 2028.

Certain governmental entities and charities may also make qualified general contributions to Trump Accounts, if given to a qualified class of account beneficiaries. Other persons are also able to make contributions up to an aggregate limit of $5,000 per year. Furthermore, an employer may contribute to a Trump Account of the employee or the employee’s dependent up to $2,500 per year (which counts against the $5,000 annual limit) under an employer’s Trump Account contribution program, and the contribution will not count toward the employee’s taxable income. The annual contribution limits are indexed to inflation and will adjust starting after 2027.

The funds in Trump Accounts must be invested in certain mutual funds or exchange-traded funds that track the S&P 500 or another index of primarily American equities.

Amounts generally cannot be withdrawn from Trump Accounts before January 1^st of the calendar year in which the child turns 18 years old. After that point, the account generally is treated as a traditional IRA and generally is subject to the same rules as other traditional IRAs.

Today’s notice addresses certain areas of interest to prospective trustees of Trump Accounts and to those individuals, such as parents and guardians, who would like to establish and/or contribute to these accounts. The notice requests comments on numerous issues related to Trump Accounts.

The IRS is posting a draft version of Form 4547, Trump Account Election(s) to Draft tax forms. When final, the new form can be used to establish a Trump Account and to enroll in the pilot program.   

The IRS continues to provide updates and additional information related to the tax benefits from the Working Families Tax Cuts at IRS.gov.

Please visit http://trumpaccounts.gov for more information on Trump Accounts.

On Friday,  the IRS issued Notice 2025-69 which substantially relaxed employee requirements for taking the new tip and overtime deductions only for 2025. 2026 will still require reporting on the newly designed W-2, but this year’s deduction may rely on other methods and calculations.

Tip Deduction
For employees that do not have the tip amount reported correctly or completely, they may use the amounts on Box 7 of the W-2 or Form 4137 if employees, or their own tip logs if non-employees. Remember the tips need to have been reported as income to get the deduction, so if using a tip log make sure that the tip income was reported. 

Although the occupation of an employee receiving tips may not appear on the Form W-2 furnished to the employee in 2025, the employee is still responsible for determining whether the tips received by the employee were received in an occupation that customarily and regularly received tips on or before December 31, 2024. The Notice also provides transition treatment for the specified service trade or business rule, treating 2025 tips as eligible if the occupation customarily received them before 12/31/24.

Employers are not required to separately account to the IRS for cash tips on the written W-2, 1099, or other statements furnished to individuals for 2025.

Overtime Deduction
Because of the confusion regarding overtime reporting and potential employer inability to report the amounts, an employee that has not had qualified tips reported to them may use any reasonable method to estimate the tips, with the most common method being to use 1/3 of the amount reported on check stubs or other employer forms as overtime pay if the employer has not provided the qualified overtime amount.

Employers are not required to separately account to the IRS for overtime on the written W-2 or other statements furnished to individuals for 2025. As we previously noted in last week’s special newsletter, employer reporting of qualified overtime is the best approach to avoid employee issues.

Example 1:
Bob’s last pay stub for 2025 shows “overtime premium” of $10,000 paid in 2025 (which is
Bob’s overtime premium paid at a rate of two times the individual’s regular rate). For purposes of determining the amount of qualified overtime compensation received in tax year 2025, Bob may include $5,000 ($10,000 divided by 2).

Example 2:
Charlie works in law enforcement and is paid $15,000 of total annual overtime pay on a “work period” basis of 14 days. For purposes of determining the amount of qualified overtime compensation received in tax year 2025, Charlie may include $5,000 ($15,000 divided by 3).

Notice 2025-73 sets forth updates on the corporate bond monthly yield curve, the corresponding spot segment rates for September 2025 used under § 417(e)(3)(D), the 24-month average segment rates applicable for October 2025, and the 30-year Treasury rates, as reflected by the application of § 430(h)(2)(C)(iv). 

Notice 2025-73 will be in IRB: 2025-51, dated: December 15, 2025

Treasury, IRS provide guidance for individuals who received tips or overtime during tax year 2025  

IR-2025-114, Nov. 21, 2025

WASHINGTON — The Department of the Treasury and the Internal Revenue Service today issued guidance for workers eligible to claim the deduction for tips and for overtime compensation for tax year 2025. 

Notice 2025-69 clarifies for workers how to determine the amount of their deduction without receiving a separate accounting from their employer for cash tips or qualified overtime on information returns such as Form W-2 or Form 1099, as those forms remain unchanged for the current tax year.  It also provides transition relief to workers who receive tips in the course of a specified service trade or business. 

The IRS is in the process of updating income tax forms and instructions for taxpayers to use this filing season that will assist them in claiming these deductions.

No Tax on Tips

Under the One, Big, Beautiful Bill, workers may be eligible for new deductions for tax years 2025 through 2028 if they received qualified tips. For tipped workers, the maximum annual deduction is $25,000, which phases out for taxpayers with modified adjusted gross income over $150,000 ($300,000 for joint filers).  

It is estimated that there are about 6 million workers who report tipped wages.

Examples of how the rules work for tipped employees

Today’s guidance provides examples to illustrate various situations tipped employees might encounter; below are abridged versions of some of those examples.

Waiter with reported tips in box 7, Form W-2

Ann is a restaurant server whose 2025 Form W-2, box 7 reports $18,000 of social security tips. Ann did not report any additional tips on Form 4137. Ann may use $18,000 in determining the amount of her qualified tips for tax year 2025.

Bartender with additional reported tips on Form 4137

Bob is a bartender who reports $20,000 in tips to his employer during the 2025 tax year on Forms 4070 and reports $4,000 of unreported tips on Form 4137, line 4. Bob’s 2025 Form W-2 reports $200,000 in box 1 and $15,000 in box 7.  Bob may use either the $15,000 in box 7 of the Form W-2, or the $20,000 of tips reported to Bob’s employer on Forms 4070 in determining the amount of qualified tips for tax year 2025.  Regardless of the option chosen, Bob may also include the $4,000 of unreported tips from Form 4137, line 4 in determining the amount of qualified tips.

Self-employed travel guide

Doug is a self-employed travel guide who operates as a sole proprietor. In 2025, Doug receives $7,000 in tips from customers paid through a third-party settlement organization (TPSO).  For tax year 2025, Doug receives a Form 1099-K from the TPSO showing $55,000 of total payments. The Form 1099-K does not separately identify the tips. However, Doug keeps a log of each tour that shows the date, customer, and tip amount received. Because Doug has daily tip logs substantiating the $7,000 tip amount, he may use the $7,000 tip amount in determining qualified tips for tax year 2025.

No Tax on Overtime

For tax years 2025 through 2028, individuals who receive qualified overtime compensation may deduct the pay that exceeds their regular rate of pay (generally, the “half” portion of “time-and-a-half” compensation) that is required by the Fair Labor Standards Act and reported on a Form W-2, Form 1099, or other specified statement furnished to the individual.

• Maximum annual deduction is $12,500 ($25,000 for joint filers).
• Deduction phases out for taxpayers with modified adjusted gross income over $150,000 ($300,000 for joint filers).

The deduction is available for both itemizing and non-itemizing taxpayers.

Certain employees are exempt from the rules on overtime

Generally, the FLSA requires that most employees in the United States be paid at least the federal minimum wage for all hours worked and overtime pay at not less than time and one-half their regular rate of pay for all hours worked over 40 in a workweek. However, the law provides for certain exemptions.

Today’s guidance provides a series of examples illustrating situations that workers who receive qualified overtime might encounter. Today’s guidance does not affect any rights or responsibilities regarding tips or overtime compensation under the FLSA. Below are abridged versions of some of those examples.

Overtime examples

Andrew works overtime during 2025, and he receives a payroll statement from his employer that shows $5,000 as the “overtime premium” that he was paid during 2025. Andrew may include $5,000 (the FLSA overtime premium) to determine the amount of qualified overtime compensation received in tax year 2025.

Assume the same facts as in the first example except that Andrew’s payroll statement shows a total “overtime” amount of $15,000, which is the total amount Andrew was paid for working overtime (the FLSA overtime premium combined with the portion of his regular wages). Andrew may include the $5,000 FLSA overtime premium, computed by dividing $15,000 by 3 in determining the amount of qualified overtime compensation for 2025.

Brad’s employer has a practice of paying overtime at a rate of two times an employee’s regular rate of pay, and Brad was paid $20,000 in overtime pay during 2025. Brad’s last pay stub for 2025 shows “overtime” of $20,000 paid in 2025. For purposes of determining the amount of qualified overtime compensation received in tax year 2025, Brad may include $5,000 ($20,000 divided by 4).                                              

Carol is a covered, nonexempt employee under the FLSA and works in law enforcement and is paid $15,000 of overtime pay on a “work period” basis of 14 days that complies with the FLSA. See Fact Sheet #8: Law Enforcement and Fire Protection Employees Under the Fair Labor Standards Act (FLSA) | U.S. Department of Labor. For purposes of determining the amount of qualified overtime compensation received in tax year 2025, Carol may include $5,000 ($15,000 divided by 3).

Diane works for a State or local government agency that gives compensatory time at a rate of one and one-half hours for each overtime hour worked. In 2025, Diane was paid wages of $4,500 for compensatory time off based on that overtime. To determine the amount of qualified overtime compensation received in tax year 2025, Diane may include $1,500, one-third of these wages, for purposes of determining the qualified overtime compensation deduction.

Notice 2025-69 provides guidance to individual taxpayers who are eligible for the federal income tax deductions for qualified tips or qualified overtime compensation for tax year 2025. These new deductions were added by Public Law 119-21, 139 Stat. 72 (July 4, 2025), commonly known as the One, Big, Beautiful Bill Act (OBBBA). As part of the phased implementation of the OBBBA, there will be no changes to the 2025 Form W-2, Form 1099-NEC, Form 1099-MISC, or Form 1099-K to account for the new reporting requirements in the OBBBA. As a result, employers and other payors will not be required to separately account for cash tips or qualified overtime compensation on those forms furnished to individuals for 2025. In the absence of this information reporting, this Notice provides guidance for individual taxpayers on how to satisfy the requirements for the deductions, including how to determine the amount of the qualified tips or qualified overtime compensation, for tax year 2025. This Notice also provides transition relief for taxpayers regarding the requirement that qualified tips must not be received in the course of a trade or business that is a specified service trade or business. This Notice does not affect any rights or responsibilities regarding tips or overtime compensation under the Fair Labor Standards Act of 1938, as amended.

Notice 2025-71 provides interim rules under section 139L to clarify the partial exclusion from gross income of interest received by qualified lenders on loans secured by rural or agricultural property. The interim guidance defines key terms in section 139L and establishes standards for determining whether a loan is secured by rural or agricultural property. The interim guidance includes a safe harbor, which allows qualified lenders to treat a loan as secured by rural or agricultural property if certain parameters are met. The interim guidance also provides rules regarding refinancings.

Notice 2025-71 will be in IRB: 2025-50, dated: December 8, 2025