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Preparing for Potential Tax Increases Under the Biden Administration
The Biden Administration’s American Families Plan and other tax proposals may complicate the tax landscape for high-income earners. Many of the proposals target taxpayers earning more than $400,000 per year.
The American Families Plan proposals include:
- Increasing the top marginal income tax rate to 39.6% for households making over $400,000;
- Taxing long-term capital gains at 39.6% for households making over $1 million;
- Reducing the step-up in basis for gains in excess of $1 million at death and taxing the gains if the property is not donated to charity;
- Eliminating carried interest and taxing that income at ordinary income rates;
- Permanently extending excess business loss limitation rules; and
- Applying the 3.8% net investment income tax consistently for those making over $400,000.
To add significance to these proposals, President Biden also proposes earmarking $80 billion for IRS audit efforts that will target high-income individuals who have engaged in tax avoidance or other tactics to reduce their taxable income. The additional funding will be accompanied by increased IRS enforcement powers.
In addition, President Biden previously put forth the following proposals during his election campaign:
- Phasing out the 20% qualified business income tax deduction;
- Limiting the benefit of itemized deductions to 28% of their value and restoring the “Pease limitation” cap on itemized deductions;
- Reducing the lifetime estate tax exemption from $11.7 million to $3.5 million (back to 2009 levels) and increasing the estate and gift tax rate from 40% to 45%; and
- Imposing the 12.4% social security payroll tax on earned income above $400,000.
These proposals, although not specifically mentioned in the American Families Plan, continue to be part of the President’s tax agenda.
What Can Taxpayers Do Now?
Given the real possibility of targeted tax increases on the wealthy, as well as the uncertainty of when any increases might take effect, individuals, business owners and family offices should review their current situations to identify opportunities in which their overall federal and state tax liabilities could be minimized.
- Taxpayers should evaluate the extent to which they can time the recognition of income and deductions within a desired tax year. Planning should not only be driven by current and future tax rates but also by the taxpayer’s individual facts and circumstances, including income and cash goals.
- Due to the uncertainty of whether tax legislation will ultimately be passed, and to what extent, tax planning efforts should include multiple “what-if” scenarios to prepare for a range of possible legislative outcomes and effective dates.
- As the future tax landscape takes shape, taxpayers should consider strategies to minimize tax on their capital gains, such as:
- Accelerating capital gains to take advantage of lower rates;
- Managing levels of other taxable income to avoid higher rates on capital gains;
- Timing when tax is due by using or electing out of the installment method; and
- Using deferral strategies such as like-kind exchanges and investments in qualified opportunity zones.
Individuals and families should revisit their estate plans considering President Biden’s tax proposals. Individuals — especially those with large estates — should evaluate the benefits of multi-generational wealth transfers, the use of trusts and other estate planning opportunities, and be prepared to implement strategies in advance of proposals becoming law.
The IRS has issued a Whistleblower Alert highlighting concerns about the misuse, diversion or fraudulent use of federal funds by tax-exempt organizations, individuals and businesses. The IRS encoura...
For flights taken during the period from January 1, 2026, through June 30, 2026, the terminal charge is $54.48, and the SIFL rates are: $.2980 per mile for the first 500 miles, $.2272 per mile for 501...
The IRS has provided the foreign housing expense exclusion/deduction amounts for tax year 2026. Generally, a qualified individual whose entire tax year is within the applicable period is limited to ma...
The IRS has announced that more than 4 million children were enrolled in tax-favoured Trump Accounts, with over 1 million qualifying for a $1,000 federal contribution under a pilot program. The enrolm...
The IRS expanded access to its Business Tax Account platform to partnerships, government entities and tax-exempt organizations. The expansion improved digital service and reduced administrative burden...
The IRS delivered timely refund processing during the tax year at issue. Most refunds were issued within 21 days, and returns were processed without delay. The IRS reported that a majority of individu...
Massachusetts issued guidance on personal income taxes regarding individual mandate penalties for 2026 under the Massachusetts Health Care Reform Act. The penalties apply to adults 18 and older who ar...
The White House is looking to lower the Internal Revenue Service budget by $1.4 billion in fiscal year 2027.
The White House is looking to lower the Internal Revenue Service budget by $1.4 billion in fiscal year 2027.
The budget request, released April 6, 2026, says the overall budget request for the agency will “streamline IRS operations utilizing technology improvements to help focus the IRS on providing high-quality customer service while ensuring the tax laws are fairly administered.”
The request highlighted two areas where it is currently saving money – ending the Direct File program and reducing staffing by 27 percent total – since January 2025.
The decrease accounts for most of the White House’s overall decreased budget request for the Department of the Treasury. The Trump Administration is an $11.5 billion budget for fiscal year 2027, a 12-percent decrease ($1.5 billion) from the budget enacted for fiscal year 2026.
The Office of the Inspector General would see a $4 million decrease to $44 million from the $48 million level in 2026, while the Treasury Inspector General for Tax Administration would see a decrease from $220 million to $206 million.
The IRS has issued final regulations for the "no tax on tips" deduction under Code Sec. 224, which was enacted as part of the the One Big Beautiful Bill Act (OBBBA) (P.L. 119-21). The final regulations adopt proposed regulations that were issued in September 2025 ( NPRM REG-110032-25), with modifications and clarifications in response to comments received.
The IRS has issued final regulations for the "no tax on tips" deduction under Code Sec. 224, which was enacted as part of the the One Big Beautiful Bill Act (OBBBA) (P.L. 119-21). The final regulations adopt proposed regulations that were issued in September 2025 ( NPRM REG-110032-25), with modifications and clarifications in response to comments received.
Background
Under Code Sec. 224, an eligible individual can claim an income tax deduction for qualified tips received in tax years 2025 through 2028. The deduction is limited to $25,000 per tax year, and starts to phase out when modified adjusted gross income is above $150,000 ($300,000 for joint filers). An employer must report qualified tips on an employee‘s Form W-2, or the employee must report the tips on Form 4137. A service recipient must report qualified tips on an information return furnished to a nonemployee payee (Form 1099-NEC, Form 1099-MISC, Form 1099-K).
A "qualified tip" is a cash tip received in an occupation that customarily and regularly received tips on or before December 31, 2024. An amount is not a qualified tip unless (1) the amount received is paid voluntarily without any consequence for nonpayment, is not the subject of negotiation, and is determined by the payor; (2) the trade or business in which the individual receives the amount is not a specified service trade or business under Code Sec. 199A(d)(2); and (3) other requirements established in regulations or other guidance are satisfied.
The proposed regulations provided eight broad categories of occupations that customarily and regularly received tips on or before December 31, 2024. For each occupation, the list provided a numeric Treasury Tipped Occupation Code (TTOC), an occupation title, a description of the types of services performed in the occupation, illustrative examples of specific occupations, and the related Standard Occupation Classification (SOC) system code(s) published by the Office of Management and Budget (OMB).
List of Occupations that Receive Tips
The final regulations made several modifications to the list of the occupations set forth in the proposed regulations. Three new occupations were added:
- "Visual Artists" and "Floral Designers" were added to the Personal Services category; and
- "Gas Pump Attendants" was added to the Transportation and Delivery category.
The final regulations also made changes and clarifications under several of the occupation categories, including:
- Beverage & Food Service – For the "Wait Staff" occupation, "banquet staff" has been added as an illustrative example, and the occupation's description has been modified to include catered events. The "Food Servers, Non-restaurant" occupation has been changed to "Food and Beverage Servers, Non-restaurant," to clarify that winery tasting room servers are covered by this category.
- Entertainment and Events – The preamble to the final regulations states that "table game supervisors" are covered by the "Gambling Dealers" occupation. The IRS also clarified that individuals dressed up as Santa Claus, as well as other characters or celebrities, are covered by the "Entertainers and Performers" occupation.
- Hospitality and Guest Services – "Doorman" has been added to the list of illustrative examples for the "Baggage Porters and Bellhops" occupation.
- Personal Services – To clarify that resident care is included in the "Personal Care and Service Workers" occupation, the description in the list provides that "work is performed in various settings depending on the needs of the care recipient and may include locations such as their home, place of work, out in the community, at a daytime nonresidential facility or a residential facility." The "Pet Caretakers" occupation has been renamed as the "Pet and Show Animal Caretakers" occupation, and "horse groomer" has been added to the list of illustrative examples.
- Personal Appearance and Wellness – The "Eyebrow Threading and Waxing Technicians" occupation has been renamed as the "Eyebrow and Eyelash Technicians" occupation, and additions were made to the description in the list to include eyelash technicians.
- Recreation and Instruction – The "Travel Guides" occupation now includes a parenthetical noting that both indoor and outdoor locations are covered.
- Transportation and Delivery - "App/platform based delivery person" has been added to the illustrative list in both the "Goods Delivery People" occupation and the "Taxi and Rideshare Drivers and Chauffeurs" occupation. Also, the phrase "over established routes or within an established territory" has been removed from the description of the "Goods Delivery People" occupation.
The final regulations clarify that apprentices and assistants qualify under the applicable TTOC occupation category if they perform the same services as those listed in the TTOC occupation description.
Chiropractors, accountants, tax preparers, concert merchandise sellers, and "low bono" legal service providers were not added to the occupations list, despite requests in the comments to add these to the list.
No occupations included on the occupations list in the proposed regulations were removed from the list in the final regulations.
Voluntary Tips
Regarding the requirement that qualified tips must be voluntary, it is clarified that the customer must have the option to reduce the tip amount to zero. Tip selection methods such as Point-of-Sale (POS) systems with a tip slider that goes to zero or an option for the customer to select "other" and input zero are voluntary. Examples in the final regulations have been modified to clarify that these methods are considered voluntary tipping practices.
Further, the final regulations state that situations where nonpayment of a tip is "without consequence" include situations where nonpayment of the tip does not have any impact on the scope or cost of the service. The final regulations also contain a new example where the tip is part of a contract that is entered into before the services are provided. The example concludes that the tip is a qualified tip because it is paid without consequence. If the customer had chosen to not pay the tip, then the scope or cost of the service would not have been affected.
The final regulations include two new examples to help clarify when payments to digital content creators are tips and when they are compensation. It is also clarified that tipping digital content creators through audience engagement mechanisms that result in superficial digital rewards, such as highlighted messages or other digital tokens of appreciation from the tip recipient that are negligible in value, do not disqualify an otherwise qualified tip.
Other Matters
The final regulations state that amounts received as a tip that are not separately reported to an individual on a statement furnished to the individual pursuant to Code Secs. 6041(d)(3), 6041A(e)(3), 6050W(f)(2), or 6051(a)(18), or reported by the taxpayer on Form 4137 (or successor) are not eligible for the tips deduction. (The preamble recognizes, however, that Notice 2025-69 provides transition rules for this for 2025.)
It is also clarified that "cash tips" include amounts paid in foreign currency. Rules are also provided for tips received by digital tipping systems.
Regarding abuse of the tips deduction, the final regulations replace the provision prohibiting ownership in or employment by a payor with a provision stating that an amount is not a qualified tip, and thus not eligible for the deduction if, based on all relevant facts and circumstances, the amount represents a recharacterization of wages or payments for goods or services for purposes of claiming the deduction.
Effective Date
The final regulations are effective on June 12, 2026, the date that is 60 days after publication in the Federal Register.
The IRS issued updated frequently asked questions (FAQs) addressing educational assistance programs under Code Sec. 127. The FAQs provide general guidance on eligibility, tax treatment of benefits, and recent legislative updates.
The IRS issued updated frequently asked questions (FAQs) addressing educational assistance programs under Code Sec. 127. The FAQs provide general guidance on eligibility, tax treatment of benefits, and recent legislative updates.
General Background
The FAQs explained that a Code Sec. 127 educational assistance program is a written employer plan that provides benefits exclusively to employees. The program must satisfy nondiscrimination requirements that prevent preferential treatment for highly compensated employees, shareholders or owners.
Exclusion Limits and Tax Treatment
The FAQs clarified that employees could exclude up to $5,250 per year in educational assistance benefits for the tax years at issue. The limit applied to combined benefits, including tuition and qualified education loan repayments. Amounts exceeding this limit were taxable and unused amounts could not be carried forward. Expenses covered under Code Sec. 127 could not be used for other credits or deductions.
Eligible and Non-Eligible Benefits
Eligible benefits included tuition, fees, books, supplies, equipment and payments of principal or interest on qualified education loans. These benefits could be provided for undergraduate or graduate courses and did not need to be job-related. However, meals, lodging, transportation and equipment that employees could retain were not eligible. Courses involving hobbies or sports were not eligible unless required for a degree or related to the employer’s business.
Eligibility and Other Provisions
The FAQs emphasized that benefits were limited to employees and included restrictions on owners and shareholders to ensure compliance with nondiscrimination rules. Other provisions, such as working condition fringe benefits, could allow additional exclusions depending on the facts.
The IRS has issued procedures for nominating population census tracts that would be designated as qualified opportunity zones (QOZs). The tracts would designated as QOZs effective on January 1, 2027. The guidance was directed at Chief Executive Officers (CEO) of States, territories of the United States and the District of Columbia. The procedures fell under Reg. §§1400Z-1 and Code Sec. 1400Z-2, as amended by the One, Big, Beautiful Bill Act (OBBBA) (P.L. 119-21).
The IRS has issued procedures for nominating population census tracts that would be designated as qualified opportunity zones (QOZs). The tracts would designated as QOZs effective on January 1, 2027. The guidance was directed at Chief Executive Officers (CEO) of States, territories of the United States and the District of Columbia. The procedures fell under Reg. §§1400Z-1 and Code Sec. 1400Z-2, as amended by the One, Big, Beautiful Bill Act (OBBBA) (P.L. 119-21).
Background
A QOZ is an economically distressed area in which select new investments could be eligible for preferential tax treatment. The OBBBA makes the QOZ tax incentive permanent. The first round of QOZ designations following the enactment of the OBBBA will take effect on January 1, 2027. New rounds would follow every 10 years. Additionally, the OBBBA added tax benefits specific to investments made into QOZs that are comprised entirely of a rural area.
Identities of LICs
The Treasury and IRS identified 25,332 population census tracts that are low-income communities (LIC) eligible for nomination as a 2027 QOZ. Out of said tracts, 8,334 tracts are comprised entirely of a rural area. Beginning July 1, 2026, and lasting a period of 90 days, subject to a single 30-day extension, State CEOs would begin nominating eligible census tracts to be designated as QOZs.
The number of population census tracts in a State that may be designated as QOZs may not exceed 25 percent of the number of LICs in the State. This limitation is determined based on the 2020-2024 American Community Survey (ACS) 5-Year and the 2020 Decennial Census of Island Areas (DECIA) data sets. The tracts were identified using said data sets.
Further, boundaries established for the 2020 decennial census are controlling. They would not be subject to change during the 2027 QOZ designation period.
Nomination Tool
The Treasury has been developing a nomination tool. This would be accessible online and available for the benefit of State CEOs that nominate census tracts for designation as 2027 QOZs.
The QOZ designation period will begin on January 1, 2027, and end on December 31, 2036. Any request to modify such a nomination after October 28, 2026, would be denied. Finally, nominations of tracts not mentioned in this document would be considered, provided they satisfy Code Sec. 1400Z-1(c)(1).
Effective Date
This revenue procedure is effective on April 6, 2026.
The IRS has provided a waiver of the addition to tax under Code Sec. 6654 for the underpayment of estimated income tax by qualifying farmers and fishermen.
The IRS has provided a waiver of the addition to tax under Code Sec. 6654 for the underpayment of estimated income tax by qualifying farmers and fishermen. Under Code Sec. 6654(i)(1), a qualifying farmer or fisherman has only one required installment payment (instead of four quarterly payments) due on January 15 of the year following the taxable year if at least two-thirds of the taxpayer’s total gross income was from farming or fishing in either the tax year or the preceding tax year. For a qualifying farmer or fisherman who does not make the required estimated tax installment payment by January 15 of the year following the tax year, Code Sec. 6654(i)(1)(D) provides that the taxpayer is not subject to an addition to tax for failing to pay estimated income tax if the taxpayer files the return for the tax year and pays the full amount of tax reported on the return by March 1 of the year following the tax year.
Difficulty in Electronic Filing of Form 8995
The IRS has noted that some qualifying farmers and fishermen were unable to electronically file Form 8995, Qualified Business Income Deduction Simplified Computation, which was required to be included in their 2025 tax returns. Due to this inability, farmers and fishermen may have had difficulty filing their 2025 tax returns electronically by the March 2, 2026 due date. Accordingly, the IRS has determined to waive certain penalties for qualifying farmers and fishermen due to these unusual circumstances.
Waiver of Underpayment of Estimated Income Tax
The IRS has waived the addition to tax under Code Sec. 6654 for failure to make an estimated tax payment for the 2025 tax year for any qualifying farmer or fisherman who files a 2025 tax return and pays in full any tax due on the return by April 15, 2026. The waiver will apply to any taxpayer who is a qualifying farmer or fisherman for the 2025 tax year and fulfills the conditions stated in the previous sentence. Further, the waiver will apply automatically to any taxpayer who qualifies for the waiver and does not report an addition to tax under Code Sec. 6654 on the 2025 tax return.
In addition, taxpayers who otherwise satisfy the criteria for relief under the IRS’ notice, but have already filed a return and reported an addition to tax, may request an abatement of the addition to tax by filing Form 843, Claim for Refund and Request for Abatement, in accordance with the prescribed instructions.
State and local housing credit agencies that allocate low-income housing tax credits and states and other issuers of tax-exempt private activity bonds have been provided with a listing of the proper population figures.
State and local housing credit agencies that allocate low-income housing tax credits and states and other issuers of tax-exempt private activity bonds have been provided with a listing of the proper population figures to be used when calculating the 2026:
- calendar-year population-based component of the state housing credit ceiling under Code Sec. 42(h)(3)(C)(ii);
- calendar-year private activity bond volume cap under Code Sec. 146; and
- exempt facility bond volume limit under Code Sec. 142(k)(5).
These figures are derived from the estimates of the resident populations of the 50 states, the District of Columbia and Puerto Rico, which were released by the Bureau of the Census on January 27, 2026. The figures for the insular areas of American Samoa, Guam, the Northern Mariana Islands and the U.S. Virgin Islands are the 2025 midyear population figures in the U.S. Census Bureau’s International Database.
Internal Revenue Service CEO Frank Bisignano promoted some of the highlights of the 2026 tax filing season before a congressional committee while deflecting questions about data leaks and other issues.
Internal Revenue Service CEO Frank Bisignano promoted some of the highlights of the 2026 tax filing season before a congressional committee while deflecting questions about data leaks and other issues.
Testifying April 15, 2026, during a Senate Finance Committee hearing, Bisignano used his opening statement to promote the highlights of the tax filing season, including:
- 134 million individual returns filed, with 98 percent filed electronically;
- 80 million refunds issued with 98 percent of funds sent electronically; and
- An average refund of more than $3,400 (up 11 percent from last year), with more than 90 percent received by taxpayers in less than 21 days.
He also stated that 53 million American have taken advantage of new tax breaks found in the One Big Beautiful Bill Act, including the No Tax On Tips (6 million filers), No Tax On Overtime (25 million filers), and No Tax On Car Loan Interest provision (1 million filers), as well as the deduction for seniors (30 million filers).
“When you look at all this, it’s the reason we talk about the historic refunds,” Bisignano testified.
These, along with the increase to the standard deduction and the child tax credit, along with the full expensing for capital investments being made permanent “prevented a tax increase of over $5 trillion on American families and small businesses,” Bisignano testified.
Bisignano defended the decision to end the Direct File program, noting that 2 million Americans have used a free file option, adding that “Direct File was a costly, unnecessary, and less popular duplicate of programs that already are in place.”
He continued: “Despite heavy promotion by the Biden Administration, Direct File was the by far the least used free filing option.”
When faced with questions regarding data breeches, including information given to ICE by Treasury and other data breeches, Bisignano refused to answer, stating that ongoing litigation was preventing him from commenting in the case of the information given to ICE, and that ongoing investigations in other data breeches precluded him from discussing them.
He also refused to express even a general opinion on the lawsuit filed by President Trump on the leaking of his tax information.
When challenged on the tax gap, Bisignano challenged assertions that it more than $1 trillion. Bisignano said the last published number was $650 billion and added that it was “big enough so we don’t have to debate the trillion.” He said the agency was working on a plan to address it but did not offer any specifics as to what the IRS had planned to close the tax gap. He did say the agency has increased the dollar amount of money recovered from compliance activities.
“Collections and enforcement is up 12 percent, and this is year to date,” he testified, adding that more than $2 billion has been collected in the top five audits.
By Gregory Twachtman, Washington News Editor
The Taxpayer Advocacy Panel (TAP) has released its 2025 Annual Report. The report highlighted accomplishments and ongoing efforts to (1) strengthen IRS delivery; (2) improve communications with taxpayers; (3) reduce taxpayer burden; and (4) support continued modernization of tax administration. The TAP project committees submitted 20 project referrals to the IRS, including 188 recommendations for improving IRS operations and enhancing taxpayer experience.
The Taxpayer Advocacy Panel (TAP) has released its 2025 Annual Report. The report highlighted accomplishments and ongoing efforts to (1) strengthen IRS delivery; (2) improve communications with taxpayers; (3) reduce taxpayer burden; and (4) support continued modernization of tax administration. The TAP project committees submitted 20 project referrals to the IRS, including 188 recommendations for improving IRS operations and enhancing taxpayer experience.
“In 2025, TAP members dedicated hundreds of volunteer hours to grassroots outreach, listening directly to taxpayers across the country and abroad and elevating the real-world challenges they face,” said National Taxpayer Advocate Erin M. Collins. “Their efforts resulted in nearly 200 recommendations to improve IRS service and tax administration,” she added.
The report’s key recommendations include:
- (1) Making taxpayer notices clear, accessible and easier to act on;
- (2) Expand secure self-service options for taxpayers;
- (3) Improve user experience within the IRS Online Account and tax transcript applications;
- (4) Strengthening Individual Taxpayer Identification Number (ITIN) online tools to reduce processing delays, minimize call volume and improve response times; and
- (5) Reinforcing the importance of in-person assistance.
TAP is a Federal Advisory Committee that provides individual taxpayers with a unique opportunity to take part in the federal tax administration system. TAP members comprise citizen volunteers from across the country, and an international member.
