Greetings from balmy Anchorage, Alaska! We’re in the middle of a warm spell–so much so that the world-famous Iditarod, which was scheduled to kick off here next week, has been moved to Fairbanks. It promises to be less temperate in the villages–the “real feel” at our first stop in my week of volunteer tax preparation in Alaska is forecast to be -1 degrees Fahrenheit.
It’s been an incredible adventure so far. I didn’t, however, leave the news behind. Even as I was on my way (fun fact: it’s over 4,300 miles from Philadelphia to Alaska), there were several developments impacting taxpayers and tax professionals. Let’s jump right in.
This week, thousands of IRS employees were fired as part of widespread efforts by DOGE to reduce the federal workforce. You’ll find more information–including some historic numbers–in the stats section below.
Also making news? A court in the Eastern District of Texas ruled (☆) that beneficial ownership information (BOI) reporting requirements under the Corporate Transparency Act (CTA) are back in effect. And, as the government promised, companies have been granted a little extra time to file.
On February 5, 2025, the Department of Justice filed an appeal in Smith v. U.S., one of two CTA cases winding through the court system in Texas. In its appeal, the government sought to stay an earlier preliminary injunction that would prohibit FinCEN from enforcing the CTA. On February 17, Judge Kernodle issued his ruling noting, “In light of the Supreme Court’s order in McHenry v. Texas Top Cop Shop, Inc….the Court has determined that the motion should be, and hereby is, GRANTED. The Court’s January 7, 2025 order granting preliminary relief is STAYED pending the disposition of the appeal.”
That means there are currently no legal roadblocks in the way of the reporting requirements and companies are once again required to file. In response, FinCEN noted on its website that “[b]eneficial ownership reporting requirements are back in effect, with a new deadline of March 21, 2025 for most companies.”
FinCEN also gave a nod to making some changes to the existing rules, writing, “FinCEN will assess its options for further modifying deadlines.” It’s not immediately clear what that might look like–but we’ll be watching closely and will share as soon as we have more information.
The budget was also in the news this week as the House and the Senate appeared to make some headway, though their positions aren’t exactly aligned. House Republicans still hopes to pass “one big beautiful bill” (as President Trump calls it) that includes boosting border and defense spending, extending the 2017 tax cuts, cutting certain domestic programs (like Medicaid) to partially pay for the tax cuts and increasing the debt ceiling. The Senate, in contrast, is moving ahead with a two-pronged approach, focusing first on the areas where Trump wants to spend more.
The first round of the Senate blueprint includes roughly $340 billion in funding for immigration–that money includes funding for deportation and building a wall at the Mexican border (an item on Trump’s wishlist from his first term) and $150 billion in additional defense spending.
The House’s budget resolution includes $4.5 trillion for tax cuts–not enough to make permanent the 2017 tax cuts (contained in the Tax Cuts and Jobs Act or TCJA). House leadership has suggested a shorter workaround, but that’s not likely to win support in the Senate.
The failure to agree could mean a slow walk on tax cut extensions which largely expire at the end of 2025. That would be a mistake, according to Steve Forbes. Referring to what happened in 2017, Forbes writes, “A tax bill passed in December, as happened in 2017, loses a full year of economic impact. Markets and businesses make their plans well in advance. Republicans need to stop floundering over procedural details and pass significant tax cuts by April or May to affect the 2025 economy.”
Whatever happens, one focus of the tax-policy debate surrounding its extension will certainly be the future of the state and local tax (SALT) deduction. The SALT cap under the 2017 law, which limits the deduction, is especially unpopular in states with high income and property taxes, such as California, New Jersey, and New York. For any action on extending or making permanent the TCJA, some modification must be made in the SALT deduction to get the full vote support needed from all Republican members of the House. Trump has suggested eliminating the SALT deduction cap, but removing it would cost $1.2 trillion in federal revenue over the next decade.
If the House and the Senate can’t agree on spending by March, we could be facing another government shutdown. Spending for the federal government in our current fiscal year is only legally authorized until March 14. Congress failed to pass regular annual spending appropriations, instead resorting to a short-term continuing resolution.
One way to address spending is through cuts–and those have been in the news this week. In addition to paring back federal employment rosters (more on that below), Trump has ordered Elon Musk’s Department of Government Efficiency, or DOGE, to seek ways to eliminate wasteful spending. One target: The IRS.
DOGE has also been seeking permission to access individual tax return information. DOGE staffers already accessed filers’ tax refund information through the Treasury Department’s Bureau of Fiscal Service database–that includes the bank account information of every filer who received an electronic tax refund. (A federal judge has since temporarily curbed DOGE’s access to the Fiscal Service data.)
But DOGE wants to tap into the IRS’ Integrated Data Retrieval System (IDRS). Anyone with this access could enter a taxpayer’s name and Social Security number and learn their income, address, banking and brokerage account numbers, marital status, whether they had significant medical expenses, and the name of their employer and tax preparer. They could find out if a taxpayer has been audited. Former National Taxpayer Advocate Nina Olson, says the IDRS is “the motherlode. It contains everything.” Olson’s current organization, the Center for Taxpayer Rights, has joined a lawsuit to block DOGE access to the IDRS.
Why can’t DOGE just walk into the IRS and access that information? There are strict protections in place to safeguard taxpayer data. (☆) The protections date back more than 50 years and many have been in response to abuses during the Nixon administration.
President Nixon told his staff he was looking for a particular type of IRS Commissioner. In a recorded call (remember, Nixon famously taped his calls), he said, “I want to be sure he is a ruthless son of a bitch, that he will do what he’s told, that every income tax return I want to see I see, that he will go after our enemies and not go after our friends. Now it’s as simple as that. If he isn’t, he doesn’t get the job.” The job eventually went to Johnnie Walters, who became IRS Commissioner on August 6, 1971. There’s no indication that Walters went along with Nixon’s plans (and Walters was eventually replaced) but concerns that those in government could access data and direct audits at taxpayers resulted in widespread changes to the law. Today, it’s a crime to access or share taxpayer data without authorization.
That’s a lot of news to digest, and I hope it tides you over. While I’m in the villages in Alaska, I won’t have access to the internet. That means there will be no newsletter next week (March 1, 2025).
Enjoy your weekend, and I’ll be back in two weeks (March 8, 2025).
Kelly Phillips Erb (Senior Writer, Tax)
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Questions
This week, a reader asked:
I was wondering how someone would do their taxes if they got married and never changed their last name?
Changing your name after marriage (or divorce) can be cumbersome because there can be a lot of forms to fill out–including with the Social Security Administration. (I joke with my husband that the next time I get married, I will not change my name.)
First things first: You don’t have to change your name when you get married to file your taxes. You can file as married without changing your name with the Social Security Administration (SSA). The key is to make sure that the name shown on your Social Security card matches the name you use on your tax return. If you’ve already changed your name with SSA following a marriage or divorce, simply use the name that’s now on file (it should match your new card).
If you’re using your married name in practice, but haven’t changed your name with the SSA, file using your former name on the tax return instead of your married name.
The same is true following a divorce. You’ll want to use the name that appears on your Social Security card.
To change your name on file with the Social Security Administration, click over to the SSA name change page and follow the instructions.
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Do you have a tax question or matter that you think we should cover in the next newsletter? We’d love to help if we can. Check out our guidelines and submit a question here.
Statistics, Charts, And Maps (Oh My!)
This week, the IRS cut thousands of workers (☆) on probationary status as part of ongoing efforts by the Trump administration to reduce costs. It’s unclear how the cuts could impact the tax filing season, which kicked off on January 27, 2025. The cuts follow on the heels of other reductions to IRS personnel and the IRS budget.
According to an official email viewed by Forbes, at least 3,500 IRS employees in the Small Business/Self-Employed (SB/SE) division of the IRS alone were expected to lose their jobs. The SB/SE division, currently headed up by Lia Colbert, serves more than 57 million small business owners and self-employed taxpayers—those with less than $10 million of assets. SB/SE employees may include those in the exam (audit) and collections departments and workers in operations support and fraud enforcement.
Other reports suggest the total number of IRS employees expected to lose their jobs will be about 7,000—or 7% of the IRS’ workforce.
Those employees who are most at risk to be cut are probationary employees. While probationary employees are often recent hires (meaning within the last one to two years), they don’t have to be—those who have been serving for years but were recently moved or promoted into a new position also qualify as probationary.
Those cuts follow on the heels of a Trump executive order freezing hiring for most federal agencies. The freeze is intended to be temporary—except for the IRS (the freeze is indefinite for the tax agency).
And Trump subsequently suggested he might fire IRS employees—or send them to the border.
(Last week, the Department of Homeland Security followed up (☆) by asking Treasury Secretary Scott Bessent to deputize IRS agents to help with efforts to crack down on immigration.)
The IRS workforce has been subject to scrutiny in recent months. Hiring had been up, thanks to funding in the Inflation Reduction Act of 2022. The extra money was intended to help the IRS hire 87,000 new workers—including customer service and IT workers—over the next decade. In addition to the cuts, Republicans have clawed back roughly half—$40 billion out of the $80 billion authorized IRA funding.
Former IRS Commissioner Danny Werfel had previously estimated that factoring in attrition, the IRS is approaching 90,000 full-time employees. That may look high compared to 2022, but it’s the same as roughly a decade ago and far below staffing numbers in the 1990s.
While some on social media chose to echo talking points suggesting that the IRS was hiring–or had already hired–tens of thousands of armed agents since 2022, that isn’t the case. And the numbers aren’t a big secret: In addition to routine press conferences over the past two years touting new hires, the IRS publishes the most recent hiring numbers in an annual data book.
A Deeper Dive
The “no tax on tips” proposal that first made news during the election (promoted by both Donald Trump and Kamala Harris) is still a talking point, though it doesn’t appear to be picking up much in the way of Congressional support.
Currently, tips are taxable to tipped workers for income tax purposes—they are also subject to payroll taxes. Until 1966, tips weren’t subject to payroll taxes at all. That year, with the creation of Medicare, Congress changed the law to impose FICA taxes on tips, but just on the employee’s side. It added some employer FICA taxes on tips in 1977 and in 1987 required employers to kick in FICA taxes on all tips.
Today, most employers aren’t big fans of payroll taxes on tips. That’s because employers must pay the employer-side portion of the payroll tax on tips even though the funds never hit their wallets (they belong to the tipped employees). Enter the FICA tip credit. The FICA tip credit benefits certain employers by offsetting the FICA taxes paid on tips that employees earn beyond the federal minimum wage.
The credit only applies to tips above the federal minimum wage level. A few states, such as California and Washington, require that tipped employees receive a minimum wage before higher tips. In these states, the credit will apply to all tips received. Most states do not need the minimum cash wages to be higher than the federal minimum wage. Businesses in these states must carefully track and differentiate between tips meeting minimum wage requirements and those exceeding them.
Interestingly, only food and beverage businesses benefit from the FICA tip credit. Other service providers, like hair, salons do not qualify. (☆) Why not? Restaurants and bars started a lobbying push and won a partial FICA tip credit in 1993–but only for their industry. What’s known as the 45B credit has since been expanded to rebate the entire employer side of FICA taxes on tips, but only for employers involved in “providing, delivering, or serving food or beverages for consumption.”
The tax problem—and the disparity with restaurants—has been around for decades. But the issue has become more important for the salon owners due to the lingering impact of the pandemic and the fintech-enabled shift from cash to credit cards and payment apps (electronic payments make it trickier for salons or workers to under report tips).
Many in the salon and spa industry would like to change that. The Professional Beauty Association has been lobbying for House and Senate bills that would extend the full 45B credit to salons and spas. Versions of the bill are currently sitting in committee despite bipartisan support.
Tax Filings And Deadlines
📅 April 15, 2025. Due date for most taxpayers to file an individual tax return—or apply for an extension.
📅 May 1, 2025. Due date for individuals and businesses in the entire states of Alabama, Georgia, North Carolina, and South Carolina and parts of Florida, Tennessee, and Virginia affected by severe storms and flooding from Hurricane Helene (☆) and Hurricane Milton.
📅 September 30, 2025. Due date for individuals and businesses impacted by recent terrorist attacks in Israel.
📅 October 15, 2025. Due date for individuals and businesses affected by wildfires and straight-line winds in southern California that began on January 7, 2025. Currently, individuals and households that reside or have a business in Los Angeles County qualify for tax relief.
Tax Conferences And Events
📅 May 13-14, 2025. National Association of Enrolled Agents 2025 Capitol Hill Fly-In, Washington, DC. Registration required (NAEA members only).
📅 July 21-23, 2025. National Association of Tax Professionals Taxposium 2025, Caesars Palace, Las Vegas. Registration required.
Trivia
Which piece of personal information does not appear on the first two pages of your Form 1040?
(A) Your birthdate
(B) Your occupation
(C) Your Social Security Number
(D) Your bank account information
Find the answer at the bottom of this newsletter.
Positions And Guidance
The IRS has published Internal Revenue Bulletin 2025-8.
The American Institute of CPAs (AICPA) president and CEO, Mark Koziel, CPA, CGMA, released a statement highlighting the need for the IRS to have the ability to meet the needs of taxpayers and tax preparers during this filing season. The statement indicated, in part, “Americans deserve a fully functioning agency that can be respected by taxpayers and their preparers, thereby allowing them to comply with their tax obligations.”
Noteworthy
McCarter & English announced the expansion of its Miami office with the additions of its new partner, Peter Lagonowicz, and special counsel, Janine Kucaba. Lagonowicz will oversee the firm’s International Tax and Latin America-related work, counseling clients on cross-border transactions, while Kucaba brings experience in domestic trusts and estates law.
Miller & Chevalier Chartered announced that Michael Desmond has joined the firm as a Member. Desmond, who will co-lead the firm’s Tax Controversy and Litigation practice, served as the 48th Chief Counsel of the IRS from 2019 to 2021.
In response to recent IRS job losses, the National Association of Tax Professionals (NATP) is offering a dedicated job resource to help affected tax professionals find new opportunities in the industry. The ‘Looking for Positions’ section on natptax.com is a free platform for job seekers to post listings and for firms to connect with experienced candidates.
The Indiana Department of Revenue determined that a video game publishing company’s sales from add-ons are not subject to sales tax. In the case, the company offered optional services, including a monthly online subscription to play the game in an online, multi-player setting; in-game items for purchase like costumes or weapons; and virtual currency you could use to acquire in-game items or pay the subscription. According to the Department of Revenue, these items are not tangible personal property nor specific digital goods and are therefore not taxable.
Starting March 3, active-duty service members can enroll in health care flexible spending accounts, or FSAs. An FSA lets you set aside pre-tax money to pay for healthcare costs—withdrawals are tax-free if you use them for qualified medical expenses. FSAs have been available for years for many federal agencies and private companies, but the benefit wasn’t available to military families until this year—the enrollment period will run through March 31. A dependent care flexible spending account benefit became available to service members in 2024.
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In Case You Missed It
Here’s what readers clicked through most often last week:
You can find the entire newsletter here.
Trivia Answer
The answer is (A) your birthdate.
There’s a lot of personal information about you that shows up on the first two pages of your tax return, but interestingly, your birth date isn’t one of them (though you do check a box if you or your spouse for the extra standard deduction for seniors–this year, it applies if you were born before January 2, 1960).
Your occupation appears next to the signature line on page two, while your Social Security number appears at the top of page one. If you’re expecting a tax refund and request direct deposit, your bank routing and account numbers will appear near the bottom of page two at line 35 (b-d).
Feedback
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