Tax Newsletter – December 2025 (Volume 8, Issue 12)
FAQs - What’s New Under OB3
- No tax on tips and overtime deductions for TY2025–2028 and what records workers should keep. See Issue 5.
- Revised Form 1099-K thresholds and what still counts as taxable marketplace income. See Issue 8.
- Year-end planning conversations under OB3, including new deductions and withholding checks. See Issue 9.
- Accelerated energy credit sunset dates for home and vehicle incentives. See Issue 12.
- How the December 2025 AFRs and section 7520 rate affect loans and estate planning. See Issue 19.
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Note
Join us for the Quarterly Update: Part 4 webinar on 12/16/25 where we'll dive deeper into the end of the year strategies under the One Big, Beautiful Bill (OB3). We've touched on some key points in this newsletter, but we'll expand on them in that session. Register here 📌.
In this Month’s Issue:
- Issue 1 – Get Ready: December Checklist for the 2026 Filing Season
- Issue 2 – 2026 Inflation Adjustments: Standard Deduction Snapshot Under OB3
- Issue 3 – 2026 Retirement Plan and IRA Limits
- Issue 4 – Roth Catch-Up Final Regulations for Higher Wage Earners
- Issue 5 – No Tax on Tips and No Tax on Overtime: Worker Deductions and Employer Relief
- Issue 6 – Penalty Relief for 2025 Information Reporting on Tips and Overtime
- Issue 7 – Digital Assets and New Form 1099-DA for 2025 Transactions
- Issue 8 – Form 1099-K Threshold Under OB3: What Platforms Report Now
- Issue 9 – Withholding Checkup and Year-End Planning Conversations
- Issue 10 – Remittance Excise Tax: Penalty Relief and Transition Period
- Issue 11 – New Tax Benefit for Lenders on Farm and Rural Property Loans
- Issue 12 – Energy Credits Under OB3: Approaching End Dates
- Issue 13 – 2025 Standard Mileage Rates and Recordkeeping Reminders
- Issue 14 – PTIN Renewal, Tax Forum Online, and Q1 2026 Interest Rates
- Issue 15 – Request for Comments on New Scholarship Granting Organization Credit
- Issue 16 – MeF Shutdown Update: Extended Timeline for 2025
- Issue 17 – Social Security COLA and Benefit Updates for 2026
- Issue 18 – Year-Round Tax Planning Reminders
- Issue 19 – Applicable Federal Rates for December 2025
- FAQs – Frequently Asked Questions
Issue 1 – Get Ready: December Checklist for the 2026 Filing Season
Hey folks, as we wrap up 2025, it's a great time to start thinking about the 2026 filing season. The IRS kicked off their "Get Ready" campaign with IR-2025-116, and they're really emphasizing early preparation, especially with all the OB3 changes in play. Head over to the IRS Get Ready page to get organized and avoid any last-minute headaches.
Chat with your clients about setting up or refreshing their IRS Online Account. It's a one-stop shop for viewing tax records, balances, and notices.
Start building that document checklist: Think W-2s, various 1099s (like NEC, MISC, K, R), brokerage statements, and those Form 1095 health coverage docs.
In your December check-ins, double-check mailing addresses, emails, and bank info for smooth direct deposit refunds.
Issue 2 – 2026 Inflation Adjustments: Standard Deduction Snapshot Under OB3
Back in October, the IRS dropped the inflation adjustments for tax year 2026, incorporating some tweaks from the One Big, Beautiful Bill. You'll find all the details in Revenue Procedure 2025-32 and IR-2025-103. These apply to returns filed in 2027, but it's smart to factor them into your year-end chats now.
Let's take a quick look at how the standard deductions are shaping up from 2025 to 2026 under OB3. It's a nice bump that could influence withholding or estimated payments:
| Filing Status |
2025 Standard Deduction |
2026 Standard Deduction |
| Married Filing Jointly / Surviving Spouses |
$31,500 |
$32,200 |
| Single / Married Filing Separately |
$15,750 |
$16,100 |
| Head of Household |
$23,625 |
$24,150 |
Keep the full brackets, AMT figures, estate exclusions, and credit details handy. Bookmark IR-2025-103 for easy reference in your planning sessions.
Issue 3 – 2026 Retirement Plan and IRA Limits
If you're helping clients max out their retirement savings, you'll want to note the 2026 cost-of-living bumps announced in IR-2025-111 and Notice 2025-67. These increases give folks a bit more room to sock away funds. Perfect for those year-end contribution pushes.
The elective deferral limit for 401(k)s, 403(b)s, most 457 plans, and the Thrift Savings Plan jumps to $24,500 (up from $23,500 in 2025).
Defined contribution plans see the annual additions cap under section 415(c) rise to $72,000.
IRA limits go up to $7,500, with the $1,000 catch-up for 50+ folks bringing it to $8,500 total.
Phase-out ranges for IRA deductibility vary based on workplace coverage and MAGI. Pull up the latest IRS charts when running scenarios.
Issue 4 – Roth Catch-Up Final Regulations for Higher Wage Earners
The SECURE 2.0 Roth catch-up rules for higher earners now have final regs out. Check IR-2025-91 for the details. This affects age-50+ participants whose prior-year wages top a certain threshold, requiring catch-ups as Roth contributions.
Plans can default to Roth for affected folks, but must offer an election opt-out.
Regs clarify aggregating wages from multiple employers in the same plan for the threshold.
Get ahead by coordinating with payroll teams before the 2026 kick-in to prevent mix-ups.
Issue 5 – No Tax on Tips and No Tax on Overtime: Worker Deductions and Employer Relief
Under OB3, eligible workers can deduct qualified tips and overtime for 2025-2028. Great news for service and shift workers. Recent guidance breaks it down for both individuals and businesses, making it easier to navigate. Qualified tips are voluntary payments in occupations where tipping was customary as of Dec. 31, 2024, with a max deduction of $25,000 (phasing out over $150,000 MAGI for singles, $300,000 joint).
On the overtime side, this is an above-the-line deduction for FLSA-required premium pay, max $12,500 ($25,000 joint, phasing out similarly). Taxpayers must include SSN and file jointly if married.
For workers: IR-2025-114 and Notice 2025-69 walk through calculations using W-2s, 1099s, and Form 4137, with handy examples.
Reporting eases in: 2025 has limited changes; separate qualified amounts start on 2026 forms.
Penalty relief helps employers adjust systems without fear. See Notice 2025-62.
Issue 6 – Penalty Relief for 2025 Information Reporting on Tips and Overtime
Speaking of relief, the IRS is cutting employers some slack on the new tip and overtime reporting under OB3 for 2025. Forms stay the same this year, with changes coming in 2026. This transition help is a lifesaver for payroll teams. This applies to cash tips and qualified overtime, aiming to ease the shift while systems update.
Details in the notice aim to smooth things out as systems get updated.
Key takeaways from Notice 2025-62:
- Provides relief from penalties for failure to file correct information returns or furnish correct payee statements for qualified tips and overtime in 2025.
- Applies to Forms W-2 and 1099 series, helping employers and payors during the transition.
- Relief is available if reasonable cause is shown and systems are being updated in good faith.
- Employers must make a good faith effort to comply with the new reporting requirements.
- Effective for returns and statements due in 2026 related to 2025 payments.
Issue 7 – Digital Assets and New Form 1099-DA for 2025 Transactions
Digital assets are getting more scrutiny with final regs on broker reporting. Starting with 2025 deals, covered brokers must use the new Form 1099-DA for sales and exchanges, focusing on gross proceeds first, with basis later. This is part of broader efforts to ensure compliance in crypto and digital spaces.
Advise clients to track wallet activity, acquisition dates, and basis meticulously.
Even without a 1099-DA, income must be reported. Add crypto questions to your organizers.
Issue 8 – Form 1099-K Threshold Under OB3: What Platforms Report Now
Thanks to OB3, the 1099-K threshold is back to the old standard: over $20,000 and 200+ transactions. This overrides prior phased-ins, per Fact Sheet 2025-08 and IR-2025-107, applying to third-party settlement organizations like payment apps and online marketplaces.
Taxable income from apps/platforms still needs reporting, form or no form.
Update organizers with questions on gig work, marketplaces, and business vs. personal use.
Issue 9 – Withholding Checkup and Year-End Planning Conversations
As 2025 winds down, a withholding review can prevent surprises come filing time. IR-2025-52 is a good nudge. Tie this into OB3 perks like higher standard deductions, senior breaks ($6,000/$12,000 for 65+, phasing out at $75k/$150k MAGI), vehicle loan interest up to $10,000 (phasing out at $100k/$200k), and tip/overtime relief.
And let's talk about that new senior deduction. It's a game-changer for folks 65 and older by year's end. You can claim $6,000 per qualifying individual ($12,000 if both spouses qualify on a joint return), and it's available whether you itemize or not. Just make sure to include the SSN of the qualifying person. But watch the phaseouts: It starts reducing once modified AGI hits $75,000 for singles or $150,000 for joint filers, fully phasing out at higher levels. This above-the-line deduction for 2025-2028 can really help retirees stretch their dollars, so factor it into withholding adjustments now to optimize refunds or avoid owing.
Use the IRS Tax Withholding Estimator for clients with life changes or bonuses.
Remind self-employed folks to tweak January estimates if needed.
Issue 10 – Remittance Excise Tax: Penalty Relief and Transition Period
OB3's new remittance excise tax under section 4475 hits in 2026, but Notice 2025-55 offers penalty relief during the ramp-up for providers updating systems to calculate, collect, and deposit the tax on certain transfers.
Ideal for clients in money transfer or fintech. Chat with banks and payroll early.
File this notice and IRB discussion in your OB3 resources.
Issue 11 – New Tax Benefit for Lenders on Farm and Rural Property Loans
IR-2025-113 highlights a fresh OB3 perk for lenders on rural/ag loans. Guidance clarifies eligibility and qualifying loans secured by agricultural or rural real property.
- Community banks, ag lenders: Review portfolio interactions.
- Ag clients may field reporting questions from lenders.
Issue 12 – Energy Credits Under OB3: Approaching End Dates
OB3 speeds up sunsets for energy credits. FS-2025-05 lists key dates for home and business incentives, with many not allowed after specific 2025 dates.
Residential clean energy (25D) and efficiency (25C) credits end after 12/31/2025.
Clean vehicle credits (30D, 25E, 45W) mostly unavailable after 9/30/2025.
Some builder/commercial perks extend into 2026 with new cutoffs.
Issue 13 – 2025 Standard Mileage Rates and Recordkeeping Reminders
The 2025 mileage rates are locked in and apply to next year's returns. Use December to ensure client logs are spot-on.
Business: 70 cents/mile.
Medical/moving (military): 21 cents/mile.
Charity: 14 cents/mile.
Contemporaneous records rule. Apps work if detailed.
Issue 14 – PTIN Renewal, Tax Forum Online, and Q1 2026 Interest Rates
A few quick hits to close out the year:
PTIN renewal: IR-2025-108 says renew now for 2026. Add to your December to-do list.
Tax Forum Online: IR-2025-109 launches 2025 sessions with CE on OB3 and more.
Q1 2026 interest rates: Steady at 7% for individuals (IR-2025-112).
Issue 15 – Request for Comments on New Scholarship Granting Organization Credit
Treasury and IRS are asking for input on the new OB3 credit for scholarship org contributions. Submit by Jan 24, 2026.
Key takeaways from Notice 2025-70:
- Seeks public comments on implementing section 25F, the new credit for qualified contributions to scholarship granting organizations (SGOs).
- Credit applies to contributions to SGOs serving elementary and secondary school students from low- and middle-income families.
- Nonrefundable credit up to $2,500 per taxpayer for contributions in tax years 2025-2028.
- Comments requested on eligibility requirements, reporting, and administration issues.
- Submit comments by January 24, 2026, to help shape the final rules.
Issue 16 – MeF Shutdown Update: Extended Timeline for 2025
The 1040 Modernized e-File (MeF) system has its usual year-end shutdown, but this year the IRS signaled that the individual and business shutdown windows will be coordinated more closely and may extend into December. For practitioners, the only real surprise is how often late-filed prior-year returns bump into this window.
Keep an eye on QuickAlerts and the MeF Operational Status page for the final dates and times. If you still have 2024 returns trickling in, now is the time to warn clients that “e-file may not be available” soon and that paper filing might be the only option if they keep waiting.
Issue 17 – Social Security COLA and Benefit Updates for 2026
The Social Security Administration (SSA) announced a 2.8% cost-of-living adjustment (COLA) for 2026, effective for benefits starting in January 2026. This increase is based on the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W) from the third quarter of 2024 to the third quarter of 2025. It affects Social Security benefits for retirees, disabled workers, survivors, and Supplemental Security Income (SSI) recipients.
Key updates include:
- Average benefit increases: Retired workers see an increase from $2,015 to $2,071 monthly; aged couples from $3,120 to $3,208; disabled workers from $1,586 to $1,630.
- Maximum taxable earnings: For Social Security (OASDI), it rises to $184,500 (from $176,100 in 2025); Medicare (HI) has no limit.
- Retirement earnings test exempt amounts: Under full retirement age: $24,480/year ($2,040/month); year reaching full retirement age: $65,160/year ($5,430/month).
- SSI federal payment standard: Individual: $994/month (up from $967); couple: $1,491/month (up from $1,450).
- Other changes: Quarter of coverage: $1,890 (up from $1,810); maximum Social Security benefit at full retirement age: $4,152/month (up from $4,018); disability thresholds and trial work period also increased.
Log into my Social Security to see your personalized new benefit amount. Payroll tax rates remain unchanged at 7.65% for employees (15.30% for self-employed).
Issue 18 – Year-Round Tax Planning Reminders
Tax planning isn't just December—keep it going with simple habits like withholding tweaks, record organization, and Roth considerations. IRS tools make estimates a breeze.
Here are some key tips from the IRS:
- Organize tax records: Create a system using software or labeled folders to store documents as received, simplifying return preparation and helping identify overlooked deductions or credits.
- Identify filing status: Determine the best filing status based on circumstances like marriage or divorce, using IRS tools, to affect deductions, credits, and tax amounts.
- Understand adjusted gross income (AGI): Track AGI (income minus adjustments) to recognize that higher AGI increases tax rates; make year-round changes to lower it.
- Check withholding: Use the IRS Withholding Estimator to ensure sufficient tax is withheld from pay, updating Form W-4 with employer if financial situations change.
- Make address and name changes: Notify IRS via Form 8822, employers, and Social Security Administration of changes to ease tax return filing.
- Save for retirement: Contribute to workplace retirement plans or traditional IRAs to reduce AGI and taxable income.
Issue 19 – Applicable Federal Rates for December 2025
REV. RUL. 2025-24 TABLE 1
Applicable Federal Rates (AFR) for December 2025
| |
Period for Compounding |
|
Annual |
Semiannual |
Quarterly |
Monthly |
| Short-term (≤ 3 years) |
| AFR |
3.66% |
3.63% |
3.61% |
3.60% |
| 110% AFR |
4.03% |
3.99% |
3.97% |
3.96% |
| 120% AFR |
4.41% |
4.36% |
4.34% |
4.32% |
| 130% AFR |
4.78% |
4.72% |
4.69% |
4.67% |
| Mid-term (> 3 years, ≤ 9 years) |
| AFR |
3.79% |
3.75% |
3.73% |
3.72% |
| 110% AFR |
4.17% |
4.13% |
4.11% |
4.09% |
| 120% AFR |
4.55% |
4.50% |
4.47% |
4.46% |
| 130% AFR |
4.94% |
4.88% |
4.85% |
4.83% |
| 150% AFR |
5.71% |
5.63% |
5.59% |
5.57% |
| 175% AFR |
6.67% |
6.56% |
6.51% |
6.47% |
| Long-term (> 9 years) |
| AFR |
4.55% |
4.50% |
4.47% |
4.46% |
| 110% AFR |
5.01% |
4.95% |
4.92% |
4.90% |
| 120% AFR |
5.47% |
5.40% |
5.36% |
5.34% |
| 130% AFR |
5.94% |
5.85% |
5.81% |
5.78% |
REV. RUL. 2025-24 TABLE 2
Adjusted AFR for December 2025
| |
Period for Compounding |
|
Annual |
Semiannual |
Quarterly |
Monthly |
| Short-term adjusted AFR |
2.78% |
2.76% |
2.75% |
2.74% |
| Mid-term adjusted AFR |
2.87% |
2.85% |
2.84% |
2.83% |
| Long-term adjusted AFR |
3.45% |
3.42% |
3.41% |
3.40% |
REV. RUL. 2025-19 TABLE 3
Rates Under Section 382 for December 2025
| Adjusted federal long-term rate for the current month |
3.50% |
|
Long-term tax-exempt rate for ownership changes during the current month
(the highest of the adjusted federal long-term rates for the current month and the prior two months.)
|
3.65% |
REV. RUL. 2025-19 TABLE 4
Appropriate Percentages Under Section 42(b)(1) for December 2025
Note: Under section 42(b)(2), the applicable percentage for non-federally subsidized new buildings placed in service after July 30, 2008, shall not be less than 9%.
| Appropriate percentage for the 70% present value low-income housing credit |
7.98% |
| Appropriate percentage for the 30% present value low-income housing credit |
3.42% |
REV. RUL. 2025-19 TABLE 5
Rate Under Section 7520 for December 2025
FAQs – Frequently Asked Questions
- Q: How do I claim the new tips deduction for 2025? A: Head to Schedule 1 (Form 1040). Make sure tips qualify and are reported right. Check Issue 5 for more.
- Q: What's the deadline for 2025 estimated taxes? A: Q4 is due January 15, 2026. Pay up to dodge penalties.
- Q: Phaseouts for the OB3 senior deduction? A: Yep, starts over $75,000 MAGI for singles, $150,000 joint.
- Q: Best ways to prep for 2026 filing? A: Round up docs, set up an IRS account, and review withholding now.
