Plus: A famous soccer coach is sentenced to prison for tax fraud, filing an amended tax return, smoking rates and sin taxes, filing deadlines, tax trivia, and more. |
My inbox hasn’t been this full in years—at least as far back as the pandemic. What’s confusing taxpayers these days? The One Big Beautiful Bill Act (OBBBA).
OBBBA (I pronounce it “ah-ba”, not to be confused with ABBA, the Swedish rock group) was signed into law by President Donald Trump on Thursday, July 4, 2025. The bill makes permanent several of the expiring tax cuts contained in Trump’s signature 2017 tax legislation—the Tax Cuts and Jobs Act (TCJA). It also introduces a few new provisions, including some temporary tax breaks for individuals.
Following the House vote, I wrote a summary article (you can find it here). Since that time, I’ve been fielding some of your questions via email and social media, including a fast-paced A/M/A (ask me anything) on the social media site Reddit (you can find Forbes and me both there from time to time).
Why all the questions? New deductions for seniors, tipped workers, and overtime, plus a tax hit on gamblers, are just some of the provisions confounding taxpayers.
Line 6 of Form 1040 is where taxpayers report their taxable Social Security Benefits. Taxpayers report their gross taxable benefits on Line 6a and the taxable portion of their benefits on Line 6b. Most tax software calculates the taxable portion of benefits automatically. If there were no longer a tax on Social Security, the IRS could simply revise Form 1040 to remove Line 6, but that isn’t going to happen because that isn’t how the new law works.
Rather than removing Line 6 from Form 1040, the new law adds a new $6,000 deduction for seniors (age 65 and over). The deduction is up to $12,000 for jointly filed returns (both spouses must be qualifying seniors aged 65 or older). In other words, if a taxpayer starts taking Social Security at 62, they do not get this deduction—conversely, if a taxpayer has delayed Social Security and is not yet receiving benefits but is over age 65, they can still claim the deduction.
The provisions governing tips and overtime are similarly rule-dependent—neither is a blanket exemption.
Tip income would be temporarily deductible—only for tax years 2025 through 2028—for individuals in traditionally and customarily tipped industries, regardless of whether they itemize. The deduction is limited to $25,000 of reported tips. It's important to note that this is a federal income tax deduction, not an exclusion. That means that tips would still be reportable—and taxable at the state and local level. Highly compensated employees won’t benefit since phase-out begins for individuals who make more than $150,000 or $300,000 in the case of a joint return.
Workers who receive overtime will be eligible for a deduction for qualified overtime pay of $12,500 ($25,000 for married taxpayers filing jointly). As with tips, this is a deduction, not an exclusion. The deduction would apply to taxpayers regardless of whether they itemize and would also be temporary—only for tax years 2025 through 2028. For purposes of the rule, overtime compensation is defined as the amount paid in excess of the employee’s regular rate—only the overtime compensation is part of the break. It phases out for taxpayers with income over $150,000 ($300,000 for married taxpayers filing jointly)—that means the maximum deduction would disappear at $275,000 for single filers.
The deductions are similar but have a particular quirk when it comes to marriage: they are treated differently. Specifically, there appears to be a marriage penalty for well-tipped servers who tie the knot with one another, and a marriage bonus for well-tipped servers who marry industrious blue-collar workers.
And that tax hit for gamblers? An unpopular provision that wasn’t in the House version, but ended up in the final law would limit gamblers to offsetting only 90% of their winnings with their losses resulting in many gamblers, whether they win, lose, or break even, owing taxes on their gambling activities. The gambling industry isn’t happy—and members of Congress are already walking the provision back. Rep. Troy Nehls (R-Texas), who voted yes on OBBBA, is cosponsoring legislation to reverse the provision.
Nehls isn’t the only member of Congress trying to turn back the OBBBA clock. Despite language in the new law that mirrored a direction from the House to eliminate the IRS Direct File program (and spend $15 billion to try and find a replacement), Rep. Emilia Sykes (D-Ohio) has introduced the “Get Your Money Back Act" to make the IRS' Direct File tax program available to all 50 states.
To help you sort out some of the confusing bits, we’ve put together some of your most popular questions—and answers—in one place in an easy-to-read format. I hope it helps.We’ll continue to provide coverage on OBBBA, including IRS and Treasury guidance, as we hit the run-up to tax season. It will be here before you know it.
Speaking of here before you know it, the upcoming week marks the beginning of a whirlwind of tax conferences. I’ll be speaking at three this month: Tax Retreat, Bridging the Gap, and Taxposium. If you’re in attendance, come find me and introduce yourself–I’d love to say hello!
Enjoy your weekend, Kelly |
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| This week, a reader asked: I think I just found a mistake on last year’s tax return. How long do I have to file a new one? Normally, you have three years after the date you filed your original return or two years after the date you paid the tax, whichever is later, to file an amended tax return. (If you filed early, the time starts to run beginning on the April tax deadline.) Special rules apply to refund claims related to net operating losses, foreign tax credits, bad debts, and other issues. That said, you may not need to file an amended return—it depends on the error. The IRS may correct certain errors on a return and may accept returns that are missing certain required forms or schedules. However, if there's a more significant error, like a problem with your filing status, income, deductions, credits, or tax liability, you likely need to file. — Do you have a tax question 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. |
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Statistics, Charts, and Maps |
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There are a lot of expectations being placed on the U.N.’s Fourth International Conference on Financing for Development. The conference, which occurs roughly once a decade, is an opportunity for U.N.member countries to gather and discuss the most pressing development issues they face and troubleshoot solutions.
At each conference, there’s an outcome document that outlines the priorities, goals, and positions of the conference’s attendees. This year’s outcome document, the Sevilla Commitment, is supported by most of the U.N.’s member states, with the exception of the United States.
This year’s outcome document devotes nearly 2,000 words to tax-related issues. According to the document, developing countries experienced a promising trend in their tax revenues between 2000 and 2010. But over the past few years, those revenues have plateaued or shrunk because of events like the global financial crisis, COVID-19 pandemic, and slowing global economic growth.
In one section, the document encourages countries to consider increasing tobacco and alcohol taxes to boost national revenue and promote healthy behavior. Specifically, a new initiative is being launched under the Sevilla Platform for Action, entitled the “3 by 35 Initiative.” Under this plan, the World Health Organization will encourage countries to implement tax increases on tobacco, alcohol, or sugary drink products–often referred to as sin taxes–aiming to raise their prices by 50% by 2035.
One potential problem? Younger people are drinking and smoking less. Countries like the UK and Japan are witnessing declines in traditionally destructive behaviors, as illustrated in the chart above. Those drops, while beneficial for the population, aren’t great for sin tax revenues that depend on those behaviors. It’s a reminder of the problem with sin taxes—if the taxes successfully discourage the behaviors, the related revenues drop. |
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| Former Real Madrid coach Carlo Ancelotti has been sentenced to one year in prison and will pay a hefty fine after being found guilty of tax fraud. He had been accused of failing to pay over a million euros (US$1.1 million) in Spanish taxes related to image rights. Image rights—the right to use your name, image, voice, and other characteristics personal to you—can be valuable. Ancelotti was acquitted on similar charges related to the 2015 tax year. That was the year Ancelotti moved to London mid-year, following his first stint as coach with Real Madrid, which began in 2013. The break likely meant that Ancelotti didn’t meet Spain’s residency requirement for the year. Prosecutors had originally sought nearly five years in prison for the two counts of tax evasion. Ancelotti received a one-year sentence, which means he will likely not spend any time in prison. In Spain, individuals who receive a light prison sentence typically do not serve time unless the offense involves a violent crime or if the defendant is a habitual offender. Typically, a light sentence is one of two years or less, meaning he will only serve probation. In addition to the prison sentence, Ancelotti will be required to pay a fine of €386,361 (approximately US$452,973). The spotlight on Ancelotti—a manager—is a bit of a change of pace. In recent years, the Spanish government has chased several soccer stars for tax evasion, including Lionel Messi and Cristiano Ronaldo; most have settled their cases or received light sentences. |
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Tax Filing Dates And Deadlines |
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