Implementing OBBBA
In addition to a smooth process for receiving tax returns and processing refunds for those who do not need paper checks, the IRS spent much of the tax season implementing OBBBA. In fact, Bisignano, in his testimony before the Senate Finance Committee, attributed the rise in refunds to three specific provisions – no tax on tips, no tax on overtime, and no tax on car loan interest.
“When you look at all of this, it’s the reason we talk about the historic refunds,” he testified, adding that the senior deduction also contributed to greater refunds this tax season.
Read more about the temporary senior deduction on CCH® Answerconnect, powered by Expert AI (subscription or free trial may be required).
No tax on tips
The final regulations on the no tax on tips deduction came fairly late in the season. Still, taxpayers could claim it if they filed earlier, as the tax forms were already available shortly after the tax season began. According to OBBBA and the newly-issued final regulations, 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 begins to phase out when modified adjusted gross income exceeds $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 receives tips on or before December 31, 2024. An amount is not a qualified tip unless all of the following conditions are met:
- The amount received is paid voluntarily without any consequence for nonpayment, is not the subject of negotiation, and is determined by the payor.
- 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).
- Other requirements established in regulations or other guidance are satisfied.
The final regulations identified the occupations eligible for this provision, including visual artists, floral designers, and gas pump attendants.
Learn more about provisions made permanent by OBBA on CCH® AnswerConnect, powered by Expert AI (subscription or free trial may be required).
No tax on overtime, no tax on car loan interest
For other deductions, the IRS has issued proposed rules and FAQs to help taxpayers navigate eligibility and claim them on their filed tax returns. The agency also issued FAQs on the OBBBA changes to the adoption tax credit covering documentation requirements, refundability, and carryforward rules, and other issues.
Potential legislation
While no major legislation is expected, a tax administration bill could be on the horizon. The House Ways and Means Committee advanced five bills with bipartisan support from the full committee.
First up was the Survivor Justice Prevention Act (H.R. 2347), which would exclude damages (other than punitive damages) received on account of any sexual act or sexual contact from being taxed as income.
Next was the Federal Disaster Tax Relief Act of 2025 (H.R. 5366), which would codify a modified version of the Taxpayer Certainty and Disaster Tax Relief Act of 2020 by allowing qualified net disaster losses exceeding $500 and more than 10% of adjusted gross income.
The Supporting Early-Childhood Educators Deduction Act of 2025 (H.R. 5334) would allow early childhood educators to access the same deductions as other teachers.
The Taxpayer Experience Improvement Act (H.R. 7959) would include several provisions to improve customer interactions with the IRS.
A bill to strengthen whistleblower protections was also passed out of the committee.
At a session just before the beginning of the tax filing season, the committee advanced H.R. 6956 (The BARCODE Efficiency Act), which would require the IRS to increase and improve the use of barcodes, barcode scanning technology, and optical character recognition technology to digitize certain federal tax return information and correspondence.
Separately, the Senate Finance Committee introduced a single bill focused on IRS administrative activities. The Taxpayer Assistance and Services Act would include a number of provisions, including:
- Digitizing more tax returns to support faster refunds
- Upgrading the “Where’s My Refund” tool
- Upgrading online accounts
- Strengthening standards for paid tax preparers
- Increasing the independence of the National Taxpayer Advocate and the IRS Independent Office of Appeals
- Protecting fraud victims from indefinite IRS scrutiny
During the tax filing season, Senate Finance Committee Ranking Member Ron Wyden (D-Ore.) attempted to open debate on overturning corporate alternative minimum tax guidance made in IRS Notice 2025-28, but it failed on a procedural vote (47-51) to advance the measure.
Gambling loss deduction change implications
One OBBBA item that is likely to get further scrutiny down the line is the change to the gambling loss deduction, which was reduced from 100% of losses against gambling winnings to 90% in the law. The proposed regulations on operationalizing the change were also released at the end of the tax filing season, with comments due by June 16, 2026.
Read more about gambling losses on CCH® Answerconnect, powered by Expert AI (subscription or free trial may be required).
Reconciliation bill
Hanging over all these smaller bills is another shot at a reconciliation bill (or maybe two bills). The GOP can pass a reconciliation bill in the Senate with a simple majority, just as was done in 2025 with OBBBA. With the potential of losing control of the House and possibly the Senate in the 2026 mid-term elections, the GOP may see these reconciliation bills as the last chance to implement any lingering GOP priorities. However, the content of reconciliation bills is limited under Senate rules.
The first of these reconciliation bills is expected in the next month or two. However, the expectation is that the first bill will likely be limited to funding for the Department of Homeland Security and will not contain any tax provisions. After that, lawmakers will likely turn their attention to the November elections, but the possibility of a lame-duck reconciliation bill after the election cannot be ruled out.
The changes in a second reconciliation bill at the end of the year cannot be predicted at this point, but, as mentioned above, this could be the GOP's last chance, so anything, including tax changes, is a possibility (subject to Senate rules). That said, with an extraordinarily slim margin in the House, passing any bill is difficult, let alone after an election where some of the necessary votes to pass legislation could be uninterested in returning to Washington after getting voted out of office.
Other changes
The IRS, during the tax season, offered a number of changes to the Tax Pro Accounts, including providing the ability to manage business Centralized Authorization File (CAF) access, link the business CAF number to the company’s Employer Identification Number, view taxpayer information associated with the business CAF within the scope of active authorizations, and withdraw active authorizations on behalf of the tax professional business.
