We’re expecting a huge event at the beginning of this week—one that’s expected to impact more than 150 million people.
Of course, I’m referring to the winter storm. States from Texas through the mid-Atlantic (including my own state of Pennsylvania) and New England are bracing for heavy snow, freezing rain, dangerous ice, and extreme cold. As of this writing, fourteen states and Washington, D.C., have declared states of emergency, and preparations are underway for widespread impacts. That’s top of mind for many of us right now, and here’s hoping the impact is minimal.
But I suspect that many of you are also thinking about tax season, which officially opens on January 26. This year, it looks to be a doozy.
In a recent Tax Notes Talk episode, Philip Hwang, national chair of the Taxpayer Advocacy Panel, said the IRS has shown resilience in adapting to past disruptions, but limited resources could strain customer service, slow amended return processing, and increase confusion as taxpayers try to understand new provisions. Common issues—such as refund delays, difficulty reaching the IRS, and questions about return processing—are expected to persist, particularly as taxpayers respond to headlines promising larger refunds.
Hwang said the biggest challenge this season will be managing expectations. While the One Big Beautiful Bill Act (OBBBA) expanded deductions and credits—including those for overtime and tips—many taxpayers may assume they qualify when they do not, and not everyone will benefit equally. He also warned that staffing reductions in compliance and accounts management could exacerbate delays, especially in fraud resolution and amended returns, even as the IRS transitions away from paper checks to reduce refund fraud. Despite the hurdles, Hwang expressed cautious optimism, emphasizing that better digital tools, clearer communication, and proactive education by tax professionals will be critical to helping taxpayers navigate what is likely to be a noisy and uneven filing season.
Meanwhile, the IRS has been churning out guidance for the season, including details on how the new deduction for qualified overtime compensation works, who can claim it, and how it will be reported. The IRS confirmed that the deduction applies only to the Fair Labor Standards Act (FLSA)-required overtime premium—specifically, the portion of overtime pay that exceeds an employee’s regular rate (the “half” in time-and-a-half). The deduction is capped at $12,500 ($25,000 for joint filers), subject to income phaseouts, and requires a valid Social Security number and (for married taxpayers) joint filing.
Whether you’re eligible for the deduction depends on whether you’re covered by (and not exempt from) the FLSA. That means many salaried and “white-collar” employees—including, sadly, lawyers and accountants—won’t qualify, even if they work long hours.
The IRS also issued a clarification on the one-time $1,776 “Warrior Dividend” payments made to roughly 1.45 million service members in December 2025. Those payments are not taxable and do not need to be included in gross income. Although President Trump referred to them as dividends, the payments were administered through the military pay system as a supplemental Basic Allowance for Housing (funded by congressional housing appropriations), placing them in the same category as other non-taxable military allowances, rather than as wages or bonus pay. That means the payments did not increase taxable wages, were not subject to federal income tax withholding, and will not appear in Box 1 of service members’ Forms W-2.
Speaking of Forms W-2, you’re likely to receive yours soon—if you haven’t already. Employers must furnish Forms W-2 by February 2, 2026, and most common Forms 1099 (including 1099-NEC, 1099-INT, and 1099-DIV) are due by the same date. Some forms arrive later in February, and others—like Form 5498 for IRA contributions—won’t show up until June. This year, Forms W-2 may not capture everything needed to support special deductions for tips or qualified overtime pay, making pay stubs and other records especially important.
If a form doesn’t arrive, start by checking electronic portals and email, then contact the issuer. The IRS recommends waiting until late February before escalating. Filing without required forms can lead to delays, notices, or amended returns, and while substitutes like Form 4852 are available as a last resort, the IRS’s advice is simple: Don’t rush—wait until you have all the paperwork in hand.
When you start putting together your income documents (and support for deductions and credits), you’ll also want to make sure you choose the right filing status. The IRS recognizes five options: single, married filing jointly, married filing separately, head of household, and qualifying surviving spouse with a dependent child. For federal tax purposes, your status is based on your marital situation under state law as of December 31. Because assumptions about living arrangements or finances often lead to mistakes, taking a moment to confirm the correct filing status before you file can prevent errors, delays, and missed tax benefits.
Not every bit of tax news right now involves the filing season. President Trump’s threat to impose tariffs on countries that refuse to support his plan to acquire Greenland is also making headlines. Evidence from last year’s “Liberation Day” tariffs shows that 96% of the cost was borne by U.S. importers and consumers—not foreign governments—turning tariffs into a kind of consumption tax on Americans. Any Greenland-related tariffs would likely work the same way. Trump appears to have backed off those tariffs—for now—but the markets (and much of Europe) reacted sharply to the threat. Howard Gleckman explains why the Supreme Court’s pending decision suddenly matters a lot.
Finally, a matter that may yet end up at the Supreme Court: the closely watched self-employment tax case, Sirius Partners. The Fifth Circuit recently rejected the IRS’s attempt to treat “limited partner” as a proxy for passive activity rather than legal status. Reversing the Tax Court, the court held that for purposes of section 1402(a)(13), a limited partner is simply a partner in a limited partnership with limited liability under state law—full stop—regardless of how active that partner is in the business. While the ruling is binding only within the Fifth Circuit, it squarely rejects the IRS’s activity-based theory and is likely to have ripple effects nationwide.
With all that, this filing season is shaping up to be one where patience and preparation matter more than ever. The best advice right now is boring but effective: Keep good records, wait for your forms, double-check the basics, and resist the urge to rush.
Stay safe—and enjoy the snow.
Kelly Phillips Erb (Senior Writer, Tax)
This is a published version of the Tax Breaks newsletter, you can sign-up to get Tax Breaks in your inbox here.
Questions
This week, a reader asks:
Is the mileage rate for business just for going to and from work?
No. The business mileage rate does not apply to going to and from work. That’s commuting, and commuting is never deductible. That’s true even if you work long hours, take calls in the car, or consider your car a “mobile office.”
Business mileage is travel for work after you’ve started your workday. That can include going to a client meeting, heading to a second job site, or meeting with a vendor.
You must keep good records, including a mileage log to support your mileage claims. If you use a vehicle solely for business, that’s super easy—record the mileage on January 1 and again on December 31. Some taxpayers recommend taking a snap of your car’s odometer.
But if you use your personal vehicle for work, too, you’ll want to be careful to track your mileage. One of the best ways to do that is to use a mileage tracker app. You could also go old school—jot down the mileage in a notebook before and after each business use. You’ll also need to record the date of each trip, the business purpose, and your starting and ending location. Be sure to start from your place of work—or back those commuting miles out.—
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Statistics, Charts, and Graphs
From 2010 through 2019, the average federal tax refund was remarkably flat, hovering just below $3,000 most years. The pandemic year of 2020 marked a sharp dip, followed by a rebound in 2021 and a spike in 2022, when the average refund jumped to $3,252. Since then, the average refund has remained over $3,000, coming in at $3,167 in 2023 and 2025, and $3,138 in 2024.
The 2026 filing season is shaping up to deliver even larger refunds for many taxpayers, largely due to retroactive changes enacted under OBBBA, which expanded the standard deduction, increased child-related credits, and introduced new deductions for overtime and tip income. Because the IRS did not update withholding tables when those changes took effect in mid-2025, many taxpayers will have overpaid during the year, setting the stage for bigger refunds when they file.
Who benefits most will depend on individual circumstances, but the biggest bumps are expected among middle-income households, families with children, workers with overtime or tip income, and some older taxpayers. Estimates suggest the average increase could be around $1,000, pushing the typical refund above $4,000. That bump is likely temporary: Once withholding tables are updated, more money should flow into paychecks during the year, and refunds may shrink again. And while a larger refund can feel like a win, it’s still just the return of excess tax paid—often the result of overwithholding rather than a true windfall.
Taxes From A To Z: C Is For Cash Basis
Cash basis is an accounting method that recognizes revenues and expenses when cash is received or paid.
Most—but not all—taxpayers use the cash basis. The IRS allows most small businesses to choose between the cash and accrual methods of accounting. There are some exceptions for larger businesses, and the Tax Reform Act of 1986 prohibits the use of the cash basis for C corporations, tax shelters, certain types of trusts, and partnerships with C corporation partners.
Taxpayers who are not permitted to use the cash basis must use the accrual basis. Under the accrual method, income and expenses are recognized when they are earned or incurred, regardless of when cash is received or paid.
The distinction between the cash and accrual methods matters because it determines the tax year in which income is reported and deductions are taken. This timing can affect not only the amount of tax owed in a given year, but also cash flow, estimated tax payments, and the ability to defer or accelerate income and expenses.
For example, a cash basis consultant who completes a project in December but is paid in January reports the income in January, when payment is received. An accrual basis consultant performing the same work reports the income in December, when the services are completed, even though payment is not received until the following year.
Accrual accounting is generally considered more accurate for measuring economic activity, while cash basis more directly reflects cash flow.
Getting To Know You
Our Getting To Know You Tuesday series is still around! It’s been on hiatus for the holidays, but we’re gearing up again shortly.
If you’d like to nominate a tax professional to be featured, send your suggestion to kerb@forbes.com with the subject: Getting To Know You Tuesday.
(If you submitted more than six months ago, you’re welcome to reapply.)
A Deeper Dive
After years of negotiations, the OECD has announced a revised agreement on the global minimum corporate tax that preserves the overall framework while significantly limiting its application to U.S. companies. The original goal—curbing profit shifting by large multinational corporations through a coordinated international tax floor—remains intact in theory, particularly under Pillar Two, which establishes a 15% minimum tax rate. However, the updated deal reflects political resistance in the United States, where the Trump administration has rejected prior commitments absent congressional approval and opposed international enforcement mechanisms.
The revised agreement adopts a “side-by-side” approach that shields U.S. multinational corporations from two key enforcement tools: the Income Inclusion Rule and the Undertaxed Profits Rule. These rules would otherwise allow other countries to impose top-up taxes when profits are insufficiently taxed. Critics argue that exempting U.S. companies weakens the effectiveness and legitimacy of a global minimum tax, particularly given the size of the U.S. economy. Supporters counter that the core achievement of Pillar Two remains intact, noting that more than 60 countries have adopted domestic minimum taxes that continue to apply regardless of the U.S. carve-outs.
Whether the global minimum tax will meaningfully reduce profit shifting remains an open question. While excluding U.S. companies undermines the idea of a truly global floor, the OECD has treated existing U.S. rules—such as the tax on foreign income formerly known as GILTI—as a functional substitute for Pillar Two. The agreement also constrains future U.S. policy choices by conditioning the exemptions on maintaining a corporate tax rate of at least 20% and robust minimum taxes. Ultimately, the deal leaves unresolved whether meaningful reform will come from international coordination or from changes to U.S. tax law itself.
Trivia
Which state was the first to adopt an individual income tax?
(A) Hawaii
(B) Mississippi
(C) Pennsylvania
(D) Wisconsin
Find the answer at the bottom of this newsletter.
Positions And Guidance
States are also gearing up for tax season. The SC Department of Revenue advises taxpayers looking for general tax information, FAQs, forms, and SCDOR publications, to visit the newly-updated dor.sc.gov.
Noteworthy
The IRS and partners launched the annual Earned Income Tax Credit Awareness Day outreach campaign to help millions of eligible low-to- moderate-income, working Americans claim the Earned Income Tax Credit.
The AICPA reported that accounting undergraduate enrollment in U.S. colleges and universities rose for the third consecutive year in fall 2025, outpacing growth overall for undergraduate institutions.
In a poll conducted by the National Association of Tax Professionals (NATP), tax professionals shared how prepared they feel heading into filing season and identified areas they are watching most closely as filing begins. The good news? Most respondents indicated they feel prepared for the upcoming filing season. However, confidence in IRS readiness was notably lower, with communication and guidance emerging as key concerns.
The NATP is officially launching a new credentialing program, which includes the Accredited Tax Professional in Representation (ATPR) and the Advanced ATPR (AATPR). These credentials are focused specifically on representation, due diligence and ethical practice.
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Worth A Second Look
The links, clips, and tax takes readers loved (and a few you may have missed).
Here’s what readers clicked through most often in the last newsletter:
You can find the entire newsletter here.
Tax Filings And Deadlines
📅 February 2, 2026. Deadline for employers to provide employees with wage statements (like W-2s) and for certain information returns to be issued.
📅 March 16, 2026. Deadline for partnership and S corporation returns to be filed with the IRS (or to request an extension).
📅 April 15, 2026. Deadline for individual tax returns to be filed with the IRS (or to request an extension).
Tax Conferences And Events
📅 March 5, 2026. International Tax Review Women in Tax Forum USA. Marriott Marquis, New York. Registration required.
📅 May 7-9, 2026. American Bar Association Section of Taxation May Tax Meeting. Marriott Marquis, Washington, DC. Registration required.
Do you have a tax conference or event that you think our readers would be interested in? Let me know.
Trivia Answer
The answer is (D) Wisconsin, which adopted its income tax in 1911. Ten states adopted individual income taxes before 1920, with three (Hawaii, Wisconsin, and Mississippi) doing so before the federal income tax was adopted in 1913.
(And there’s a bit of a trick here: While Hawaii adopted an income tax in 1901, it was not granted statehood until 1959.)
As for my state? Pennsylvania didn’t adopt its income tax until 1971.
Feedback
New year, new tweaks! We’ve made a few changes to the newsletter for 2026 and would love your thoughts. What’s helpful? What’s confusing? What tax topics do you want more of? Email me directly—I read every message.
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