Month: January 2026

The U.S. Postal Service is making an important change to how postmark dates are determined, and it could affect documents with filing deadlines, including tax returns and payments.

Effective December 24, 2025, USPS machine-applied postmarks will no longer necessarily reflect the date mail was dropped off. Instead, the postmark date will reflect the date of the first automated processing operation at a USPS facility. This processing date may occur one or more days after the item is placed in a mailbox.

For tax filings and payments, documents are generally treated as timely filed or paid only if the postmark date is on or before the applicable deadline. Under the new rule, an item processed after the due date may be considered late (even if it was mailed earlier), unless appropriate proof of mailing is obtained under Internal Revenue Code Section 7502.

Helpful Mailing Tips to Know

If you plan to mail time-sensitive documents, the USPS recommends taking one of the following steps:

• Request a manual postmark by presenting your envelope at a USPS retail counter
• Pay for postage at the counter, which applies a postage validation imprint showing the USPS acceptance date
• Use Certified Mail or Registered Mail, which provides a receipt as evidence of the mailing date

ATA Tip

If mailing is your only option, ATA recommends Certified Mail as the most practical and reliable of the available methods because it provides written proof of the mailing date.

That said, we strongly encourage clients to submit all time-sensitive filings and payments electronically whenever possible. Electronic submission helps reduce delays, provides immediate confirmation, and avoids uncertainty related to postmark processing.

Clients may consider:

• Creating an online account with the Internal Revenue Service at https://www.irs.gov/your-account
• Making a payment directly from a bank account using IRS Direct Pay (no login required) at https://www.irs.gov/payments/direct-pay-with-bank-account

If you have questions about deadlines, mailing options, or electronic filing and payment alternatives, your ATA advisor is happy to help you.

By Elizabeth Russell Owen, CPA | Private Client Tax Services Practice Leader  

If you had significant medical expenses last year, you may be wondering what you can deduct on your 2025 income tax return. Income-based thresholds and other rules can make it difficult to claim the medical expense deduction. At the same time, more types of expenses may qualify than many taxpayers realize.

Limits on the Deduction

Medical expenses are deductible only if they were not reimbursed by insurance and were not paid through tax-advantaged accounts such as Flexible Spending Accounts or Health Savings Accounts. Even then, these expenses are deductible only to the extent that they exceed 7.5% of your adjusted gross income (AGI).

For example, if your 2025 AGI is $100,000, your medical expenses must exceed $7,500 before any deduction is allowed. If you incurred $10,000 in eligible medical expenses, only $2,500 would be deductible. In addition, medical expenses can be claimed only if you itemize deductions. To benefit from itemizing, your total itemized deductions must exceed the standard deduction.

Due to changes under the Tax Cuts and Jobs Act that were made permanent by last year’s One Big Beautiful Bill Act (OBBBA), many taxpayers no longer itemize. However, the OBBBA also significantly increased the state and local tax deduction limit. As a result, some taxpayers who have not itemized in recent years may benefit from doing so for 2025. If this applies to you, it may also be worth reconsidering whether the medical expense deduction could reduce your taxable income.

What Expenses Are Eligible?

If you expect to itemize deductions on your 2025 income tax return, now is a good time to review your medical expenses and determine whether they exceed the 7.5% of AGI threshold. Eligible expenses extend well beyond hospital stays and physician visits.

Transportation costs related to medical care qualify as deductible expenses. This includes taxi fares, public transportation, or mileage for using your personal vehicle. For 2025, medical mileage can be calculated at 21 cents per mile, in addition to tolls and parking. Certain actual vehicle costs, such as gas and oil, may also qualify, although general expenses like insurance, depreciation, and maintenance do not.

Health insurance premiums can also be deductible. Even if your employer provides coverage, the portion of premiums you pay out of pocket may qualify as long as those amounts were not paid pretax through payroll deductions. Premiums for long-term care insurance are also deductible, subject to annual limits based on age. For 2025, the deductible limits range from $480 for individuals age 40 and under to $6,020 for individuals over age 70.

Medical services provided by individuals other than physicians may qualify as well, provided they are related to the treatment of a medical condition rather than general health. Physical therapy following surgery, acupuncture treatments, and psychological care are all examples of qualifying services. Certain long-term care services required by chronically ill individuals may also be eligible.

The cost of eyeglasses, contact lenses, hearing aids, dentures, prescription medications, and most dental work can be included as medical expenses. Purely cosmetic procedures generally do not qualify, although cosmetic surgery that is medically necessary may be deductible. Prescription medications qualify, but nonprescription drugs do not, even if recommended by a physician.

Expenses related to smoking-cessation programs may also be deductible. This includes fees paid to participate in an approved program and the cost of prescribed medications designed to alleviate nicotine withdrawal. Nonprescription nicotine gum and certain patches generally do not qualify.

Weight-loss programs can be deductible when undertaken as treatment for a disease diagnosed by a physician, such as obesity or hypertension. In these cases, program fees and meeting costs may qualify, though food expenses typically do not. Obtaining a written medical diagnosis is strongly recommended.

You may also deduct medical expenses you pay on behalf of dependents, including children. In certain situations, you may deduct expenses paid for a parent or grandparent who would otherwise qualify as your dependent but fails to meet income or filing-status requirements. For divorced parents, medical expenses are generally deductible by the parent who pays them.

Don’t leave potential deductions on the table.
If you had significant medical expenses in 2025, now is the time to review them with your ATA advisor. We can help determine what qualifies, whether itemizing makes sense, and how to optimize your overall tax outcome.

By Diane Sparks, CPA | Nonprofit Practice Leader

“Fiduciary” is a term that gets used often in nonprofit governance discussions, but it’s not always fully understood. As boards plan for the year ahead and organizations prepare for audits, financial reporting, and increased oversight, understanding fiduciary responsibility is more important than ever. Fiduciary duty refers to the legal and ethical obligation to act in the best interests of the organization. While the term is often associated with trustees and financial advisors, it applies just as directly to nonprofit board members. Board members are expected to put the organization’s mission and sustainability first, even when doing so may conflict with personal or professional interests. Ensuring your board understands these responsibilities is a critical step in protecting your organization and supporting sound decision-making.

Primary Duties 

Board members have three primary fiduciary duties, the first of which is care. Members must exercise reasonable care in overseeing your organization’s financial and operational activities. Although disengaged from day-to-day affairs, they should understand your nonprofit’s mission, programs and structure; make informed decisions; and consult others including outside experts when appropriate.

The second duty is loyalty. Board members must act solely in the best interests of your organization and its constituents, and not for personal gain. Obedience is the third duty. Board members need to act in accordance with your organization’s mission, charter and bylaws, as well as any applicable federal, state and local laws. If any board member knowingly violates these duties, consider removing that person from your board. Board members can be held personally liable for financial harm your organization suffers. In extreme cases, director malfeasance could lead to IRS sanctions and the loss of your nonprofit’s tax-exempt status.

Conflicts of Interest 

One of the most challenging, but critical, components of fiduciary duty is the obligation to avoid conflicts of interest. In general, a conflict of interest exists when a nonprofit organization does business with a board member, an entity in which a board member has a financial interest or another company or organization for which a board member serves as a director or trustee. The appearance of conflicts of interest matters almost as much as reality. To avoid even the appearance of any conflicts or impropriety, your nonprofit should treat transactions as conflicts of interest if they involve a board member’s spouse or other family member. Also off-limits are transactions with entities in which a board member’s spouse or relative has a financial interest. The key to dealing with conflicts of interest, whether real or perceived, is disclosure. Board members involved should disclose the relevant facts to the rest of the board and abstain from any discussion or vote on the issue unless the board determines they may participate.

Educating your Board 

Even experienced and well-intentioned board members may not fully understand how fiduciary responsibilities connect to financial oversight, compliance, and governance. ATA works with nonprofit leaders and board members to strengthen understanding, reduce risk, and support long-term sustainability.

If you have questions about fiduciary duties, board governance, or financial oversight, our nonprofit team is here to help.

By Charles Peery, CPA | Business Tax Practice Leader

Significant IRS changes taking effect in 2026 will impact how businesses track, report, and substantiate employee tips. These new rules under Internal Revenue Code section 224 also affect how eligible employees may claim a federal income tax deduction for qualified tips. Taking steps now to understand and prepare for these requirements can help ensure compliance and avoid surprises when 2026 payroll reporting begins. Continue reading for detailed information.  

Key Points: 

• Only “qualified tips” are deductible by employees under section 224. 

• You must separately report cash tips and employee occupations on 2026 Forms W-2. 

• Payroll and point-of-sale (POS) systems must be configured to capture and report tips in accordance with the new requirements. 

• Not all tips are “qualified”; mandatory service charges and tips from certain businesses are excluded. 

• Married employees must file jointly to claim the deduction, and the deduction is capped at $25,000 per return, regardless of filing status. 

Below, we outline the new requirements, explain how to distinguish between allowable and non-allowable tips, and highlight steps you can take now to prepare your payroll and reporting systems. Please contact us with any questions or if you would like assistance updating your payroll and recordkeeping processes.  

Detailed Guidance for 2026 Implementation

Understanding “Qualified Tips” under Section 224

Definition of Qualified Tips: 

• Qualified tips are cash tips received by an individual in an occupation that customarily and regularly received tips on or before December 31, 2024, as listed in IRS guidance (e.g., wait staff, bartenders, bussers, etc.). 

• “Cash tips” include tips paid in cash, by check, credit/debit card, gift card, or other cash-equivalent forms, and, for employees, tips received through tip-sharing arrangements. 

• To be qualified, tips must be:  

• • Paid voluntarily by the customer, without compulsion or negotiation. 

• • Not a mandatory service charge or automatic gratuity unless the customer can freely modify or decline the amount. 

• • Not received in the course of a specified service trade or business (SSTB) as defined in section 199A(d)(2) (e.g., law, health, performing arts, etc.). 

• • Not received from an employer or payor in which the employee has an ownership interest or is employed by the payor of the tip. 

Non-allowable (Non-qualified) Tips: 

• Mandatory service charges (e.g., automatic 18% gratuity for large parties). 

• Tips received in the course of an SSTB. 

• Tips paid by the employer or by a business in which the employee has an ownership interest. 

• Tips received for illegal services or activities. 

Examples: 

• A customer leaves a cash tip on the table after a meal: qualified tip. 

• A customer pays a bill with an automatic 18% gratuity added, with no option to change or remove it: not a qualified tip. 

• A bartender receives a tip from a customer at a restaurant (not an SSTB): qualified tip. 

• A singer employed by a theater company (an SSTB) receives tips: not a qualified tip. 

 2026 Tip Reporting Requirements

Form W-2 Changes: 

• For 2026, employers must separately report:  

• • The total amount of cash tips reported by the employee under section 6053(a). 

• • The employee’s occupation (as defined in the IRS list of occupations that customarily and regularly received tips). 

• This information must be included in new or revised boxes on Form W-2. 

Payroll and POS System Setup: 

• Configure payroll and POS systems to:  

• • Track and record all cash tips, including those paid by credit/debit card and through tip-sharing arrangements. 

• • Record the occupation of each tipped employee, using the IRS’s occupation codes. 

• • Distinguish between voluntary tips and mandatory service charges. 

• • Generate reports that separately account for qualified tips for each employee. 

• Ensure that tip-outs (amounts distributed to support staff from pooled tips) are properly tracked and reported. 

Recordkeeping: 

• Maintain contemporaneous records of all tips received and reported by employees. 

• Retain documentation supporting the classification of tips as qualified or non-qualified. 

• Keep records of employee occupations and any changes in roles. 

Steps to Ensure Compliance and Readiness

A. Review and Update Policies

• Update employee handbooks and training materials to reflect the new tip reporting and deduction rules. 

• Communicate the importance of accurate tip reporting to all staff.

B. System Configuration

• Work with your payroll provider and POS vendor to ensure systems are updated for 2026 requirements. 

• Test the system to confirm that it captures and reports tips and occupations as required. 

C. Documentation and Substantiation

• Require employees to submit regular tip reports (e.g., daily, weekly, or monthly). 

• Retain all tip reports, payroll records, and supporting documentation for at least three years. 

D. Monitor and Audit

• Periodically review tip reporting for accuracy and completeness. 

• Audit tip records to ensure that only qualified tips are being reported as such. 

E. Stay Informed

• Monitor IRS guidance for any updates or clarifications on section 224 and tip reporting. 

• Subscribe to IRS updates or consult with your tax advisor regularly. 

F. Employee Education

• Hold training sessions for employees on the new rules. 

• Provide examples of qualified and non-qualified tips. 

• Explain the impact of the deduction cap and the joint filing requirement for married employees. 

G. Prepare for State Law Differences

• Be aware that state tax treatment of tips may differ from federal rules; consult with your state tax advisor as needed.

Step for Employee Updates

A. Update form W-4

• If you do not update your Form W-4, your federal income tax withholding will not reflect this new deduction. This means you may have more tax withheld from your paychecks than necessary, resulting in a larger refund at tax time but less take-home pay throughout the year. 

• Estimate Your Qualified Tips for 2026: 

• • Qualified tips are voluntary cash or charged tips you receive from customers, including those received through tip-sharing arrangements. Mandatory service charges added to bills are not qualified tips. 

• • Only tips received in eligible occupations (as listed by the IRS) qualify. Most restaurant positions are included, but check the IRS list or ask HR if you are unsure. 

• • The maximum deduction is $25,000 per year, and the deduction phases out for individuals with modified adjusted gross income over $150,000 ($300,000 for joint filers). 

• Complete the Deductions Worksheet: 

• • Use the Deductions Worksheet provided with Form W-4 (Step 4(b)) to estimate your total qualified tips for the year, up to $25,000. 

• • Enter your estimated qualified tips deduction on line 1a of the worksheet. Add any other deductions you expect to claim and follow the worksheet instructions to calculate the total amount to enter in Step 4(b) of Form W-4. 

• Submit the Updated Form W-4: 

• • Complete a new 2026 Form W-4, entering your estimated deduction in Step 4(b). 

• • Submit the updated form to your employer as soon as possible to ensure your withholding is adjusted for the remainder of the year.

B. Proactive Tax Planning

• Work with your tax advisor to ensure correct withholding. 

• Update W-4 for any additional changes. 

With these changes approaching, now is the time to review your payroll processes and ensure your systems and documentation are ready for 2026. ATA can assist with system reviews, compliance planning, and employee guidance related to the new tip reporting and deduction rules. We encourage you to reach out with questions or to schedule time to discuss next steps. 

By Charles Peery, CPA | Business Tax Practice Leader

Background    

A new federal tax deduction could put meaningful dollars back in the pockets of workers who earn overtime. For tax years beginning after December 31, 2024, and before January 1, 2029, individuals (including employees and certain non-employees) may deduct up to $12,500 ($25,000 if married filing jointly) of “qualified overtime compensation” on their federal income tax returns. This deduction was created by section 225 of the Internal Revenue Code, as added by the One Big Beautiful Bill Act (OBBBA), and introduces new planning and reporting considerations for both taxpayers and employers.  

What Counts as “Qualified Overtime Compensation” 

• Qualified overtime compensation is only the overtime premium required under federal law (the Fair Labor Standards Act). 

• This includes pay for hours worked over 40 in a workweek at time-and-a-half. 

• Only the “extra half” portion of time-and-a-half pay is deductible. 

• Overtime that goes beyond federal requirement, such as double time, overtime required solely by state law, or pay under a collective bargaining agreement, does not qualify. 

• Overtime pay that is effectively a tip does not qualify for the deduction. 

Deduction Limits and Income Phaseouts 

• The maximum annual deduction is $12,500 per individual ($25,000 for married couples filing jointly). 

• The deduction phases out as income increases: 

• Reduced by $100 for every $1,000 of modified adjusted gross income (MAGI) above $150,000 ($300,000 for joint filers). 

• MAGI includes certain foreign income exclusions added back to adjusted gross income. 

Eligibility Requirements 

To claim the deduction, taxpayers must include a valid Social Security number on their federal income tax return, and married individuals are required to file jointly in order to qualify. 

New Employer Reporting Requirements (Effective 2026) 

• Employers must separately report qualified overtime compensation on Form W-2, box 19. 

• This information must be provided to employees and the IRS by January 31 of the following year. 

• For non-employees, qualified overtime compensation must be reported on Form 1099-MISC or Form 1099-NEC, as applicable. 

• Payroll and reporting systems should be updated now to capture this information accurately for 2026. 

How the Deduction is Calculated 

• Employees will generally use the amount reported in box 19 of Form W-2. 

• If a separate total is not provided, employees may rely on pay stubs, payroll summaries, or other records to calculate the qualifying overtime premium. 

• Non-employees should use earnings statements, invoices, or similar documentation to support the deduction. 

Practical Steps for Employers 

Employers should update payroll systems to separately track FLSA-mandated overtime premiums, communicate with employees about the new deduction and related reporting changes, and maintain detailed records of overtime hours, pay rates, and premiums paid. In addition, employers should prepare information return processes to ensure accurate W-2 and 1099 reporting for 2026 and consider whether employees may need to adjust withholding to reflect the anticipated deduction. 

Practical Steps for Employees 

Employees should regularly review their pay stubs to confirm overtime is properly calculated and classified, maintain copies of overtime pay records and any related employer communications, and verify that the amount reported in box 19 of Form W-2 matches their records.  

Married taxpayers must file jointly to qualify for the deduction, and all taxpayers should monitor their income levels to understand how phaseout thresholds may affect eligibility. 

Key Compliance Dates 

• January 31, 2027 – Employers must furnish 2026 Forms W-2 and 1099s. 

• April 15, 2027 – Deadline to file 2026 federal income tax returns and claim the deduction. 

Summary  

The new overtime deduction offers a significant tax benefit for eligible workers, but both employers and employees must ensure proper tracking, reporting, and substantiation of qualified overtime compensation. Employers should act now to update systems and procedures for 2026 compliance. 

Contact your ATA representative today for more information.