OBBBA Clarifications and Scam Protection

Good morning from Dan Johnson, CPA, we hope you had a fulfilling holiday weekend! In this issue, we’ll highlight some of the important details regarding OBBBA changes and how they may apply to you. Additionally, we’ll review some of the common techniques used by scammers that want to steal your holiday fun. Please take careful consideration of these scamming methods as the best way to protect yourself is with awareness.

OBBBA

1. Additional Deduction for Seniors
   • Effective for 2025 through 2028, individuals who are age 65 and older may claim an additional deduction of $6,000 on top of their standard deduction.
   • The $6,000 senior deduction is per eligible individual (or $12,000 total for a married couple where both spouses qualify).
   • Deduction phases out for taxpayers with modified adjusted gross income over $75,000 ($150,000 for joint filers).
   • Qualifying taxpayers: The taxpayer must be age 65 on or before the last day of the taxable year (12/31/2025).

2. State and local tax cap increased between 2025-2029 for those who itemize:
   • OBBBA will temporarily increase the deduction cap for state and local taxes to $40,000 from the previous $10,000 limit for taxpayers who do not take the standard deduction.
   • Phaseout for high earning taxpayers begins with a modified adjusted gross income over $500,000 in 2025 with a 1% annual increase for following years.
   • What does it mean to you?
     • Since 2018, if your property taxes, state income taxes, state withholdings and state taxes on large ticket items like a vehicle were greater than $10,000, your itemized deduction in this tax section was limited to $10,000. Now the limit is up to $40,000 in 2025, which may mean a larger amount to itemize than before.

3. No Tax on Overtime or Tips
   • Effective for 2025 through 2028, individuals who receive qualified overtime compensation may deduct the pay that exceeds their regular rate of pay (such as the “half” portion of “time-and-a-half” compensation) that is required by the Fair Labor Standards Act (FLSA) and reported on a Form W-2, Form 1099, etc. It should be noted that the IRS considers some of the wages from “double time” or more taxable as regular pay.
     • Example: Assume Mr. Taxpayer earns $20 per hour and works 10 overtime hours in a given week. His employer pays double time, so he receives $400 total ($20 x 2 x 10 OT hours = $400) for those overtime hours. Under FLSA rules, he may only deduct the additional half time portion of his regular $20 rate. This means $10 of the $40 double time rate, or $100 total ($10 x 10  OT hours), is deductible.
   • Cash and charge tips reported to an employer are not subject to federal income tax for 2025 through 2028, but are still subject to Social Security and Medicare tax.
   • Maximum annual deduction for overtime and tips, separately, is $12,500 ($25,000 for joint filers).
   • Deductions for overtime and tips phase out for taxpayers with modified adjusted gross income over $150,000 ($300,000 for joint filers).
   • If married, you must file jointly to claim the deduction.

4. Reinstatement of the De Minimis Threshold
   • OBBBA restores the original Form 1099-K reporting threshold for third-party settlement organizations (TPSOs) such as payment apps and online marketplaces (AKA Venmo, PayPal, Square, etc.)
   • A Form 1099-K will be issued if a payee has more than $20,000 in gross payments AND more than 200 transactions during the year.
   • What does this mean to you?
     • Even if a Form 1099-K is not issued because you or your business did not meet the thresholds, all income is still taxable; therefore, proper bookkeeping and records of receipts are critical.

Scam Protection during the Holidays

1. Common Scams to Watch For:
   • Email phishing scams:
     • Never click on any unsolicited communication.
   • Bogus charities:
     • Ensure your donation goes to a registered 501(c)(3) organization.
   • Requests for gift cards:
     • Most often by impersonating a government entity, scammers will request gift cards over the phone, text messages, emails or even social media.
   • IRS Impersonation
     • Scammers will call, or leave a voicemail with a callback number, informing you that you’re linked to some criminal activity. They’ll sometimes go to the lengths of threatening or harassing you by saying you must pay a fictitious tax penalty.

2. How to tell if it’s really the IRS calling:
   • Remember the IRS will NEVER:
     • Call to demand payment. The IRS will first mail a bill to any taxpayer who owes taxes.
     • Demand that taxpayers pay taxes without the opportunity to question or appeal the amount they owe. All taxpayers should be aware of their rights.
     • Threaten to bring in local police, immigration officers or other law enforcement to have the taxpayer arrested for not paying.
     • Threaten to revoke the taxpayer’s driver’s license, business licenses or immigration status.

 
As always, if there is anything you would like to discuss, whether it is in the newsletter or not, please give our office a call. Stay warm this week as we’ve got some chilly days ahead.

Dan Johnson, CPA
832 E Boston St STE 15, Covington, LA 70433
(985) 893-4123
dan@danjohnsoncpa.com