What’s New

Federal income tax withholding on qualified tips and qualified overtime compensation. For tax years beginning after 2024 and ending before 2029, P.L. 119-21, commonly known as the One Big Beautiful Bill Act, allows employees and self-employed individuals to deduct up to $25,000 of qualified tips received in occupations that customarily and regularly received tips on or before December 31, 2024, on their income tax returns. P.L. 119-21 also allows individuals (employees and other workers not treated as employees) to deduct up to $12,500 ($25,000 if married filing jointly) of qualified overtime compensation on their income tax returns. Employers must use an employee’s updated Form W-4, Employee’s Withholding Certificate, if one is submitted by the employee, and the federal income tax withholding procedures in Pub. 15-T, Federal Income Tax Withholding Methods, to allow the employee to account for their expected deductions and receive more money in each paycheck instead of waiting until filing their income tax return to receive the full benefit of these deductions. Generally, you may correct federal income tax withholding errors only if you discovered the errors in the same calendar year you paid the wages. In addition, for an overcollection, you may correct federal income tax withholding only if you also repaid or reimbursed the employees in the same year. If you didn’t account for these deductions accurately when withholding federal income tax from your employees, you can’t file a Form 941-X to correct federal income tax withholding for prior years for nonadministrative errors. In other words, you

can’t correct federal income tax actually withheld from an employee in a prior year if you discover that you didn’t withhold the right amount. For example, you can’t correct federal income tax withheld in a prior year because you used the wrong income tax withholding table, or you didn’t treat a payment correctly as taxable or nontaxable. Tips are still generally subject to both the employer share and employee share of social security tax and Medicare tax if the tips received are $20 or more per month. Overtime compensation is still generally subject to both the employer share and employee share of social security tax and Medicare tax. For more information about qualified tips, qualified overtime compensation, and the federal income tax withholding procedures, see Pub. 15, Employer’s Tax Guide, and Pub. 15-T.

Aggregate return filers must identify themselves. Aggregate return filers must use the new Aggregate Return Filers Only section on Form 941-X to identify whether they’re filing a corrected aggregate return as a section 3504 agent, certified professional employer organization (CPEO), or other third party. For more information about these types of aggregate return filers, see Certification program for professional employer organizations (PEOs) and You may need to attach Schedule R (Form 941) to your Form 941-X , later. For more information about completing this new section on Form 941-X, see Aggregate Return Filers Only, later.

Limitation on COVID-19 related employee retention credit corrections and extension of assessment peri- od. P.L. 119-21 prevents the allowance of the employee retention credit or refund for the third and fourth quarters of 2021, unless the claim was filed on or before January 31, 2024. P.L. 119-21 also extends the period of assessment for the third and fourth quarters of 2021 to 6 years after the credit was claimed or from when the original return was filed, whichever is later. Therefore, records related to qualified wages for the COVID-19 related employee retention credit paid after June 30, 2021, and before January 1, 2022, should be kept for at least 7 years.