The death of a partner often forces a surviving spouse to face two challenging and conflicting timelines at once: The open-ended process of grief and the immediate reality of financial and tax deadlines and consequences.

Chief among these is the so-called "widow’s penalty."

Despite the name, we're not talking about an official IRS penalty or surcharge. Rather, the widow's penalty is a series of tax and financial shifts that occur when a surviving spouse's tax filing status changes from married filing jointly to single.

The amount of tax-friendly space available to the surviving spouse changes as the standard deduction shrinks, federal income tax brackets compress, and Medicare income thresholds become less favorable.

Meanwhile, tax returns still have to be filed. Retirement accounts continue generating required distributions, and Medicare premiums are recalculated according to established rules and deadlines.

To visualize this, imagine traffic flowing on a four-lane highway suddenly merging into one. The number of cars remains the same, but there is far less room to move.

Understanding these changes and how they interact can help surviving spouses anticipate surprises before they appear on a tax return, Medicare notice, or unexpected bill. Here's more of what you need to know.

The reality of single filing status after a loss

At the center of the widow’s penalty is a deceptively simple shift: moving from married filing jointly to filing as a single taxpayer.

In the year a spouse dies, the surviving spouse can generally still file a joint tax return. By the following tax year, however, many widows and widowers begin facing a very different tax landscape.

Wider federal income tax brackets, a larger standard deduction, and other advantages available to married couples may no longer apply, potentially increasing the taxes owed on the same retirement income.

You can see the differences in the following table.

2026 Tax Thresholds: Single vs Married Filing Jointly

For 2026, the 12% federal tax bracket extends to $100,800 for married couples filing jointly. For single filers, that same bracket tops out at $50,400.

Federal income tax brackets compressed. A widow whose retirement income once fit comfortably within the 12% bracket while married may suddenly find any income over $50,400 pushed into the 22% bracket the very next year.

The standard deduction is cut in half. Even if the surviving spouses' total household income drops slightly, a much larger portion of it is exposed to higher tax rates. This is because the surviving spouse is now claiming a smaller standard deduction; they often end up paying taxes on a much larger share of their remaining income than they expected.

In short, the widow's penalty shift isn’t necessarily driven by more income. Instead, it often reflects the reality that the tax code provides fewer advantages once a surviving spouse begins filing as a single taxpayer.

Your income may fall, but taxable income often doesn’t

One of the most common misconceptions surrounding the widow’s penalty is the assumption that household income is automatically cut in half after the death of a spouse.

Retirement finances, however, are rarely that simple, and a lower income does not automatically result in a lower tax bill.

A surviving spouse may lose one Social Security benefit and potentially a portion of pension income. Other sources of retirement income may continue unchanged, including:

• Investment income continues, survivor benefits may kick in, and retirement accounts must still generate Required Minimum Distributions (RMDs).
• These mandatory withdrawals increase adjusted gross income (AGI), which can further complicate the picture by triggering higher Medicare premiums and increasing the taxable portion of Social Security benefits.

Ultimately, household income may decline, but the tax advantages that once helped shelter that income decline as well.

For instance, if both you and your spouse qualified for the new "senior bonus" deduction, your total tax break might have been $12,000. Now, that tax deduction is capped at $6,000.

Other overlooked tax deductions and credits might be lower with just one individual in the household rather than two.

Why more of your Social Security benefits may become taxable

Many retirees assume that if they’re receiving fewer Social Security benefits after the death of a spouse, they’ll owe less tax on those benefits. In reality, the opposite can sometimes occur.

• Although a surviving spouse may lose one Social Security check, they often continue receiving the larger of the two benefits.
• At the same time, they may be filing as a single taxpayer under a different set of income thresholds.
• As a result, a larger percentage of Social Security benefits may become subject to federal income tax.

For single filers, the thresholds used to calculate taxable Security benefits are significantly lower than those available to married couples filing jointly.

But the rule of taxability remains the same. Up to 85% of their Social Security benefits may be taxable, depending on a survivor’s income, including from retirement accounts, pensions, and other sources.

That is another example of how the widow’s penalty can emerge through changes elsewhere in a surviving spouse’s financial picture.

Medicare premiums can rise even if income falls

For many retirees, Medicare premiums are one of the last places they expect to encounter the widow’s penalty. Yet for some surviving spouses, healthcare costs can become part of the equation.

In many cases, the answer lies in a Medicare surcharge known as the Income-Related Monthly Adjustment Amount, or IRMAA. Higher-income beneficiaries pay additional Medicare Part B and Part D premiums, and those surcharges are based on income reported on a tax return from two years earlier.

• Because IRMAA uses a two-year income lookback and lower income thresholds for single taxpayers, some surviving spouses may find themselves paying higher Medicare premiums even if household income has declined.
• In some cases, surviving spouses may be able to request an IRMAA adjustment based on a qualifying life-changing event, including the death of a spouse, by filing Form SSA-44 with the Social Security Administration (SSA).

Still, IRMAA is another example of how several separate rules can quietly stack on top of one another, exacerbating the widow's penalty.

What surviving spouses can do now

Even though every situation is different, there are some planning opportunities worth discussing with a qualified tax professional or financial advisor who can advise you on your specific situation. Here are a few to get you started.

Taking advantage of the final joint-filing year. The year a spouse passes away provides a final opportunity to leverage the wider "married filing jointly" tax brackets and a larger standard deduction before your filing status changes.

Exploring strategic Roth conversions. Converting portions of a traditional IRA into a Roth IRA during the final joint-filing year — or during lower-income transition years — can help shrink future mandatory distributions and reduce long-term taxable income.

For example, converting $25,000 from a traditional IRA to a Roth IRA during a lower-income year may allow a surviving spouse to lock in a lower tax rate and create a source of tax-free income later in retirement.

Monitoring Medicare income thresholds. Because Medicare relies on a two-year lookback to determine IRMAA surcharges, spikes in taxable income today can dramatically increase your future Part B and Part D premiums.

Working with a tax professional to spread large withdrawals or Roth conversions over multiple years may help avoid crossing into a higher IRMAA bracket.

If your income falls due to a qualifying life-changing event, you may be able to request a new IRMAA determination using Form SSA-44.

Coordinating Social Security survivor benefits. Deciding when to switch from your own retirement benefit to a survivor benefit (or vice versa) requires careful timing to maximize lifelong guaranteed income while managing the sudden shift to single tax brackets.

Reviewing your Social Security claiming strategy may help optimize survivor benefits while minimizing potential tax consequences.

And keep in mind, this piece discusses federal income tax rules and changes, but state income tax consequences may differ. So always consult a trusted advisor who can help with your individual circumstances.

Related

• Taxes on Social Security Benefits: 6 Things You Need to Know
• 2026 Federal Tax Brackets and Income Tax Rates
• Filing a Deceased Person's Final Income Tax Return

Virginia lawmakers have approved what appears to be the nation’s first tax on data center electricity use.

The budget deal, which ends months of budget negotiations, will impose a new charge on the power used by data centers in the Commonwealth beginning July 1.

But…the compromise stops short of rolling back the long-standing and controversial sales tax exemption on equipment that has helped fuel Virginia's massive data center industry.

The legislation now heads to Gov. Abigail Spanberger, who is expected to sign it before the start of the new fiscal year. Here's more of what you need to know.

Virginia data center tax compromise

The new data center tax emerged from negotiations during this year’s General Assembly session, as Virginia lawmakers struggled to reconcile competing views on how to tax one of the Old Dominion state's fastest-growing industries.

For months, some state senate lawmakers pushed to scale back or eliminate Virginia’s sales tax exemption for data center equipment.

Supporters of repealing the billion-dollar tax exemption argued that the incentive — first enacted in 2008 — has become increasingly costly as data center construction has accelerated across Northern Virginia. State estimates show the exemption now reduces revenue by more than $1.5 billion annually and is expected to rise further as new facilities come online.

Still, some House of Delegates lawmakers and Gov. Spanberger opposed eliminating the incentive outright. A concern was reportedly that eliminating or changing the exemption before its slated end in 2035 could undermine Virginia’s reputation as a destination for stable technology investment.

The disagreement had stalled broader budget negotiations until lawmakers reached a compromise earlier this week: keep the exemption in place, but add a new tax tied directly to electricity consumption.

Under the FY 2027–FY 2028 biennial budget agreement:

• Data centers will pay 1.1 cents per kilowatt-hour of electricity consumed, billed monthly.
• If Spanberger signs the budget, the tax will begin on July 1, 2026.
• Revenue is capped at $600 million annually, with excess collections refunded to the data centers at the end of the fiscal year.

Virginia's Data Center Alley: Why this matters

As Kiplinger has reported, Virginia is home to the largest concentration of data centers in the world, with Northern Virginia’s “Data Center Alley” anchoring a global hub of cloud computing and digital infrastructure.

Around 200 facilities are currently operating in Loudoun County alone, with more planned. These facilities handle over one-third of the world’s daily internet traffic.

But the scale of the data center industry has sparked debate over everything from electricity and water usage to noise concerns.

• Utilities and grid planners have warned that data center electricity demand is growing rapidly, driven in part by artificial intelligence (AI) workloads that require more computing power than traditional cloud services.
• In some forecasts, data centers could account for roughly 20% to 30% of electricity demand in parts of Virginia over the next decade if current growth trends continue.
• For some Virginia residents living near data centers, the constant hum from cooling systems, back-up generators, and other equipment has become a quality of life issue.

Data centers also typically rely on large diesel-powered backup generators to ensure uninterrupted operations during power outages, which raises concerns about local air quality in some communities.

And, depending on the design and cooling technology, large facilities can consume hundreds of thousands of gallons of water per day to cool server racks. Some large campuses reportedly use volumes comparable to those of a small town, raising sustainability questions in some communities.

Adding to the debate, the existing data center sales tax exemption in Virginia cost an estimated $1.6 billion last fiscal year, according to the Commonwealth’s tax disclosures.

That massive exemption and the growing backlash over the more than 600 data centers already in the Commonwealth have made data centers a politically sensitive issue.

But Virginia isn't alone. Similar data center debates have erupted across the United States.

A recent Gallup poll finds that 71% of Americans now oppose the construction of AI data centers in their local communities (with 48% strongly opposed). The pollsters note that local data center construction is more unpopular in the U.S. than building a nuclear power plant.

As of June 2026, according to various online trackers, more than 25 states are either advancing data-center-related legislation or have enacted measures that address grid cots, reporting requirements, utility regulation, tax incentives, or local authority over data centers.

Virginia data center tax exemption: What's next?

For most residents, the immediate impact of the new tax will likely be indirect, since the data center tax revenue will flow into the Commonwealth's general fund.

Notably, under the budget compromise, the Virginia Department of Environmental Quality (DEQ) would play a larger role in regulating data centers. The agency, currently responsible for protecting Virginia's air, water, and land resources, would study data center impacts, create rules, and oversee limits on issues including noise and water use.

Will Spanberger sign? Gov. Spanberger, who has signaled support for the compromise, is expected to sign the budget.

Her signature will end this year’s fiscal standoff, but not the broader debate over how and whether the data center industry should be taxed or constrained. So stay tuned.

Related

• The Hidden Toll of Data Centers on Local Communities
• New Poll Shows People Hate Data Centers: Tax Breaks Are One Reason Why
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Many retirees rely on their homes for financial security. According to the Federal Reserve’s Survey of Consumer Finances, home equity accounts for a substantial share of net worth among households aged 65–74.

But when it comes time to tap that value, often through a sale, converting housing wealth into cash doesn’t always go as planned for older adults.

A recent study finds that even when home prices are relatively strong, the proceeds older sellers receive can differ meaningfully from those of younger homeowners. Though timing and how the sale is managed play a role.

And while the research doesn’t point to a single cause for the disparity, it raises broader questions about how home-sale outcomes can affect retirement income and, yes, taxes. Here’s more to know.

Why older homeowners get less money for their homes

A study from the Center for Retirement Research at Boston College finds significant variation in sale outcomes for older homeowners. It analyzed roughly 10 million repeat home sales using CoreLogic deed records linked to demographic data to estimate sellers’ ages.

Researchers compared outcomes across age groups while controlling for home type, location, and broader market conditions and found a consistent gap.

A key takeaway? Older homeowners tend to realize lower proceeds when they sell compared with younger sellers with similar observable characteristics.

According to the study's findings:

• "Older sellers get less starting at age 70," with the gap "increasing with each additional year."
• There is an estimated 5% gap in realized sale proceeds over the average 11-year holding period for some cohorts.
• For a typical home, the differences can amount to tens of thousands of dollars, depending on market conditions. Per the study, for a median $400,000 home, that is roughly a $20,000 reduction in proceeds.

There appear to be several explanations for the gap. But the study points to two primary factors.

• First, older homeowners are more likely to sell homes with fewer recent updates, which can affect pricing even in strong markets.
• Second, the researchers report that in some cases, older adults are more likely to use off-market or less competitive listing channels than the Multiple Listing Service (MLS), which can result in fewer bidders.

Also worth noting: Some home sales at older ages are driven by life transitions like downsizing, health changes, or moves into assisted living, where speed and certainty matter more than maximizing the price. In some cases, that can mean accepting an early offer rather than waiting through a longer listing process.

How a lower home sale price affects retirement income

The impact of lower home proceeds can show up in how retirees adjust their broader financial picture after the sale.

A retiree may expect a home sale to generate a certain amount of cash, enough, for example, to fund a year or two of spending without significantly tapping retirement accounts. But if the actual sale comes in lower than expected, that shortfall might be covered elsewhere, e.g., through additional withdrawals from traditional IRAs, 401(k)s, or taxable investment accounts.

• Those withdrawals are generally taxed as ordinary income. As a result, a larger-than-planned draw in a single year can push a retiree into a higher marginal tax bracket, even if only part of their income crosses the threshold.
• The same increase in reported income can also eventually affect Medicare premiums (IRMMA surcharges), since those costs are tied to income levels from two years prior.

As a result, a lower-than-expected home sale price can have retirement planning implications beyond the transaction itself.

Capital gains tax on home sales over age 65

Even though the tax impact here is primarily about how income replacement flows through the rest of the retirement portfolio, capital gains are an important consideration in retirement.

The tax treatment of a primary residence remains unchanged, including the capital gains home sale exclusion of up to $250,000 for single filers and $500,000 for married couples. That tax break can shield many homeowners entirely from tax on the sale.

Note: A 2026 analysis by the Tax Policy Center and Brookings Institution finds that about 90% of households age 65 and older will likely remain within the current home-sale capital gains exclusion, while roughly 10% would have gains large enough to exceed it.

Still, other recent data indicate that approximately 8% of home sales resulted in gains that exceeded the home exclusion threshold. That's more than double the percentage over the last five years or so, according to a report from the consumer information and analytics company CoreLogic.

That rising share of taxable gains has prompted several proposals on Capitol Hill, including bills that would eliminate capital gains taxes on home sales and a recent legislative proposal to increase the capital gains exclusion to $1 million for homeowners age 65 and older.

Why is this happening? One issue is that the exclusion limit hasn't been adjusted for inflation, so the value of the tax relief provided by the home sale exclusion has eroded over time.

As a result, homeowners across the U.S., but more often in states with high property values, like California, New York, New Jersey, Massachusetts, Florida, and Colorado, are likely to see gains exceed the exemption limit.

Selling a home in retirement: Bottom line

If you're considering a home sale, it may help to speak with a financial planner or tax professional first to understand how the proceeds could affect your retirement finances.

Every individual's financial situation is different, and a trusted professional can help with a tailored strategy.

However, a few considerations:

• How the sale fits into your broader retirement income strategy
• Whether the proceeds could affect taxable income or Medicare premiums
• How the proceeds will be used, saved, or reinvested

It may also be worth considering whether the timing of the sale allows enough time to attract multiple buyers. As the study suggests, urgency can limit a seller's options and make it harder to maximize the sale price.

Related

• New Bill Proposes $1 Million Capital Gains Tax Exclusion for Those Over Age 65
• The Capital Gains Tax Exclusion for Homeowners Explained
• Capital Gains Tax Rates for 2026: What to Know Now
• Retirees Face a Growing Capital Gains Tax Trap

Weeks away from the official launch of "Trump Accounts," the child savings vehicles from the 2025 tax bill, a targeted spinoff is set to roll out.

Dubbed "Fostering the Future Accounts," this new initiative is designed to help children in foster care save for future housing, educational, and career development costs as they transition to adulthood.

First lady Melania Trump and U.S. Department of the Treasury Secretary Scott Bessent announced in a press release that these new accounts will open on July 4, 2026.

“Fostering the Future Accounts give foster children the same chance for asset ownership and long-term wealth building as every other American child," Mrs. Trump remarked. "By investing in our foster youth now, we help strengthen America’s workforce, communities, and economic future."

But because these accounts will be opened and managed by state infrastructure, states must opt in. Not everyone is on board. Read on for who qualifies and what's holding back the remaining 27 states.

New: Low-Tax States For Middle-Class Families Ranked by Childcare Affordability

Fostering the Future Accounts for kids

The Trump "Fostering the Future Accounts" are an offshoot of standard Trump Accounts structured to help children in foster care save for long-term financial goals, like a down payment on a home or higher education expenses.

To qualify, a child must be:

• Under age 18
• A U.S. citizen with a Social Security number

These accounts might be opened by a state, territorial, or tribal child welfare agency. They can also be opened by designated foster parents or other legal guardians in the foster care system.

Which states are participating?

Because Fostering the Future Accounts are managed at the state level, access depends on local legislative approval. So far, governors in the following 23 states have pledged to offer the program, according to White House officials:

Participating state child welfare agencies must submit IRS Form 4547 (Trump Account Election) to formally open an account for each eligible child in their custody.

Fostering the Future Accounts vs standard Trump Accounts

Although Fostering the Future accounts function the same as a standard Trump Account — investing in stock market index funds to grow tax-deferred savings — there are some nuances in how each is opened and funded.

For instance, when a parent or guardian opens a standard Trump Account, they can claim a $1,000 federal seed deposit directly into the newborn's account, provided their child is born from 2025 to 2028.

However, "a child welfare agency cannot elect to receive the $1,000 pilot program contribution to the child's [Fostering the Future] Account," as the IRS reported in a recent update. Instead, only a foster parent or other qualifying individual who anticipates caring for the child might claim this federal seed money for the child's account.

Here's a table highlighting several other key differences between the two types of accounts:

The Fostering the Future Accounts also have unique funding methods that the federal government doesn't offer for standard Trump Accounts.

For example, state officials can redirect existing state resources — such as unused Temporary Assistance for Needy Families (TANF) block grants — into a foster child's savings, according to the Administration for Children and Families (ACF).

Why isn't my state on the list?

Notably, all 23 states opting into Fostering the Future Accounts are GOP-led, reflecting the partisan divide surrounding Trump Accounts, which were a key component of the 2025 Trump tax bill.

But beyond partisan lines, several other reasons exist for why states might heavily debate signing on:

• Strained budgets. State child welfare departments often depend on federal funding streams such as TANF and the Social Services Block Grant (SSBG) to operate. Because most states have already finalized their budgets for the upcoming fiscal year, adding new, unplanned programs midcycle might be too financially constrained.
• Administrative hurdles. Fostering the Future Account documentation, including individual investment portfolios and private donations for every child, must be monitored. As such, participating state agencies are required to establish new protocols to continuously update this information, which might prove difficult given that children frequently shift between foster homes.
• Legal challenges. Legally, a state, territorial or tribal child welfare agency might open a Fostering the Future account, but the timeline of who holds account management authority can be constantly in flux. If a child is in temporary emergency care, for instance, then switches to kinship care or transitions between different county jurisdictions, it might be unclear who is legally authorized to update the account. (Note: the Treasury and ACF released joint guidance related to this issue.)

Ultimately, the Trump administration has set a target for all 50 states to sign on to Fostering the Future Accounts by December 2027.

However, some child welfare advocates worry that a prolonged state-by-state rollout will deepen economic disparities for children aging out of foster care — especially for children who move across state lines due to interstate adoptions or structural changes in their care.

Ruth Anne White, executive director of the National Center for Housing and Child Welfare, told independent news outlet, The Imprint. "But it's right there in the Child Welfare Policy Manual [released guidance] — as clear as day."

According to data from the National Council for Adoption, there are roughly 330,000 children in the U.S. foster care system. Statistics from the National Foster Youth Institute show that one in five foster youth face homelessness after aging out of the system, and only half secure gainful employment by age 24.

Supporters of the new initiative hope these accounts will disrupt those outcomes.

Yet while supporters have framed Fostering the Future Accounts as a solution to the financial hardships facing youth aging out of care, states will need to overcome complex questions surrounding budget allocations, administrative hurdles and bipartisan support.

Until then, foster parents and child welfare agencies will find that state lines dictate whether children in their care are eligible for these accounts.

Read More

• How to Claim Your Kid’s Trump Account in 3 Steps
• Adoption Tax Credit: What You Need to Know for 2026
• Child Tax Credit 2026: How Much Is It and What's Changed?

It's a tale as old as time: If you live in a high-cost area like Long Island, San Francisco, or Seattle, your paycheck doesn't stretch nearly as far as it would in, say, Pittsburgh. Yet, the IRS taxes your income exactly the same.

A new bill from lawmakers on Capitol Hill would flip that script by linking your federal tax obligations to your home address.

The Cost of Living Tax Cut Act, introduced by House Reps. Laura Gillen (D-NY-04) and Mike Lawler (R-NY-17) would adjust federal income tax brackets based entirely on where a taxpayer lives.

"This bipartisan bill would help lower taxes for families in high-cost areas [like Long Island] by accounting for regional differences in the cost of living and ensuring taxpayers can keep more of what they earn," Gillen said in a recent release.

Lawler echoed the sentiment for his constituents in Hudson Valley, New York, arguing that the tax code should reflect the economic reality of high-cost regions.

Yet while the prospect of localized tax relief sounds promising to families in expensive ZIP codes, the proposal is likely to face heavy scrutiny over who will ultimately foot the bill for the corresponding drop in federal revenue.

Here is a breakdown of how this plan could change your take-home pay, which areas stand to benefit, and what this means for the upcoming mid-term election season this fall.

How the bill adjusts the tax brackets

The Cost of Living Tax Cut Act is designed to prevent households in more expensive regions from being pushed into higher tax brackets when their real purchasing power is relatively low compared with the rest of the U.S. If passed, the bill would take effect after December 31, 2026.

The bill's framework relies on localized data to determine your federal tax liability:

• The index: The bill directs the Secretary of Commerce to use regional price parities (RPPs) to calculate an annual cost-of-living index for metropolitan and rural areas.
• The adjustment: Instead of applying uniform national tax thresholds as it does now, the IRS would expand tax brackets in regions with an above-average cost of living.
• The savings: By widening the lower tax brackets, more of a household's income would be shielded from higher tax rates.

Who wins the affordability contest?

If passed, the Cost of Living Tax Cut Act would provide the most significant relief to major metropolitan statistical areas (MSAs) where the local purchasing power of a dollar is typically lower than the national average.

Per the most recent regional economic metrics from the Tax Foundation, the primary beneficiaries of this new bill would live in regions where a typical $100 has the real purchasing power of only $84 to $90. For example:

• California metros: The San Francisco Bay Area (Oakland, Berkeley, San Jose, Santa Clara), Los Angeles, Orange County, San Diego, and Santa Barbara.
• The Pacific Northwest: The greater Seattle-Tacoma-Bellevue metro area in Washington.
• Northwest corridor: The broader New York-Newark-Jersey City metro area (spanning NY, NJ, and PA), Boston-Cambridge-Newton (MA/NH), and high-cost zones in Connecticut.
• Hawaii and South Florida: Urban Honolulu and the Miami-Fort Lauderdale-Pompano Beach metroplex.

Under the proposed framework, families in the affected ZIP codes would see their tax brackets widened proportionally. Conversely, regions where the cost of living is at or below the national average — like parts of Arkansas, Louisiana, or Ohio — would see no changes to their baseline brackets.

However, federal policy historically requires an offset for targeted tax cuts. Since the legislation bars lawmakers from adjusting tax brackets downward in lower-cost regions, the federal government would have to absorb the resulting deficit, which could eventually lead to spending cuts or the search for alternative federal revenue sources.

The hidden cost of geographic tax cuts

Data published by the Rockefeller Institute of Government reveals that high-wage coastal states subsidize spending in the rest of the nation. For instance, in a single fiscal year, New York residents paid $19.4 billion more to the federal government than the state received, while California taxpayers contributed an extra $72 billion.

So if the federal tax code were to cut taxes for some areas and not others, that might lead to several potential long-term risks:

• A structural drop in federal revenue. Think tanks like the Center on Budget and Policy Priorities often note that targeted tax cuts substantially reduce federal funding for key national obligations like infrastructure, Social Security, and defense.
• Ripple effects in the tax code. Drops in federal revenue could lead to raising baseline tax rates nationwide, implementing broad surtaxes, or risking an increase in the national deficit. This fiscal pressure isn't unique to the federal government; for example, a state-level structural deficit was one reason Washington enacted a millionaire's tax on its wealthier residents.
• Porous boundaries and "tax cliffs." Relying on regional price indexes could create tax spikes right at city borders. For example, a taxpayer living just outside a high-cost metropolitan boundary line who works inside it could face a higher federal tax burden than a neighbor living just one mile away. A similar dynamic already plays out with commuters who live in one state and work in another.
• Increased regulatory burdens. Shifting to an address-based tax system forces the IRS to track, audit, and dynamically update tax brackets across hundreds of MSAs. In an era of $1 billion IRS funding cuts, managing localized federal brackets would heavily strain resources. Furthermore, tax preparation software would need to become more complex, potentially driving up filing costs for everyday taxpayers and increasing the risk of location-reporting errors or geographic fraud.

Bottom line: Will the legislation pass?

Even though the Cost of Living Tax Cut Act addresses a very real financial pressure point for millions of voters, it will most likely face a steep climb to become law.

The proposal must compete against much broader fiscal blueprints, like the 2025 Trump Tax Bill, which focused on making previously enacted individual tax cuts permanent and revamping the federal standard deduction. Adding a localized layer to the IRS tax code could complicate revenue projections and require extensive bipartisan negotiation and spending offsets.

With several congressional seats on the ballot this November and a recent 3.8% inflation surge reported by the U.S. Bureau of Labor Statistics, targeted affordability proposals may take center stage. Even if this specific bill stalls, it highlights a growing legislative focus on how your ZIP code impacts your wallet.

So, before making any sudden moving plans for a cheaper area, wait to see how these fall tax proposals shake out. Your bracket might not change, but your vote could shape future local tax policy.

Read More

• People Are Leaving High-Tax States: Here's Where They're Moving Instead
• New Bill Proposes $1 Million Capital Gains Tax Exclusion for Those Over Age 65
• Are No-Income Tax States Better to Live In?

After lawmakers approved HJR 1-F during a special session on June 2, a proposed constitutional amendment aimed at expanding property tax relief for homeowners is headed to the November ballot, setting up one of the most closely watched tax debates in recent Florida history.

For homeowners, the proposal could mean significant savings. Under the measure, Florida’s existing $50,000 homestead exemption would increase to $150,000 in 2027 and $250,000 in 2028, reducing the portion of a home’s value subject to tax.

A homeowner with a $400,000 primary residence could save thousands of dollars annually, depending on local tax rates. And for supporters, that potential savings is exactly the point.

Critics, however, have raised questions about how local governments would replace the revenue currently generated by property taxes, which a legislative analysis projects could drain local municipalities of up to $8.4 billion annually by 2028.

And…a nonprofit group, naming two former South Florida mayors as plaintiffs, has filed a lawsuit against the measure, arguing that the ballot summary is "unconstitutionally biased, misleading, and inaccurate."

These tensions have emerged as central questions surrounding the proposal as it heads toward a statewide vote. Here's more of what you need to know.

The HJR 1-F property tax exemption for Florida homeowners

The passage of HJR 1-F moves the long-debated property tax relief conversation in Florida from Tallahassee to the ballot box.

• If approved by at least 60% of Florida voters this November, the amendment would significantly expand the state’s homestead exemption for qualifying homeowners.
• The proposal applies to owner-occupied primary residences that qualify for Florida’s homestead exemption and would not extend to second homes or investment properties.
• The measure also introduces a tiered structure based on residency duration.

Current Floridians and those who establish permanent residency by December 31, 2026, would be eligible for the full tax break immediately, while anyone moving to the state after that date would have to wait five years before becoming eligible for the full $250,000 exemption.

Gov. Ron DeSantis has framed the measure as a way to provide relief for homeowners facing rising housing costs, insurance premiums, and other housing-related expenses.

“I think a lot of people need relief,” DeSantis told reporters in a recent presser, adding, "I think a lot of people have been wondering, where can we get it? We’re showing a pathway to be able to get that done that I think is going to be transformational for people."

To justify that relief, the administration points to an aggressive surge in local property tax collections.

According to data released by the governor’s office, property tax revenue collected by Florida local governments has nearly doubled over the past seven years, climbing from $32 billion to $60 billion. It is currently projected to reach $83 billion by 2032.

Why property taxes matter

Property taxes have become an increasingly visible part of the cost of homeownership, particularly in fast-growing areas where home values have climbed sharply over the past decade.

For retirees, fixed-income residents, and longtime homeowners, the appeal of lower property tax bills is easy to understand. Many are already balancing rising insurance premiums, HOA fees, utility costs, and other housing-related expenses.

Supporters argue homeowners should not continue paying higher taxes simply because their property values have increased. They view the amendment as long-overdue relief that would allow residents to keep more of their own money while strengthening Florida’s reputation as a low-tax state.

For many households, even modest savings could have a meaningful impact on annual budgets.

Tradeoffs for Florida voters

The debate surrounding the amendment extends beyond annual tax bills and potential savings.

Former State Sen. Jeff Brandes has described the proposal as "a tax shift, not a tax cut," arguing that while homeowners may pay less directly, the costs associated with funding local government services do not simply disappear.

Property taxes currently help support many of the services and infrastructure residents rely on every day, including public safety, road maintenance, infrastructure improvements, and emergency preparedness.

Notably, HJR 1-F legally requires local governments to prioritize remaining property tax revenues strictly on designated "core services," such as law enforcement, fire protection, and flood control.

However, the lawsuit filed by Save Our Voters From Misleading Ballot Language argues that the ballot summary's promise of "ensuring funding for core services" is misleading when the policy itself cuts the revenue available to pay for them.

In a state that regularly faces hurricanes and severe weather events, how local governments would replace billions of dollars in projected revenue reductions remains one of the proposal’s biggest unanswered questions.

Cragin Mosteller, spokesperson for the Florida Association of Counties, told the Miami Herald that "one of the things that is easy to overlook sometimes is that we move to a community not only because it’s safe but because it’s wonderful, because it has a great quality of life."

For opponents, the question isn’t whether homeowners deserve lower taxes. It’s whether communities can continue delivering that quality of life if one of their largest sources of funding is significantly reduced.

Ultimately, the decision comes down to how homeowners view property taxes: as a recurring cost of homeownership or an investment in the neighborhood surrounding that home.

Infrastructure and public safety are easy to take for granted when they work seamlessly, but their true value becomes clear the moment those services are stretched thin.

What happens next

The amendment must receive at least 60% voter approval to become part of the Florida Constitution — assuming the text first survives its current legal challenge. So between now and Election Day in November, debate over the measure will continue as those on both sides try to win over voters.

Floridians will ultimately have to weigh historic tax savings for their household budgets against long-term funding concerns and the certainty of local services they rely on every day.

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In 2024, Bob DeSmidt, 78, of Sioux City, Iowa, wanted to help his adult son buy a home in an area that was closer to his new job. DeSmidt, a retired chief financial officer for a construction company, could afford to help his son with the purchase, but the contribution he and his wife wanted to make exceeded the annual gift tax exclusion — the amount of assets that individuals can transfer to each recipient without filing a gift tax return or reducing their lifetime exemption for federal gift and estate tax.

The gift tax exclusion in 2024 was $36,000 for a married couple, or $18,000 per individual. The DeSmidts ended up giving their son more than $36,000 and filing a gift tax return with the IRS. But that doesn't mean they had to pay tax on the gift, or that their assets will be subject to federal estate tax after they die.

In fact, it's highly unlikely that will happen. The One Big Beautiful Bill Act, signed into law in 2025, permanently increased the federal exemption for gift and estate tax. For 2026, it's $15 million per person, or $30 million for a married couple, and the exemption is indexed annually to inflation. DeSmidt says that while he and his wife are financially comfortable, their estate's value is well below that threshold. Iowa has no estate tax, so state taxes aren't a concern.

Given such a large federal lifetime exemption, only the very wealthy — and extremely generous — gain a tax benefit by keeping their gifts within the annual exclusion. Using this strategy, they can reduce the size of their estate, limiting the amount of it that is subject to tax and preserving the full lifetime exemption amount. Any gifts that exceed the annual exclusion count against the lifetime exemption.

But even if you're not among the ultra-wealthy and want to give away more than the annual exclusion, you'll still have to file a gift tax return on Form 709 unless you meet certain exceptions, which we'll discuss below. For 2026, the gift tax exclusion is $19,000 per person, or $38,000 for married couples.

Financial planners say De-Smidt's situation isn't unusual. Many of their clients want to help their children and grandchildren while they're still alive, instead of making their heirs wait 30 or 40 years to inherit family wealth. “We don't want to see our kids struggle when we can help them,” says Rose Price, a certified financial planner in Vienna, Va. In many cases, particularly when it comes to buying a house, they'd like to give away more than the annual exclusion.

Filing the gift tax form

If you're convinced that your estate will never be worth $15 million (or $30 million if you're married), you may be tempted to skip the hassle of filing Form 709 for gifts that exceed the annual exclusion. Financial planners say that's a bad idea. There's no guarantee that lawmakers won't lower the federal estate and gift tax exemption in the future, exposing more families to estate taxes of up to 40%.

In addition, several states have much lower exemptions. Oregon, for example, has an estate tax exemption of $1 million, making planned gifting even more critical. Annual gifts within the federal exclusion are tax-free under Oregon law, and those gifts will reduce the size of your taxable estate while preserving your $1 million exemption.

Filing a gift tax return can also protect you from future audits, says Lawrence Pon, a CFP and certified public accountant in Redwood City, Calif. Once you file a gift tax return, the IRS has three years to audit it; if you don't file, there is no statute of limitations on audits, he says. In addition, if you help a family member make a down payment on a home, the lender may request a gift tax return to confirm that money was a gift instead of a loan, Pon says.

Finally, by filing gift tax returns, you can track your lifetime giving, says Easton Price, a CFP in Irvine, Calif. That's a useful estate-planning tool, particularly if you want to equalize the amount you give to children or beneficiaries, he says.

Bypassing the annual exclusion

If you'd like to avoid filing a gift tax return — or you're worried about possible future changes to the lifetime estate and gift tax exemption — there are strategies you can employ to avoid the annual exclusion:

Make educational gifts. You can contribute an unlimited amount to a child, grandchild or other beneficiary's tuition as long as the funds go directly to the educational institution.

Contribute to a 529 plan. Contributions to a 529 college-savings plan are considered gifts for federal tax purposes, which means they're subject to gift tax requirements. However, you can front-load up to five years' worth of annual contributions. For example, in 2026 you can contribute up to $95,000 to a child or grandchild's 529 plan ($190,000 if you're married and file jointly).

If you take advantage of this strategy, you can't make additional contributions for the next five years without filing a gift tax return. In the meantime, however, you're giving the money invested in the plan more time to grow and compound, while reducing the size of your estate — a smart strategy if you live in a state with an estate tax.

Offer medical assistance. Want to help a family member with catastrophic medical bills? Payments made directly to the medical provider or insurer are exempt from gift taxes.

You could even give the recipient a debit card that's designated to be used for medical expenses, says Jon Robertson, a CFP in Columbia, S.C. The expenses must qualify as deductible expenses under IRS rules, which include hospital bills, dental procedures and long-term care. As is the case with tuition payments, the money must go directly to the medical provider or insurer, not the family member.

Stagger your gifts. The gift tax exclusion restarts every year. With that in mind, you and your spouse could give an adult child $38,000 in December and the maximum for 2027 (which has not been announced) in January without triggering the requirement to file a gift tax return, says Catherine Valega, a CFP in Burlington, Mass.

Double up. Under federal rules, you can give up to the annual exclusion to as many people as you want without filing a gift tax return. So if you'd like to help an adult child make a down payment on a house, you and your spouse could give $38,000 to your child and another $38,000 to your child's spouse this year, for a total of $76,000. That may not cover the entire down payment, especially in parts of the country with a high cost of living, but it's a good start.

Note: This item first appeared in Kiplinger Personal Finance Magazine, a monthly, trustworthy source of advice and guidance. Subscribe to help you make more money and keep more of the money you make here.

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Each week in our Ask the Editor series, Joy Taylor, The Kiplinger Tax Letter editor, answers questions on topics submitted by readers. This week, she's looking at five tax questions on inherited property, including the tax basis upon death. (Get a free issue of The Kiplinger Tax Letter or subscribe.)

1. Inheriting gold and silver

Question: I own highly appreciated gold and silver bars and coins. When I die, will my children get a stepped-up basis in this property?

Joy Taylor: Under the tax law, a decedent’s unrealized gains aren’t hit with federal income tax at death, and heirs step up or step down their basis in the assets they receive, equal to fair market value on death. So yes, your children would take a stepped-up tax basis to fair market value in the gold and silver bars and coins that they inherit from you.

2. Inheriting property with a built-in loss

Question: I own stock that currently has a built-in loss, meaning I paid more for the shares then what they are now currently worth. If I die tomorrow, what tax basis will my heirs take in the stock?

Joy Taylor: Under the tax law, a decedent’s unrealized gains aren’t hit with federal income tax at death, and heirs step up or step down their basis in the assets they receive, equal to fair market value on death. Not many people are aware that when they inherit loss property, they take the lower fair market value at the time of death as their tax basis in the property. That's because most estate planners and tax advisers focus on stepped-up basis for appreciated inherited assets.

If you die tomorrow, your heirs' basis in the stock would be the fair market value of those shares upon your death, which would be a lower tax basis then what you actually paid for the stock. This means that the built-in capital loss in your shares is gone forever. You may want to think about selling the loss property before you die, so that you can take advantage of the capital loss, especially if you have other capital gains that the loss could offset.

3. Tax rules for a jointly-owned home

Question: My spouse and I jointly own our home, which has substantially appreciated. How do the tax basis rules work if one of us dies?

Joy Taylor: With regards to your house, which has appreciated, if you don’t live in a community property state, half of the home will get a step-up in basis upon the death of the first-to-die spouse. The rules are more generous if the house is held as community property. The entire basis is stepped up to fair market value when the first spouse dies.

4. Inheriting rental property

Question: I own rental property that has appreciated since I first bought it. When I die, I plan to leave it to my child. Does he get a step up in basis in the property upon my death? Also, what happens to the depreciation that I had previously deducted on the property?

Joy Taylor: The answer to your first question is yes, your beneficiary would take a stepped-up tax basis in the rental property when you die. That means your child's basis in the inherited property would be its fair market value on the date of your death.

I haven't looked at the depreciation issue before, but it is my impression that your depreciation essentially disappears when you die. Again, your beneficiary takes a stepped-up tax basis in the property. If he decides to keep renting the property, he would depreciate it over 27.5 years, beginning in the year he inherited it and using the stepped-up tax basis.

5. Tax rules for co-owned stock

Question: My mother bought shares in a company in 1987 for $2300. The stock is now worth over $400,000. At some point between 1987 and 1997, she added my name to the shares as joint tenancy. She died last month, and now I own all the shares. What is my cost basis in the shares?

Joy Taylor: I don't know for certain, but I will give you my thoughts. I think when your mom added your name to the shares as joint tenancy, it is treated for tax purposes as if your mom made a gift of half of the stock to you. If it is considered a gift, then I would think your tax basis in the shares equals half of your mom's original cost basis plus half the value of the shares on your mom's date of death.

About Ask the Editor, Tax Edition

Subscribers of The Kiplinger Tax Letter, The Kiplinger Letter and The Kiplinger Retirement Report can ask Joy questions about tax topics. You'll find full details of how to submit questions in each publication. Subscribe to The Kiplinger Tax Letter, The Kiplinger Letter or The Kiplinger Retirement Report.

We have already received many questions from readers on topics related to tax changes in the One Big Beautiful Bill, retirement accounts and more. We will continue to answer these in future Ask the Editor roundups. So keep those questions coming!

Not all questions submitted will be published, and some may be condensed and/or combined with other similar questions and answers, as required editorially. The answers provided by our editors and experts, in this Q&A series, are for general informational purposes only. While we take reasonable precautions to ensure we provide accurate answers to your questions, this information does not, and is not intended to, constitute independent financial, legal, or tax advice. You should not act, or refrain from acting, based on any information provided in this feature. You should consult with a financial or tax advisor regarding any questions you may have in relation to the matters discussed in this article.

More Reader Questions Answered

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• Ask the Editor: Deductions for Self-Employed Retirees
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A Republican lawmaker is proposing a major tax break for some homeowners, arguing that outdated tax rules are preventing many older adults from selling homes they've owned for decades.

The "Nest Egg Protection Act" would temporarily increase the federal capital gains tax exclusion to $1 million for qualifying homeowners age 65 and older who sell their primary residence.

Under current law, homeowners can exclude up to $250,000 in gains from the sale of a primary residence, while married couples filing jointly can exclude up to $500,000.

But… those thresholds were established in 1997 and haven't been indexed for inflation, despite increases in home values over the past three decades.

The bill's sponsor, Rep. Nicole Malliotakis of New York, says many older Americans are effectively trapped in homes that no longer meet their needs because selling could trigger a significant tax bill.

"By removing this tax barrier that discourages seniors from selling when they want to, we can protect their nest egg while making the American Dream of homeownership more attainable for younger families and first-time homebuyers," Malliotakis said in a release announcing the legislation.

Curious? Here's more of what you need to know.

New $1 million home sale tax break for seniors?

According to Malliotakis, the proposal is intended to help seniors preserve the equity they have accumulated over decades while also encouraging downsizing that could free up housing inventory for younger buyers.

• To qualify under the proposal, those over age 65 would need to have owned their home for at least 25 years.
• If approved and enacted, the enhanced exclusion would apply from tax years 2027 to 2030.

The bill comes as lawmakers from both parties have increasingly focused on capital gains taxes as a factor contributing to housing market gridlock. (You may recall proposals last year to eliminate capital gains taxes on home sales.)

Housing advocates and economists often refer to the issue as a "lock-in effect," where homeowners delay selling, in part because of the tax consequences associated with large gains.

• Older adults and long-term homeowners often choose not to sell their homes because they represent a source of financial stability.
• Particularly for those who have paid off their mortgages, selling often means facing higher costs elsewhere due to today's elevated mortgage rates.
• Additionally, in many cases, their homes hold substantial equity, which they may want to preserve as an emergency resource, through reverse mortgages, or to pass on to loved ones.

The result can be fewer homes available for sale, particularly in high-cost markets.

Who benefits from a higher capital gains exclusion?

As Kiplinger has reported, data show that in recent years, approximately 8% of home sales resulted in gains that exceeded the home exclusion threshold. That's more than double the percentage five years ago, according to a report from CoreLogic, a company that provides consumer information and analytics.

Supporters say that increasing the exclusion amounts would make it easier for retirees to relocate closer to family members, move into smaller homes, or transition into assisted-living communities without sacrificing a portion of their nest egg to taxes.

Another argument is that additional housing supply could help ease affordability pressures in some markets.

Critics, however, question whether such a measure would disproportionately benefit homeowners in higher-value markets who have generally seen the largest appreciation gains.

• According to research from the Yale Budget Lab, only about 10 to 15 percent of homeowners have capital gains on their primary residences that exceed the current federal tax exclusion limits.
• These are typically wealthier and older folks, with homes averaging $1.4 million and capital gains above the exemption at around $430,000.

Some tax policy analysts have also warned that expanding (or eliminating) capital gains exclusions could reduce federal revenue.

Capital gains exclusion on primary residences: Bottom line

The legislation has been referred to the House Ways and Means Committee and will likely face a lengthy path through Congress. But if eventually approved, it would represent one of the most significant targeted tax benefits for homeowners in recent years.

For now? The capital gains tax break for homeowners remains at $250K for singles and $500K for those married filing jointly.

To be eligible for the exclusion, you must have owned and used the home as your primary residence for at least two of the five years leading up to the date of the sale.

The IRS allows you to have only one "primary residence" at a time, and uses various factors to determine whether a home qualifies.

If you're thinking about selling your home, it may be a good idea to consult with a certified financial planner or tax professional who can consider your situation and help evaluate any capital gains tax implications.

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The graduation caps have been tossed, summer heat has arrived, and graduate celebrations are winding down. But as reality sets in, you might notice a surprising line on your financial dashboard: unspent money in your child’s or grandchild’s 529 plan college savings account.

Roughly 10% of families may end up with surplus 529 funds, according to data from Consumer Reports, often thanks to unexpected scholarships or grants, or by choosing a more affordable school. Fortunately, thanks to the SECURE 2.0 Act, you may be allowed to roll those leftover education funds directly into a Roth IRA without paying federal income tax or a penalty.

Yet it isn't always as simple as moving money from point A to point B. The IRS has strict, fine-print rules regarding timelines, lifetime limits, and account history.

Take our 6-question quiz to find out if you can seamlessly pivot your beneficiary's college savings into a retirement head start — or whether a different tax strategy might make more sense for your family.

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Drive through eastern Loudoun County, Virginia, and you will quickly understand why some parts of the area are often referred to as "Data Center Alley."

Massive, windowless gray cement structures rise up behind fences and security gates, while cranes loom over roads once lined with trees, now covered in mud from construction traffic, working to make way for yet another data center.

This mixed suburban/rural area is now home to the world’s largest concentration of data centers. Around 200 facilities are currently operating in Loudoun alone, with more planned, and they handle over one-third of the world’s daily internet traffic.

While supporters argue these centers are vital to the digital economy, many residents — not only in Virginia but across the United States — are concerned about their rapid expansion, energy and water use, and broader environmental impact.

Critics also highlight that these facilities often create fewer permanent jobs compared to the tax incentives they receive. As tensions grow, the question becomes: where do residents and lawmakers go from here?

The great data center debate

Data centers are specialized facilities that house a variety of computing components, including servers, networking equipment, and extensive drives.

Their prevalence has increased in recent years, as every time someone streams a movie, stores photos, shops online, uses social media, or interacts with AI chatbots, information is processed through these centers worldwide.

There are now reportedly around 4,000 data centers in the U.S., which some see as a good thing, helping create jobs and generate revenue.

But…data centers place significant demands on local infrastructure.

• Modern data center campuses can span dozens or even hundreds of acres and often require new power lines, substations, roads, and other infrastructure.
• Many consume significant amounts of electricity. (Just a few years ago, data centers accounted for an estimated 4% of total electricity use in the United States. By 2028, that figure is expected to climb to as high as 12%.)
• Data centers also typically rely on large diesel-powered backup generators to ensure uninterrupted operations during power outages, which raises concerns about local air quality in some communities. (According to the U.S. Environmental Protection Agency, diesel exhaust from backup generators contains fine particulate matter and nitrogen oxides that are associated with respiratory issues like asthma.)

Notably, data centers and water have emerged as another point of contention.

Depending on the design and cooling technology, large facilities can consume hundreds of thousands of gallons of water per day to cool server racks. Some large campuses reportedly use volumes comparable to those of a small town, raising sustainability questions in some communities.

Still, states and local governments across the country have spent years competing to attract data center development, often by offering generous tax incentives.

Data center tax exemptions

In recent years, 38 states have offered generous incentives, including sales tax exemptions on servers and equipment and property tax reductions, to win a larger share of the industry's explosive growth.

Increasingly, however, several of those states are facing backlash not just from residents but also from some lawmakers.

As a result, some are moving toward requiring greater transparency, shifting infrastructure costs onto developers, reexamining tax incentives, or studying the industry's impact on electricity and water supplies and local communities.

Some examples:

Illinois: Late last week, Gov. JB Pritzker directed the state's Department of Commerce to completely halt the processing of all new data center tax exemptions starting July 1.

"Illinois has an opportunity to continue leading in technological innovation and economic growth, but we also have a responsibility to protect working families and local communities as the data center industry rapidly expands," Pritzker stated in a release.

Ohio: In May, Ohio Gov. Mike DeWine ordered the state’s Tax Credit Authority to freeze all pending and new data center sales tax exemption requests. The halt came after a state report revealed that the exemption cost Ohio $1.5 billion in 2025 alone.

In a release regarding the issue, DeWine wrote, “I fully support the Ohio General Assembly's work to study the issue and bring forward facts about data centers, including the local benefits to communities when tax exemptions are granted.”

Georgia: Lawmakers in the Peach State are moving to phase out data center tax suspensions after a state audit revealed the exemptions will cost a projected $2.5 billion this year.

Data centers in Virginia: What’s happening

In Virginia, lawmakers in the Senate want to let a multibillion-dollar annual data center tax exemption expire, while the Virginia House is reportedly trying to tie any remaining tax breaks to strict environmental and clean-energy compliance rules.

According to the Commonwealth’s tax disclosures, the existing data-center sales-tax exemption in the Old Dominion state cost an estimated $1.6 billion last fiscal year.

That massive exemption and the growing backlash over the more than 600 data centers already in the Commonwealth are sticking points in a budget process that must be completed by the end of June.

At the same time, in some other states, resistance to data centers has led to new legislation. (This is not an all-inclusive list.)

• In Oklahoma, Gov. Kevin Stitt signed the Data Center Consumer Ratepayer Protection Act of 2026 into law, effective July 1. The law is designed to prevent utility cost hikes for residents.
• New York lawmakers just passed the Responsible Data Center Development Act (A11560), which, once enacted, will impose a one-year moratorium on permits for new data centers of 20 megawatts or more.
• Monterey Park, California, became the first U.S. city to enact a ban on data center developments after roughly 88% of local voters approved a June 2 ballot measure.

As of June 2026, according to various online trackers, more than 25 states are either advancing data-center-related legislation or have enacted measures that address grid cots, reporting requirements, utility regulation, tax incentives, or local authority over data centers.

What about Congress? In March 2026, Sen. Bernie Sanders (I-Vt.) and Rep. Alexandria Ocasio-Cortez (D-N.Y) introduced the Artificial Intelligence Data Center Moratorium Act. The measure, which would temporarily pause new data center construction nationwide while Congress develops federal rules for AI infrastructure, hasn’t gained traction on Capitol Hill.

Are data centers bad? Bottom line

The debate over the good and not-so-good aspects of data centers shows no signs of going away.

A recent Gallup poll finds that 71% of Americans now oppose the construction of AI data centers in their local communities (with 48% strongly opposed). The pollsters note that local data center construction is more unpopular in the U.S. than building a nuclear power plant.

This “not in my backyard” sentiment is split between environmental concerns (expressed by 50% of respondents) and economic fears, e.g., higher utility bills (about 20% of respondents), according to Gallup. Pollution, negative views of AI, and quality-of-life concerns were also factors for some.

While polling data help explain national sentiment, grassroots opposition efforts highlight local concerns.

• In Hood and Hill Counties, Texas, residents hoped to block eight proposed data centers by attending town halls in large numbers, though developers are fighting back in court. A similar effort occurred in Champaign County, Illinois, leading to a moratorium to protect a crucial aquifer.
• In Sand Springs, Oklahoma, residents mobilized in response to reports that local officials had allegedly signed non-disclosure agreements to annex 827 acres of agricultural land for a tech campus.
• Residents in Box Elder County, Utah, along with Alliance for a Better Utah, have filed a lawsuit against state development agencies over a 40,000-acre AI project backed by celebrity investors. They argue it undermines local voter oversight and grants big tech unchecked control over their water, roads, and tax structure.

Meanwhile, among those polled by Gallup who favor having a data center in their communities, the most cited reason why was potential job growth.

To that end, a Brookings Institution analysis finds that while data centers do create local jobs, it is likely “fewer than advocates claim.”

Some independent estimates put the total at a few dozen to a few hundred long-term on-site positions once a given center is constructed.

Read More

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You won't find them at grocery checkouts, but the U.S. penny is back. To celebrate America's 250th birthday in 2026, the U.S. Mint has introduced one-year-only design overhauls to almost all circulating coins, which are out now.

The rollout includes quarters, nickels, dimes, half-dollars…and yes, the penny.

Though President Donald Trump ordered the end of circulating penny production late last year to save taxpayers an estimated $56 million annually, a special "dual-date" penny has returned exclusively for the semiquincentennial. Think of its comeback like Pluto's status as a "dwarf planet": Not quite a "regular" planet, yet it makes us feel good.

The federal government didn't strike these 2026 pennies for general circulation, so you won't find them in everyday cash transactions. You'll have to embark on what the Mint Director calls a "treasure hunt," and you could actually be taxed on that treasure if the collection is eventually sold for a profit.

Happy Birthday, America — let's talk about what's in your pocket.

New pennies in 2026?

The Mint is celebrating the nation's 250th anniversary with one-year-only design upgrades.

The only other time the U.S. has done this on such a widespread scale was during the 1976 bicentennial. After the celebration concludes, however, the coins are scheduled to revert to their standard looks, like Cinderella's dress at midnight.

The Mint's new redesigns feature a 1776 to 2026 "dual date," and many of the coins are already in circulation, including:

Who's missing from the cash register? The penny. Since the penny's retirement last year, it is the only coin in the lineup that won't be distributed to local banks. Instead, the 2026 dual-date penny is being issued strictly as a collector's item available through official Mint sets.

(Though the Mint is keeping the penny's classic Union Shield look for the 250 celebration, perhaps because the Feds were feeling just as nostalgic about the copper-colored coin as we are.)

*Note: The remaining quarters for the U.S. Constitution and Gettysburg Address will roll out later in the year, alongside various commemorative sets that have already come out or are scheduled to debut through late 2026.

A nationwide 'treasure hunt'

While you have to buy the new pennies directly from the government, the rest of the 2026 circulation coins are headed straight to your wallet.

The Mint, alongside the American Numismatic Association (ANA), has launched the #CoinHunt250 campaign to encourage Americans to look for the new designs in their daily change.

U.S. Mint Director Paul Hollis noted in a recent interview with CBS News, "Certain banks are giving them out, but I would encourage people to request them from your bank."

That's because it can take four to six weeks for new coins to begin to appear in circulation, according to the Mint. Banks typically get them first, and finding them in your everyday change can take longer, depending on your area.

However, serious collectors looking for flawless, scratch-free versions of the coins — or the elusive dual-date penny — might still want to buy pristine uncirculated or proof sets directly from the Mint website rather than relying on treasure hunts.

Are these coins actually worth anything?

With hundreds of millions being minted, the new 250th-anniversary coins probably won't ever exceed their face value. A 2026 quarter found in your car's cupholder will likely only be worth 25 cents for decades to come — regardless of the image stamped on it (unless it's a rare exception).

Even so, value may be built if your coins have flawless preservation, mint errors, or extreme scarcity.

• For instance, if you submit a coin to a professional grading service and it scores a "Perfect Proof 70" (PR70), collectors might pay more for it.
• This is because finding a coin completely free of microscopic scrapes, bumps, and bruises is nearly impossible (just think about the coins rattling around your glove compartment).

Even more lucrative are mint errors, which are flawed pieces that accidentally slip past the Mint's quality control.

Discoveries like a genuine "doubled die" (where the design looks doubled with a rounded, distinct separation) can turn ordinary pocket change into an asset worth hundreds or thousands of dollars. Yet finding true error coins is rare nowadays due to modern minting technology combined with sheer production volume.

Trump's hunt for gold

The collectible coin market is often flooded with standard modern base-metal commemorative sets, uncirculated coin rolls, and third-party legal tender. Although sometimes appreciable, many of these sets fall flat on the resale side.

However, if a set is struck in certified precious metals, it could retain its melt value, and in some cases, retail as well.

• For instance, the Mint is currently navigating a legal battle for an ultra-exclusive, 24-karat gold coin featuring President Trump's profile to mark the semiquincentennial.
• According to Mint and legal filings, only 47 of these coins would be released, each containing 19.7 troy ounces, retailing at $90,000 (pending approval). But legal issues and production delays mean these specific gold pieces wouldn't drop until after July 4, 2026 (more on that below).
• The built-in scarcity and historical track record of precious metals could make these gold coins a popular alternative asset, though gold investment returns can fluctuate significantly depending on inflation and the broader economy.

How the IRS taxes coin collections

If you do decide to jump into the hobby of coin collecting with the hope of selling for a profit later, keep in mind that the IRS treats collectibles very differently from stocks or cash (even for America's Birthday party).

• The holding period is capital. If you buy a collectible coin and sell it in under a year, any profit is taxed as ordinary income (up to 37% federal marginal rate). If you hold it longer than a year, the profit is subject to a specific collectibles capital gains tax rate, capped at 28%.
• Watch the net investment income tax (NIIT). Depending on your income, high earners may face an additional 3.8% NIIT surcharge. How much tax applies is equal to the lesser of your net investment income or the amount by which your modified adjusted gross income (MAGI) exceeds the following thresholds: single filers with MAGI over $200k, or married couples filing jointly over $250k.
• Don't forget your cost basis. The good news is that everything you pay to get the coin — including shipping fees, sales tax, and any "buyer's premiums" above face value — counts toward your cost basis. You can subtract these expenses from your final sale price to lower your taxable gains.

Note: State income taxes on collectibles may also be applicable depending on where you live.

Ultimately, whether you're trying to build an alternative investment or just want to sort through your change with your kids or grandkids, the 2026 coin rollout is a historic milestone. Keep your eyes on your pocket change — you just might find a piece of history staring back at you.

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Summer is often a popular season for major life milestones. Across the country, proud parents, grandparents, relatives, and friends are celebrating graduations and weddings, and some are sending hefty financial gifts.

But every year, questions loom about how much gifting results in IRS scrutiny.

The good news? The annual gift tax exclusion currently sits at $19,000 per person. But what actually happens if you exceed that threshold? And does the federal government even track these things?

Take this quick quiz to see if you can outsmart common gift tax misunderstandings and earn a perfect score.

Please note that this quiz has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, tax, legal, or financial advice.

Navigating the complexities of the lifetime estate exemption and annul gift exclusion often requires a personalized approach. That's why it's important to consult your own tax and financial advisors with questions or concerns about any transactions.

Read More

• Gift Tax Exclusion 2026: What You Need to Know
• 5 Types of Gifts the IRS Won't Tax Even if They're Big
• June Tax Deadlines and IRS Refund Status

For some, June means summer vacations, backyard barbecues, weddings, graduations, and the NBA Finals.

For many, taxes are probably among the last things they want to think about right now.

Unfortunately, the IRS doesn't take the summer off.

While the April 15 tax filing deadline has come and gone, there are important IRS deadlines to keep on your radar this month. If you're still waiting for a tax refund, there are a few developments worth noting.

Here's more about key IRS deadlines for June, refund processing, and some common summer activities that could affect next year's tax bill

June 15 estimated taxes

The second estimated tax payment for the 2026 tax year is due June 15, 2026.

The U.S. tax system operates on a pay-as-you-go basis, meaning taxpayers are generally expected to pay taxes throughout the year as income is earned. While traditional employees typically have taxes withheld from each paycheck, that isn't always the case for other types of income.

Estimated tax payments are commonly required for:

• Self-employed workers
• Freelancers and independent contractors
• Gig workers
• Small business owners
• Investors with significant dividend, interest, or capital gains income
• Landlords receiving rental income
• Some retirees who don't have enough tax withheld from their retirement income

Failing to pay enough tax during the year can result in IRS underpayment penalties, even if you ultimately pay your full tax bill when you file your return.

Taxpayers can use Form 1040-ES to estimate how much they should pay. After the June payment, the remaining estimated tax deadlines for 2026 are September 15, 2026, and January 15, 2027.

For more information, see our report: When Are Estimated Tax Payments Due?

June 15 filing deadline for Americans living abroad

June 15 is also an important date for U.S. citizens and resident aliens whose tax home and abode are outside the United States and Puerto Rico.

These taxpayers receive an automatic two-month extension beyond the standard April filing deadline. As a result, many expats have until June 15, 2026, to file their 2025 federal income tax returns.

It's important to remember that an extension applies to filing your return, not to paying your taxes. (That payment was due in April.) Interest generally begins accruing on unpaid balances after the regular April tax deadline.

Keep in mind:

• Many Americans living overseas might qualify for tax benefits, such as the Foreign Earned Income Exclusion or the Foreign Tax Credit, but they generally must file a U.S. tax return to claim them.
• Taxpayers who need additional time can typically request an extension until October by filing IRS Form 4868.

IRS refund status: Why some taxpayers might receive refunds in June

The IRS continues to issue refunds throughout the summer, and many taxpayers who filed later in the season might still be receiving their refunds in June.

• For most taxpayers who file electronically and choose direct deposit, refunds are generally issued within about 21 days.
• However, not every return moves through the system that quickly, particularly if additional review or corrections are required.

One issue affecting some taxpayers this year involves IRS Notice CP53E.

As Kiplinger has reported, this notice is generally issued when a direct deposit is rejected, most often due to incorrect or mismatched bank account information or a financial institution declining the deposit. When that happens, the IRS typically eventually issues the refund as a paper check.

While taxpayers still receive their money, the switch from electronic payments to mailed checks can add processing time and create delays that many weren't expecting. The CP53E letters, which have reportedly been sent to millions of taxpayers this year following the tax agency's move to phase out paper refund checks, have caused confusion.

If you're still waiting on a refund, the IRS recommends checking the "Where's My Refund?" tool on IRS.gov or logging directly into your official IRS online account.

For more information, see our IRS tax refund calendar for 2026.

Summer activities that could affect your next tax bill

Even if you've already filed your taxes this year, several common summer activities can affect the return you'll file next year, in early 2027.

Some common summer events that can affect taxes include:

Starting a summer job

Students and seasonal workers often take on summer employment. Keep in mind that even part-time work can affect tax withholding and potentially create a tax filing requirement.

Taking on gig work or a side hustle

Driving for a rideshare company, freelancing, selling products online or earning income through an app (a few examples) can create taxable income that isn't subject to tax withholding. That might mean estimated tax payments are necessary for some to avoid penalties later.

Getting married

Summer remains one of the most popular wedding seasons in the U.S. Marriage can affect filing status, tax brackets, deductions, credits and withholding. Newlyweds might want to review their Form W-4s to ensure enough tax is being withheld from their paychecks.

Welcoming a child

Having a baby or adopting a child might make taxpayers eligible for valuable tax benefits, including the Child Tax Credit and other family-related tax breaks.

Buying or selling a home

A home purchase can affect deductions and tax planning, while a home sale could potentially trigger capital gains considerations depending on the circumstances.

Changes in retirement income

Some retirees begin taking required minimum distributions (RMDs) during the year or adjust withholding on Social Security and retirement plans. Those changes can affect overall tax liability.

June tax concerns: Bottom line

The IRS is reminding taxpayers to review their withholding and tax situation whenever major life or income changes occur.

But keep in mind that midyear is a good time not only to review your potential tax liability and make adjustments that might lower your next tax bill, but also to take a holistic look at your finances.

Overall? Everyone's tax and financial situation is different. If you have any concerns about whether the June tax deadlines affect you, it's best to consult with a tax professional or certified financial planner who can provide tailored advice and guidance.

Read More

• Federal Income Tax Brackets and Rates for 2026
• NBA Finals Put the Jock Tax in the Spotlight
• IRS CP53E Letters Could Change Due to Taxpayer Backlash

After weeks of intense budget negotiations, New Yorkers are in for a payout in 2026.

More than 8 million residents will receive hundreds of dollars in relief this fall, due to the Protecting Our Wallets Energy Rebate (POWER) program, a new initiative designed to combat surging gas and electric bills in the state.

Checks will be sent automatically to qualifying New York residents.

"We know New Yorkers need some relief," Gov. Kathy Hochul said in a press briefing regarding the program. "...The bills are just getting higher and higher, and it is so discouraging for our families."

But the POWER rebate is only one piece of a larger $268.1 billion puzzle. The finalized 2026-2027 New York budget introduces several targeted and localized changes to the state's tax landscape.

From a tipped income exemption for workers to a controversial new "pied-à-terre" tax on luxury New York City real estate, these provisions are intended to reshape New York's affordability — even as the state faces a staggering $34.3 billion cumulative structural budget gap through 2029.

Here's the breakdown of how the new budget might impact your wallet.

Who qualifies for a New York State rebate check?

Roughly $1 billion in rebates will be sent starting in September 2026. To be eligible, a taxpayer must be a full-time resident and not claimed as a dependent. No application is necessary.

The POWER rebates are also based on 2024 state tax filings. How much you receive depends on your state adjusted gross income (AGI) and filing status for that tax year.

Below is a table outlining the 2026 New York POWER check amounts:

Targeted relief for NY families, workers, and older adults

Beyond one-time checks, the budget also introduced a few long-term adjustments offering more potential savings for New Yorkers.

• Expanded childcare: The state is investing $1.5 billion to expand its Child Care Assistance Program (CCAP) by raising income eligibility limits to include more families and capping weekly copayments. Through instituting the $15 weekly caps, an eligible family currently paying $300 per week could see their annual expenses drop by over $14,000.
• Tax-free tips: Starting in 2026, New York will eliminate income taxes on the first $25,000 of tipped wages for those earning under $150k (similar to the federal "no tax on tips" deduction). This could save service workers — from servers to stylists — roughly $189 per person in annual state income taxes, according to state data and Kiplinger's analysis.*
• Older adult property tax relief: The state authorized an expansion of the Senior Citizen Homeowners' Exemption (SCHE) to $75,000 (up from $50,000). So, for example, if you're newly qualified for the homestead exemption and have a 2.5% property tax rate, you could save about $500 on your next property tax bill. (Yet, not all tax jurisdictions may adopt the exemption, and the percentage of your property tax bill that qualifies could differ depending on income.)

However, despite the state having the funds to support these initiatives, the New York State Comptroller forecasts a cumulative structural deficit of about $34.3 billion through 2029 due to federal cuts from the Trump administration, coupled with state Medicaid and education spending.

Additionally, New York City's structural deficit is projected to be $10.4 billion in 2027. New York City Mayor Zohran Mamdani has previously advocated for higher taxes on high earners to address the city's deficit. The new real estate surcharges included in the state's budget might just deliver.

The 'millionaire's' second-home tax in New York City

As part of the 2027 New York budget, Hochul and Mamdani have introduced an annual surcharge targeting New York City's high-end secondary market, specifically homes valued at $5 million or higher. This new "pied-à-terre" tax on non-primary residences will be in addition to annual property tax bills.

Here's how it'll work. Starting July 1, 2026, co-ops and condos will be taxed using the city’s current "assessed values" framework, starting with properties valued at $1 million or more. Single-family homes will use a lower annual tax rate for properties valued at $5 million. After two years, co-ops and condos will then switch to the lower single-family home framework.

Here's the math in action:

Here's how it could affect you. According to state officials, a single-family home assessed at $11.5 million would pay about $92,300 annually under the new tax law. In total, this second home tax is expected to cost some luxury homeowners about $500 million annually until the provision expires in 2031 (unless renewed by state lawmakers).

'Pied-à-terre' tax critics and budgetary concerns

New York is home to "the highest concentration of extreme wealth in the nation," according to the Institute on Taxation and Economic Policy (ITEP). At the same time, New York City has a 25% overall poverty rate, according to Robin Hood, which is higher than it has ever been.

Some state and city officials see the new second-home tax as a means to bridge New York City's wealth gap and the state's structural deficit in one go.

However, critics of the plan argue that the tax will weaken the city's economy rather than improve affordability.

"It will not raise the amount of revenue expected." James Whelan, President of the Real Estate Board of New York, reportedly wrote to Business Insider. "[It will] eliminate thousands of construction jobs, lower property values, and raise costs for New Yorkers."

• Recent reports from the U.S. Census Bureau mark New York property tax bills as among the highest in the nation, with a median bill of $6,542.
• The U.S. Bureau of Economic Analysis (BEA) also reports that the average prices for essential goods and services in the state, like food, transportation, and healthcare, are about 8% above the national average (ranking New York as the fifth most expensive state to live in overall by these metrics).

Fiscal watchdogs caution that $268 billion in spending could outpace inflation for New Yorkers.

"The budget increases State Operating Funds spending by at least 8 percent," the Citizens Budget Commission of New York (CBCNY) reported after the budget's release. "[This pushes] decade-long spending growth over $30 billion above inflation."

Yet even with budgetary concerns, New York State currently boasts a $2.5 trillion economy, ranking as the third-largest state economy in the U.S., according to the BEA.

This means the state generates about 7.9% of the nation's Gross Domestic Product (GDP), and recent projections for New York City's economic growth track around 1.7% annually, roughly in line with national U.S. GDP projections.

Bottom line for your wallet

For the average New Yorker, the 2027 budget might present a mixed bag of immediate relief and long-term questions.

If you are a working parent or a service industry professional, the combination of the POWER rebate, the childcare cap, and the tax-free tips could represent a significant relief in your monthly household costs for the coming year.

However, for the real estate industry and high-net-worth individuals, the pied-à-terre tax might signal a shift toward more aggressive wealth redistribution to patch a looming multi-billion-dollar deficit.

Ultimately, the $100 to $200 hitting your mailbox this fall could be a helpful bridge, but not quite a cure for the state's high cost of living. Whether New York's economic output can continue to outpace inflation — and whether the new NYC luxury taxes will drive away wealthier individuals — remains to be seen. Stay tuned.

Read More

• 10 Cheapest Places to Live in New York
• Will You Still Owe Taxes After Moving Out of a State With a Wealth Tax?
• New York Tax Guide

Touted by the Trump administration as "eliminating taxes on Social Security," the new, temporary "senior bonus deduction" is adding to concerns about Social Security's solvency, even as a COLA increase is expected for the coming year.

When President Donald Trump and Republicans in Congress passed the so-called "big beautiful bill" last year, one of the most talked-about provisions was a new, but temporary, bonus deduction for older adults.

The $6,000 tax break, available to eligible taxpayers age 65 or older from 2025 through 2028, can be stacked on top of the standard deduction and the extra standard deduction for those over 65 and is available to those who itemize deductions. Yes, there are income phaseouts.

Still, the Trump administration has pointed to the deduction as a windfall for seniors, effectively eliminating taxes on Social Security. (No, the 2025 Trump tax bill doesn't change Social Security tax law and doesn't necessarily eliminate SS taxes. However, in many cases, the deduction can reduce taxable income enough for some to effectively exempt Social Security income from tax.)

But…what if that benefit could weaken Social Security's finances?

That's an emerging concern: a policy marketed as eliminating taxes on Social Security could worsen the system's long-term funding gap and perhaps affect the timing of future benefit reductions.

Curious? Here's more of what you need to know.

How the $6K senior deduction interacts with Social Security taxes

Let's start with some facts.

• The $6,000 senior deduction doesn’t affect the payroll tax (12.4% levy split between workers and their employers) that funds Social Security.
• Neither the 2025 tax bill nor the new over-65 bonus deduction changes the rule that allows the IRS to tax up to 85% of Social Security benefits depending on income.

However, the senior bonus deduction can lower taxable income for millions of older adults. That can, in turn, push some retirees below the thresholds at which their Social Security benefits become taxable, reducing the amount of tax paid by those who remain above them.

So, what's the big deal? Well, federal income taxes on Social Security benefits are credited to the Social Security trust funds. That revenue stream is small compared with the amount that comes from payroll taxes, but it is part of the program’s long-term financing picture.

Why Social Security solvency concerns are resurfacing now

Concern about the potential impacts of the senior bonus deduction on Social Security is surfacing against a backdrop of projections from the Social Security Administration’s Office of the Chief Actuary.

• Current estimates are that the Old-Age and Survivors Insurance (OASI) trust fund will be depleted around 2033.
• At that point, incoming payroll taxes would cover roughly 77% to 80% of scheduled benefits, depending on assumptions.
• So, even before any new tax policy impacts are considered, that implies a potential across-the-board benefit reduction of about 20% to 23% unless Congress intervenes.

From a tax perspective, the Joint Committee on Taxation (JCT) has estimated that the $6,000 senior tax break could initially (through 2029) reduce federal revenues by roughly $91 billion. The 10-year costs could fall in the $125 to $220 billion range by 2034, depending on whether the provision is extended.

That figure includes several moving parts, but part of the revenue loss stems from reducing the tax treatment of retirement income, including Social Security benefits.

Because federal taxes paid on Social Security benefits are credited to the program’s trust funds, lower taxable income can also mean less money flowing into the system over time.

Important to note: Social Security’s financial challenges are driven primarily by demographics, not this new deduction. The system’s long-term funding gap already existed well before the Trump/GOP reconciliation tax package became law.

But that’s also why some analysts are paying attention to even relatively modest revenue changes around the edges. In a program already facing long-term fiscal pressure, policies that reduce money flowing into the trust fund — even indirectly — can affect projections at the margins.

And that’s where some irony comes in: a policy promoted as delivering tax relief tied to Social Security could potentially slightly weaken one of the revenue streams tied to the program’s long-term finances.

How much could the $6,000 deduction shift the Social Security depletion timeline?

In situations where revenue tied to benefit taxation is reduced, some long-range projections suggest the depletion date could move sooner by a matter of months to roughly a year. How much earlier depends on various assumptions about economic growth, payroll tax receipts, and behavioral responses.

That doesn't necessarily change the trajectory of Social Security’s finances. And it doesn't create insolvency on its own or replace the structural drivers of the system’s funding imbalance.

But it highlights how even seemingly small changes in related revenue sources (like reduced tax collections resulting from a new $6,000 tax break for millions of older adults) can affect the timing of trust fund exhaustion in models that already show a narrow runway.

What this means for retirees now

For many older adults, the senior bonus deduction is a relatively straightforward tax cut:

Taxpayers age 65 or older can stack the $6,000 deduction on top of the standard deduction and the existing extra standard deduction for those 65-plus. Eligible taxpayers who itemize can also claim the bonus deduction.

• You must be 65 or older by the end of the given tax year.
• The bonus amount tops out at $6,000 for individuals and $12,000 for married couples, when both spouses are 65 or older.
• This deduction phases out above a certain income level: Modified Adjusted Gross Income (MAGI) of $75,000 for singles and $150,000 for those married, filing jointly. It phases out completely for MAGI above $175,000 and $250,000, respectively.
• The IRS says you must "include the Social Security Number of the qualifying individual(s) on the return, and file jointly if married, to claim the deduction."

For some middle- and upper-middle-income retirees, the new deduction can reduce or even eliminate taxes on Social Security benefits by lowering taxable income. For lower-income retirees who already pay little or no federal income tax, the impact is often much smaller.

• Middle- and upper-middle-income seniors will likely account for roughly three-quarters of the total tax relief under the measure, according to the Tax Policy Center.
• In 2026, average savings are projected at about $220 for middle-income households and around $300 for those in the upper-middle income tier.

Keep in mind: Despite how the Trump administration has framed the policy, the deduction does not change Social Security tax law or permanently eliminate taxes on benefits. Instead, it works indirectly by reducing the amount of income exposed to taxation in the first place. So keeping an eye on your taxable income and existing SS tax thresholds remains important.

What's next? Funding conversations for Congressional lawmakers.

Potential ways to address the Social Security funding issues floated by policymakers in recent years include raising payroll taxes, lifting or eliminating the income cap, gradually increasing the retirement age, reducing cost-of-living adjustments, and means-testing benefits for higher-income retirees.

But...no specific bipartisan proposal seems to be on deck yet, so as always, stay tuned.

Learn More

• How the $6,000 Senior Bonus Deduction Works
• What You Need to Know About Taxes on Social Security Benefits
• College Towns Are Becoming Retirement Destinations in 2026: Does the Tax Math Add Up for Retirees?
• The Extra Standard Deduction for Those Age 65 and Older

Each week in our Ask the Editor series, Joy Taylor, The Kiplinger Tax Letter editor, answers questions on topics submitted by readers. This week, she's looking at four questions on whether Congress will enact more tax changes before November's mid-term elections and related topics.(Get a free issue of The Kiplinger Tax Letter or subscribe.)

1. Congress and tax changes

Question: Do you think Congress will enact more tax changes before this November's midterm elections?

Joy Taylor: No, we really don't expect any big federal tax changes to pass before November's midterm elections. That's not to say that many in Congress wouldn't like to see more tax changes. Republican taxwriters are pushing for tax legislation to supplement last year's "One Big Beautiful Bill." Meanwhile, some Democrats are offering sweeping tax plans, while others are introducing narrower proposals to curb what they see as tax schemes for the wealthy.

Some Republicans in Congress want to use budget reconciliation to shove their tax priorities through Congress. This process has lots of technical and arcane rules, but it lets lawmakers circumvent the 60-vote filibuster rule in the Senate. Budget reconciliation requires only a simple-majority vote. Congressional Republicans used it to pass the OBBB and the 2017 Tax Cuts and Jobs Act, among other laws. Democrats have also used it when they controlled Congress and the White House.

Republicans are currently working on a new budget reconciliation measure, but President Trump and congressional GOP leadership want to limit its parameters to funding Immigration and Customs Enforcement (ICE) and Customs and Border Protection (CBP). There is talk on Capitol Hill about trying to push through a third reconciliation bill, but the odds of this happening before the midterm elections are middling at best.

2. Capital gains indexing

Question: I heard that Republicans are pushing to index capital gains to account for inflation each year. Can you explain what this would do and whether Congress would enact such a law?

Joy Taylor: Republican lawmakers and conservative free-market groups are pushing the White House to index capital gains to inflation each year. Essentially, this would let taxpayers increase their tax basis in appreciated assets, such as stocks and real estate, by the rate of inflation between the asset’s purchase date and the time of sale. Having a higher asset basis would result in a lower capital gain when the person sells the property, and thus a lower tax.

This idea has been bandied about for decades but is gaining steam again during President Trump’s second term in office. Over 25 organizations asked that Trump use his executive authority to annually index capital gains to inflation. And Senator Ted Cruz (R-TX) has introduced a bill in Congress to index capital gains to inflation.

We don't think Congress will enact a law this year to index capital gains to inflation. But the concept might make Trump's regulatory agenda. If Trump does this through the Department of the Treasury, and not with legislation, it would be controversial and would almost certainly face legal backlash. We don’t know where Trump stands on the idea. During his first term in office, he first supported capital gains indexing, and later he opposed it.

3. Gain on home sales

Question: I heard there were bills in Congress to fully eliminate the taxation of gain when homeowners sell their primary residence. What are the odds that Congress would pass such a proposal?

Joy Taylor: Under current law, if you have owned and lived in your principal residence for at least two out of the five years before you sell the home, up to $250,000 of the gain is tax-free. The tax-free home sale gain exclusion is $500,000 for married couples filing a joint return. Any gain in excess of these amounts is taxed at long-term capital gains rates of 0%, 15% or 20%, with possibly an extra 3.8% tax.

Many sellers won't crack the gain exclusion limits. But homeowners living in pricey areas or who have owned their home for a long time may. One reason for this is that the home-sale exclusion, unlike many other breaks in the tax code, isn't indexed to inflation each year. The gain-exclusion amounts of $250,000 and $500,000 have stayed the same since 1997, when they were first enacted into law. They have never been adjusted for the skyrocketing appreciation in value of residential real estate during the nearly 30 years this tax break has been in effect.

It is true that some Republican lawmakers want to make all gain on home sales tax-free and have introduced proposals in Congress to this effect. President Trump has even dangled this idea. But we don't see this coming to fruition any time soon. These types of proposals would put a huge dent in federal revenue and would mainly benefit upper-income individuals.

A more feasible legislative option might be to raise the current $250,000 and $500,000 gain-exclusion amounts. Two bills would increase the exclusion to $500,000 ($1 million for joint filers). The identical bipartisan proposals, which were introduced by House Representative Jimmy Panetta (D-CA) and Senator John Cornyn (R-TX), would also index the amounts to inflation each year. The odds of enactment are better than they have been in past years, but it is still a steep climb. Neither of these bills will be enacted as a stand-alone law, so it must be attached to a bigger piece of must-pass legislation.

4. Health premium tax credit

Question: Do you think Congress will bring back the pre-2026 expansions to the health premium tax credit?

Joy Taylor: We think the odds of Congress reaching a deal on health premium tax credits ("PTC") are quite slim. The PTC is for eligible people who buy insurance through the marketplace. Temporary easings, which were enacted during the height of the COVID-19 pandemic and later renewed, ended after 2025. Prior to 2021, the PTC was available to people with modified adjusted gross incomes ranging from 100% to 400% of the poverty level. For 2021-25, some people with higher modified AGIs also qualified, and the credit was bigger for many individuals. Beginning January 1, 2026, the PTC rules reverted to those in place for pre-2021 years.

Democrats want the pre-2026 PTC expansions cleanly extended. Republicans want changes made to narrow the scope of the PTC. The parties appeared close to an agreement earlier this year, but talks have stalled as Congress’s attention is diverted elsewhere.

About Ask the Editor, Tax Edition

Subscribers of The Kiplinger Tax Letter, The Kiplinger Letter and The Kiplinger Retirement Report can ask Joy questions about tax topics. You'll find full details of how to submit questions in each publication. Subscribe to The Kiplinger Tax Letter, The Kiplinger Letter or The Kiplinger Retirement Report.

We have already received many questions from readers on topics related to tax changes in the One Big Beautiful Bill, retirement accounts and more. We will continue to answer these in future Ask the Editor roundups. So keep those questions coming!

Not all questions submitted will be published, and some may be condensed and/or combined with other similar questions and answers, as required editorially. The answers provided by our editors and experts, in this Q&A series, are for general informational purposes only. While we take reasonable precautions to ensure we provide accurate answers to your questions, this information does not, and is not intended to, constitute independent financial, legal, or tax advice. You should not act, or refrain from acting, based on any information provided in this feature. You should consult with a financial or tax advisor regarding any questions you may have in relation to the matters discussed in this article.

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The IRS may revise its CP53E notices after months of taxpayer backlash and practitioner complaints.

During a recent meeting with tax practitioners, the IRS Chief of Taxpayer Services said the agency may consider changes to the notices in light of widespread confusion, according to nonprofit publication Tax Notes (paywall).

As Kiplinger has reported, hundreds of thousands of CP53E notices tied to direct deposit verification have reportedly been sent, and by some estimates, several million. In either case, those numbers represent a significant share of taxpayers hearing from the IRS during filing season.

The notices are part of the tax agency's broader effort to shift more refunds to electronic direct deposit and phase out paper checks — a modernization push designed to improve efficiency and lower fraud risk.

But the rollout has become somewhat controversial, as many recipients believed the letters were scams or sent with nefarious intent.

The stakes aren't trivial. Average federal tax refunds for the 2026 filing season hovered just above the mid-$3,000s, and surveys show that most taxpayers planned to use their refunds to cover essentials and pay down debt. So delays can tie up household cash flow.

What IRS notice CP53E means

The CP53E notice is generally issued when the IRS cannot process a refund via direct deposit because:

• Bank account information is missing or incorrect
• Financial institution details were rejected
• Post-filing adjustments result in a refund being issued after changes to a return

Taxpayers are typically instructed to log in to their IRS online account within 30 days to update their banking information. If they don't respond, the IRS says it will issue a paper check. Though that can add roughly 6 weeks to the processing time, depending on timing and agency workload.

Does the IRS use QR codes?

Some tax professionals and taxpayers reported receiving CP53E letters in situations where:

• Refunds had already been received
• No refund was expected
• Taxpayers actually owed money to the IRS

On practitioner forums and social media platforms, some described situations in which CP53E notices reportedly appeared before other notices related to IRS tax return adjustments that would have explained an unexpected refund.

The format of the notices added to the confusion, as some taxpayers reported being unsure about the validity of QR codes and instructions directing them to log in to their IRS online accounts.

Those CP53E scam fears stood out, since IRS impersonation scams have become increasingly common.

Adding to the confusion? The toll-free phone number listed in the notice contains recorded explanations regarding the notice and doesn't connect taxpayers to a live customer service agent at the IRS.

ID.me access concerns

The CP53E notice seems to have also revived criticism of the IRS’s online account system and its reliance on ID.me identity verification.

On social media, some taxpayers said they felt pressured to create online IRS accounts or complete third-party identity verification to resolve refund issues within tight response windows.

One Reddit user described waiting for ID.me verification while the 30-day response deadline ticked down, writing that “having a 3rd party stand between me and my refund feels silly.”

Another practitioner told Kiplinger that she and several of her clients received the CP53E notices, and that some of those clients owed taxes, leading her to believe the IRS might be trying to prompt taxpayers to sign up for IRS online accounts.

The IRS hasn't said the notices were intended to increase adoption of online accounts or ID.me, but updated FAQ materials direct users experiencing access issues toward identity verification support resources.

IRS updates CP53E FAQs due to confusion

Worth noting: the IRS updated its FAQ guidance on CP53E notices.

The agency clarified that the letters are legitimate IRS correspondence and that QR codes included in the notices are intended to direct taxpayers to official IRS online account services, not third-party websites.

The guidance also walks taxpayers through how to confirm a notice’s authenticity by logging directly into IRS.gov rather than using embedded links or scanning codes. The tax agency reiterates that taxpayers will never be asked to provide sensitive information through QR codes or unsolicited text links.

The Taxpayer Advocate Service (TAS) issued separate guidance reinforcing that CP53E notices should be verified on IRS.gov or through official IRS accounts, and that taxpayers who believe they received a notice in error can cross-check their refund status directly using IRS tools before taking action.

TAS also emphasized basic scam-avoidance, including not clicking unfamiliar QR codes or links from unconfirmed notices.

Getting an IRS letter: What happens next

No formal redesign of the notice has been announced yet, so for now, the IRS says the safest approach is to verify your IRS status directly through your official IRS online account.

And remember: Every taxpayer's situation is different, so if you need professional advice on how to respond to a CP53E or other IRS notice, it's a good idea to consult a tax professional.

Overall, the situation highlights a significant challenge for the IRS: modernizing a system that processes hundreds of millions of tax returns and billions of dollars in refunds each year while maintaining trust in its communications with millions of taxpayers.

Related

• Received an IRS Letter? CP53E Notices Spark Confusion and Scam Fears
• IRS Tax Refund Calendar 2026: When Will Your Payment Arrive
• The Government is Phasing Out Paper Checks: What to Know
• Trump No-Audit Deal: Will You Still Get Audited by the IRS?

Nearly 40% of self-employed workers are baby boomers, according to a 2024 survey by Guidant Financial, and the number of older entrepreneurs has increased significantly in the past 25 years. Working for yourself in retirement, either full or part-time, makes a lot of sense: You can supplement your savings, stay engaged in your profession or try something new.

But if you're new to self-employment, you may not be prepared for the tax consequences of going solo.

In addition to income taxes, you'll also be responsible for paying the employee and employer portions of your Social Security and Medicare tax, which totals 15.3% of 92.35% of your net earnings. This often comes as a surprise to individuals who have spent their careers working for someone else, because employees who receive a W-2 only pay half of the payroll tax. Their employer picks up the rest. And since the employees' portion is usually withheld from paychecks, it may go unnoticed.

Fortunately, you can deduct half of your self-employment tax. You may also be eligible to deduct your Medicare premiums — a tax break many self-employed retirees overlook, financial planners say.

If you have self-employment income and are enrolled in Medicare, you can deduct premiums for Medicare Part B, Part D, Medicare Advantage, or a Medigap supplemental policy.

You can also deduct your spouse's Medicare premiums, even if your spouse doesn't work for you.

A portion of premiums for long-term care insurance is also deductible, as long as the policy is deemed tax-qualified by the IRS.

The amount you can deduct will vary depending on your age; in 2026, individuals between 61 and 70 can deduct up to $4,960 in long-term care insurance premiums. If you're 71 or older, you can deduct up to $6,200.

David Haas, a certified financial planner with Cereus Financial Advisors in Franklin Lakes, N.J., says he recently met with a self-employed client whose accountant failed to deduct thousands of dollars in premiums for Part B, D, Medigap and long-term care insurance. Fortunately, he caught the mistake before the client filed his tax return.

One possible reason for the confusion is that taxpayers who don't work for themselves are limited in the amount of medical expenses they can deduct. If you claim the standard deduction — which is the case for most retirees — you can't deduct any of your unreimbursed medical expenses. And even if you have enough deductions to itemize, you can only deduct unreimbursed medical expenses that exceed 7.5% of your adjusted gross income. That usually limits the deduction to taxpayers who have very high medical expenses and low income, Haas says.

But if you work for yourself, you can deduct your health insurance expenses — including Medicare — from your self-employment income even if you claim the standard deduction. For self-employed taxpayers who file a Schedule C, health insurance is an “above-the-line” deduction, which will lower adjusted gross income.

This could make you eligible for other tax credits or benefits that are tied to your AGI, says Catherine Valega, a financial planner and enrolled agent with Green Bee Advisory in Burlington, Mass. It could help you avoid a high-income surtax on your Part B Medicare premiums, which is tied to your modified adjusted gross income (that's your AGI with a few adjustments).

There are some limits to this deduction. It can't exceed your self-employment income.

• For example, if your net self-employment income for the year was $5,000, your deduction can't exceed that amount.
• In addition, you can't deduct your Medicare expenses for any months you were eligible to enroll in an employer-subsidized health care plan.
• And, if you or your spouse are working for an employer that offers health insurance, you can't deduct your Medicare premiums, even if you opt not to enroll in the plan.

Nor can you double dip: If you itemize and deduct unreimbursed medical expenses, you can't deduct them from your self-employment income.

To get the most from this deduction, keep good records of Medicare and long-term care insurance premiums and any other expenses, such as traveling to clients, part of your internet service, and office supplies.

Note: This item first appeared in Kiplinger Retirement Report, our popular monthly periodical that covers key concerns of affluent older Americans who are retired or preparing for retirement. Subscribe for retirement advice that's right on the money.

Related Content

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You may have heard about a settlement between President Donald Trump and the IRS to resolve a $10 billion lawsuit over his tax returns. The deal has sparked backlash, including over a provision that bars the federal tax agency from continuing existing audits involving Trump, his company, and his family members.

The agreement also reportedly creates a multibillion-dollar “Anti-Weaponization Fund” (more on that later).

Meanwhile...the administration has cut IRS staffing and budget — most recently by roughly $1.1 billion in FY26 — since Trump began his second term.

These developments raise several thorny political, legal, and practical concerns. But one key question is whether IRS enforcement priorities will shift in ways that affect more taxpayers: Who else will still get audited, and why?

Trump IRS settlement: How we got here

Before looking at who the IRS might audit, it helps to understand how the Trump IRS settlement came about in the first place.

As Kiplinger has reported, Donald Trump, the Trump Organization, and family members sued the IRS and Treasury Department in federal court in early 2026.

• They alleged that the agencies failed to safeguard Trump’s confidential tax information after an unauthorized disclosure by a former IRS contractor.
• The suit sought $10 billion in damages and drew scrutiny because a sitting president was suing over the very agency that enforces tax law.

By mid-May 2026, Trump said the dispute was resolved through a settlement with the Department of Justice (DOJ). As mentioned, a provision in that settlement appears to limit IRS action surrounding existing audits involving Trump, his family, and affiliated entities.

The settlement also reportedly creates a roughly $1.776 billion “Anti-Weaponization Fund” tied to claims of government misconduct. The fund would be taxpayer-funded and controlled by an administration-appointed group, not the IRS, raising concerns about its broad scope, lack of congressional oversight, and lack of precedent in tax disputes.

A lawsuit has already been filed challenging the fund’s structure, and the combination of a large compensation fund and limits on IRS scrutiny of Trump, his company, and his family is fueling concern.

In a May 21 letter to Treasury Secretary Scott Bessent and IRS CEO Frank Bisignano, several Senate lawmakers wrote the following.

“Through this settlement, you and the President have created a nearly $1.8 billion taxpayer-funded slush fund for the President's political allies, including potentially the January 6th insurrectionists . . . essentially making it official United States government policy that President Trump, his family, and many other allies are above the law.”

Update: A federal judge in Virginia temporarily blocked the Trump administration from creating or distributing money from its "Anti-Weaponization Fund" while the court reviews legal challenges alleging the fund may be unconstitutional and improperly benefit Trump allies.

IRS audit red flags for everyone else?

Even as Trump appears to have reduced exposure to IRS scrutiny for certain existing matters involving him or his family, audits remain unlikely to disappear for other taxpayers.

And one thing to note first: Historically, IRS audit activity has not been evenly distributed, and data show that a meaningful share of audits involving lower-income taxpayers has centered on refundable credits such as the Earned Income Tax Credit (EITC).

The reason seems to be that those are easier for the agency to flag and resolve through automated review and correspondence audit.

What about audit rates? The overall audit tax rate for the IRS is reportedly less than 1%.

• IRS audit rates fell sharply from about 0.9% of returns in 2011 to roughly 0.3% in 2018 (about 9 in 1,000 returns versus 3 in 1,000), according to IRS Data Book figures.
• Audit activity then ticked up modestly through 2024, following new IRS funding under the Biden administration's Inflation Reduction Act.
• Early reporting from President Donald Trump’s second term suggests that audits have softened again due to staffing and budget cuts, which affect enforcement capacity.

With fewer experienced revenue agents available, enforcement leans more heavily on automated systems that can operate at scale — flagging discrepancies between reported income and third-party forms like W-2s and 1099s, or generating notices based on data mismatches.

That tends to push compliance toward high-volume, low-complexity cases where algorithms identify errors. Some so-called “red flags” include:

• Income reporting mismatches detected through IRS computer systems
• Refundable tax credit claims requiring documentation checks
• Self-employment and gig-economy income reporting
• Automated compliance alerts triggered by third-party reporting gaps

More complex audits, like those involving large partnerships, layered business structures, and high-net-worth returns, require more staff time and specialized expertise. As a result, they tend to be more sensitive to staffing levels when the agency loses experienced examiners or shifts resources toward automation.

That doesn't necessarily mean fewer audits overall, but there could be a shift in which kinds of errors the agency catches most often. That tension lies at the center of the broader question raised by Trump’s settlement: not just who is exempt from audit scrutiny, but who remains most exposed and why.

Who get audited by the IRS: Bottom line

For most taxpayers, IRS audits in 2026 are still likely to occur — but probably at relatively low rates overall — and they don’t usually look like the intensive, in-person examinations some people experienced in the past or tend to imagine.

Note: Keep in mind that whether the IRS audits you will depend on your specific tax situation. As Kiplinger has reported, the agency may consider several factors, including income, tax breaks claimed, whether you own a business, etc. Consult a tax professional if you're concerned about your audit exposure.

• More often, modern IRS audits are "correspondence audits."
• These are automated notices often triggered by mismatched income records, missing paperwork, or questions tied to tax credits and deductions.
• They tend to be relatively narrow, system-driven, and generally designed to be resolved through documents rather than agent interviews.

But since enforcement tends to fall most heavily on returns that are easiest to flag automatically, everyday taxpayers can end up more visible than higher-income taxpayers with more complex cases, which many people would assume would or should draw the most scrutiny.

Meanwhile, the Trump IRS settlement is fueling a fiery debate.

Senate Finance Democrats, including the top Democrat on the Senate Finance Committee, Sen. Ron Wyden (D-Ore.), as well as Sen. Patty Murray (D-Wash.), have questioned whether the agreement oversteps congressional authority and effectively restricts IRS enforcement in ways never approved by statute.

At the same time, some Republicans, including Rep. Brian Fitzpatrick of Pennsylvania, have also raised concerns about precedent and process, arguing that any deal involving limits on IRS audits or large compensation structures requires clearer congressional oversight and guardrails.

Fitzpatrick and Rep. Tom Suozzi (D-NY) introduced the No Taxpayer-Funded Settlement Slush Funds Act to prevent federal dollars from being used for the fund.

Notably, Republican Senate Majority Leader John Thune of South Dakota reportedly has said he didn't see a purpose for the fund.

The Justice Department also recently faced questioning in a hearing on Capitol Hill over how the agreement was structured and how a nearly $1.8 billion compensation fund was justified in the context of a tax enforcement dispute. Lawmakers pressed acting Attorney General Todd Blanche for more details on how the terms were negotiated and approved.

Overall? Stay tuned. What becomes of the Trump IRS deal could spark continued debate over tax enforcement and fairness.

More on the IRS

• Common IRS Audit Red Flags to Avoid
• Ask the Editor: Will You Get Audited by the IRS This Year?
• Who Does the IRS Audit the Most?
• Received an IRS Letter? Taxpayer Confusion Grows Over CP53E Notices

Each week in our Ask the Editor series, Joy Taylor, The Kiplinger Tax Letter editor, answers questions on topics submitted by readers. This week, she's looking at four questions on Roth IRAs and the five-year rule, including contributions and conversions. (Get a free issue of The Kiplinger Tax Letter or subscribe.)

1. What is the Roth IRA five-year rule?

Question: I understand that to withdraw money from a Roth IRA without paying tax or a penalty on the earnings, the account owner must have had the money in the Roth IRA for at least five years and be age 59½ or older. My question relates to when the five-year clock starts when contributions are made over several years. Also, do the rules differ for Roth IRA conversions?

Joy Taylor: The five-year rule your question refers to applies to Roth IRA contributions, rollovers and conversions, and whether distributed earnings are tax-free to you. Under this rule, distributions of earnings after age 59½ aren’t taxed if at least five tax years have passed since the year the owner first put money into a Roth IRA. For this first five-year rule, the five-year clock starts on January 1 of the year you first deposited money into any Roth IRA that you own, through either a contribution or a conversion from a traditional IRA. The clock doesn’t restart for later Roth contributions, conversions, or newly opened Roth IRA accounts.

Note there is another five-year rule that applies specifically to Roth IRA conversions, and whether the 10% early distribution penalty hits pre-age-59½ payouts. This rule is an anti-abuse rule to prevent people who are younger than 59½ from circumventing the early IRA withdrawal penalty by first doing a Roth conversion and soon thereafter taking the money out of the Roth IRA. This second five-year rule doesn’t apply to new contributions to Roth IRAs, but to conversions of pretax income from traditional IRAs to a Roth. Under this rule, if someone who is younger than 59½ does a Roth conversion, and later takes a distribution within five years of the conversion and before turning 59½, then the amount of conversion principal that is withdrawn is hit with the 10% penalty. Once you turn 59½, you needn’t worry, even if you take a payout before your conversion meets the five-year period. Under this second five-year rule, each conversion has its own separate five-year period, which differs from the first five-year rule discussed above.

For more on both of the five-year rules applicable to Roth IRAs, see our article, "What to know about the five-year rules for Roth IRAs."

2. When does the five-year rule start?

Question: I am 68 and have been doing Roth IRA conversions for the past three years. My first Roth conversion was in 2023. When does the clock start for the five-year rule? And are there separate five-year clocks for each Roth IRA conversion that I do?

Joy Taylor: In your situation, the five-year clock for withdrawing Roth IRA earnings tax-free begins on January 1 of the year that you first put money into any Roth IRA that you own, whether through contributions, rollovers or conversions. So if you first started funding a Roth IRA in 2023, and you don't have other pre-existing Roth IRAs, the five-year period begins on January 1, 2023. It doesn't restart after each conversion.

3. Another question on when the five-year rule starts

Question: I am 70 years old, and I have been doing Roth conversions over the past 10 years. My initial conversion was in 2017, and each year thereafter I converted more money. Does each conversion date have its own separate five-year period or does the five-year period start when I made my first conversion in 2017? I have no other Roth IRAs other than the one I opened in 2017.

Joy Taylor: In your situation, the applicable five-year rule begins on January 1 of the year you first put money into any Roth IRA, via contribution or conversion. And it doesn’t restart. Since your first Roth conversion was in 2017, you are in the clear, and your Roth distributions should be fully tax-free.

4. How does the five-year rule apply to transfers from a Roth 401(k) to a Roth IRA?

Question: I am 64, and I recently retired from my full-time job. While working, I contributed for many years to a Roth 401(k) account. A few months ago, I transferred the funds in that designated Roth 401(k) account to a Roth IRA. Can I start withdrawing money from my Roth IRA tax-free?

Joy Taylor: The general rule for Roth IRAs is that distributions of earnings are nontaxable, provided you are 59½ or older. There is an exception, what experts refer to as the five-year rule. Distributions of earnings taken out within five years of January 1 of the year you first contributed to a Roth IRA are taxed.

You may have had the Roth 401(k) for five or more years, but unfortunately, that time period doesn't transfer to the Roth IRA. So, if this is your first Roth IRA, and you don't have any other Roth IRAs that you had contributed to in the past, the five-year rule would apply. The five-year period begins on January 1 of the year you first put money into any Roth IRA, either through contributions, rollovers or conversions. The ordering rules that apply to distributions from Roth IRAs may mitigate some of the negative tax consequences in your situation. I would suggest speaking with a CPA or your financial planner for more information.

About Ask the Editor, Tax Edition

Subscribers of The Kiplinger Tax Letter, The Kiplinger Letter and The Kiplinger Retirement Report can ask Joy questions about tax topics. You'll find full details of how to submit questions in each publication. Subscribe to The Kiplinger Tax Letter, The Kiplinger Letter or The Kiplinger Retirement Report.

We have already received many questions from readers on topics related to tax changes in the One Big Beautiful Bill, retirement accounts and more. We will continue to answer these in future Ask the Editor roundups. So keep those questions coming!

Not all questions submitted will be published, and some may be condensed and/or combined with other similar questions and answers, as required editorially. The answers provided by our editors and experts, in this Q&A series, are for general informational purposes only. While we take reasonable precautions to ensure we provide accurate answers to your questions, this information does not, and is not intended to, constitute independent financial, legal, or tax advice. You should not act, or refrain from acting, based on any information provided in this feature. You should consult with a financial or tax advisor regarding any questions you may have in relation to the matters discussed in this article.

More Reader Questions Answered

• All Ask the Editor Q&As
• Ask the Editor: Will I be Audited by the IRS?
• Ask the Editor: 10-Year Rule for Inherited IRAs
• Ask the Editor: Tax Questions on Roth IRA Conversions
• Ask the Editor: Reader Questions on QCDs
• Ask the Editor: More Questions on IRAs

Ever arrive at a beach town only to realize you forgot your prescription sunglasses or high-SPF sunblock? It can be frustrating and expensive.

According to packing data from Radical Storage, the average traveler forgets two essential items per trip, resulting in about $53 in immediate replacement costs.*

Some replacements are a total loss, but did you know that you can turn others into a tax advantage?

By leveraging your health savings account (HSA), you can repurchase forgotten essentials using pre-tax dollars — effectively giving yourself a 25-30% "tax discount" on vacation necessities (when combined with FICA savings).

Here are the most commonly forgotten travel items that are HSA-eligible and the strict IRS rules you need to know to possibly claim them.

*Radical Storage is a global luggage storage service that surveyed 1,511 Americans regarding their packing habits and the items they most commonly forget.

IRS Rules for HSA purchases in 2026

Before we dive into our list, let's cover the 2026 IRS rules for a purchase to be considered "HSA-qualified."

The expense must be primarily for the diagnosis, cure, mitigation, treatment, or prevention of a specific health condition for you, your spouse, or your tax dependents. Otherwise, you may owe penalties and taxes on non-qualified purchases.

Here's a handy guide to help you figure out if your purchase could be HSA-eligible:

• Check the "HSA store." Before you head to the register, use your HSA provider's mobile app. Many now let you scan a product's barcode to confirm eligibility. You can also browse pre-vetted items at the HSA Store or Amazon's HSA/FSA shop.
• Identify items requiring an LMN. Some travel aids, like high-grade compression socks or specialized orthopedic pillows, may require a letter of medical necessity (LMN) from your doctor to qualify. This letter details why the purchase is medically necessary for your or your spouse's/dependent's condition.
• Keep digital backups. Although your HSA debit card may be accepted at major pharmacies, the IRS requires proof of the item purchased, not just the total spent. Snap a photo of your receipt immediately and save it in your digital files.

Travel Essentials

1. Broad-spectrum sunscreen (SPF 15+)

Sun protection is one of the most frequent casualties of rushed packing, with 18.3% of travelers leaving it behind. But if you have to buy a replacement bottle at a pricey resort gift shop, your HSA has you covered.

• The IRS rule: The sunscreen must offer broad-spectrum protection and have an SPF rating of 15 or higher.

What about bug spray? Standard insect repellent is a "general health" item and is not HSA-eligible. However, if you buy a sunscreen that includes built-in bug spray, the entire purchase may become eligible, provided the primary purpose is qualified sun protection.

2. Prescription shades

According to the Radical Storage data, 17.6% of travelers forget their sunglasses when packing for a trip. And when you're planning outdoor fun, your eyes may need more than a $5 pair of gas station shades. Fortunately, replacing your prescription sunglasses might qualify for HSA eligibility.

• The IRS rule: Fashion shades and traditional, "beach shop" sunglasses don't qualify. You need prescription sunglasses designed to correct vision and protect against UV rays.

Beyond the frames, contact lens supplies and lubricating eye drops typically qualify for HSA eligibility. This includes travel-sized solutions, replacement cases, extra lenses, and over-the-counter (OTC) drops for dry "airplane eyes."

3. OTC medications

It may not come as a surprise that people often forget painkillers while traveling, with 13.7% of travelers reporting leaving home without their trusted bottle of OTC meds; many more medicinal remedies qualify for HSA spending, though.

• The IRS rule: No prescription is needed. You can purchase Advil, acetaminophen, and other pre-packaged OTC remedies to treat pain relief. Cold/flu medications are also generally included, as are motion sickness pills and antacids.

Not explicitly listed in the survey are personal care products, like tampons, pads, and acne treatments, which are HSA-eligible. This is thanks to the CARES Act, which permanently expanded the list of "qualified medical expenses" to include menstrual care and OTC medications without a doctor's prescription.

4. First aid kits

Unfortunately, 12.8% of travelers report leaving behind a first aid kit, which can be a crucial travel essential in case of emergency. Fortunately, these kits are often eligible for HSA spending.

• The IRS rule: Everything from premade first-aid kits and individual components (like bandages, gauze, and antibiotic creams) is eligible. Still, special non-medical carrying cases for the kit may not be covered.

5. Medicated moisturizers and aloe vera

The data shows that 10.9% of travelers forget to pack their daily moisturizer. If your skin takes a beating from the sun, wind, or airplane air, your replacement lotion might qualify for tax-free HSA funds, provided it meets IRS regulations.

• The IRS rule: Standard cosmetics and regular beauty lotions do not qualify. To use your HSA, the moisturizer must contain a specific medicated ingredient designed to treat a medical condition, such as severe sunburn, eczema, or dermatitis.

6. SPF Cosmetics and lip balms

Vanity kits are easily left behind, with 10.3% of travelers forgetting their makeup. Even though standard foundation or lip gloss is considered a personal care expense, your sun protective makeup may be HSA-eligible.

• The IRS rule: Lip balms, foundations, and skin tints qualify for HSA reimbursement only if they are explicitly labeled SPF 15 or higher, offer broad-spectrum protection, and primarily serve to prevent sunburn.

The survey did not mention allergy medications, yet the local environment on vacation can trigger new reactions. Thus, if you find yourself sniffling and suffering, know that most OTC antihistamines and nasal sprays are generally fully eligible.

7. Prescription meds

About 9.8% of travelers have been there: they got to their destination only to realize they forgot their meds. When you need to make a surprise run to a foreign pharmacy, here are the HSA eligibility rules governing prescription meds.

• The IRS rule: Always eligible, including "rush" refills. However, nutritional supplements, vitamins, and toiletries are merely for maintaining general health and are not considered qualified.

8. Underwear (that's medically necessary)

Only 9.6% of travelers forget their underwear while traveling, according to data from Radical Storage. Certain repurchases might be eligible for your HSA funds. (So no, your standard boxers don't count!).

• The IRS rule: Specialized "adaptive clothing" can be HSA-approved if it serves a medically necessary purpose, like a pumping bra, certain postpartum care products, etc. But general hygiene items are not eligible.

9. Specialized swimwear

Swimwear is often left in the dresser drawer, with 9.3% of travelers reporting forgetting bathing suits or similar wear at home. Though swim trunks might not qualify for HSA eligibility, you may be able to use tax-free funds on prescription swimwear.

• The IRS rule: Items for specialized wear, like prescription goggles or masks with corrective lenses, may qualify if they are used to treat a condition. Otherwise, an LMN may be necessary for other types of bathing suits.

11. Sneakers and sandals to treat a condition

Footwear like flip-flops and tennis shoes is often forgotten at home, with travelers reporting forgetting to pack these essentials 7.4% to 8% of the time. Though if you meet specific requirements, you might be able to repurchase them with HSA funds.

• The IRS rule: Shoes must directly help manage or improve a medical issue. Common examples include orthotic inserts, gel pads, and orthopedic footwear, though they may require an LMN.

What about accessories? Long flights can take a toll on the body, leading many travelers to invest in biometric trackers. In 2026, popular medical devices like the Oura Ring and certain smart watches may be HSA-eligible if they have an LMN from your doctor stating the specific condition the device monitors and/or treats.

Yet if you're using your HSA for a high-end medical device, many experts recommend paying out of pocket, then obtaining your LMN and submitting the receipt for reimbursement. This may help ensure your purchase meets IRS rules before linking the item to your HSA account.

Don't forget your passport

Approximately 6.3% of travelers report forgetting their passport, which is a major headache — but no, the replacement fees are not HSA-eligible (despite the blow to your mental health). However, your medical care in a foreign country is often covered by your HSA funds.

• The IRS rule: Passports aren't eligible for HSA spending. Instead, hospital and urgent care for legal, non-elective procedures and standard dental work abroad are often qualified tax-free expenses.

Prescription drugs may also qualify if they are consumed abroad (importing them back to the U.S. generally makes them ineligible). The drug must also be legal in both the country you bought it and back home in the U.S.

Also, many U.S.-based HSA debit cards won't work at international locations. Thus, you might want to pay with a travel credit card, keep the itemized receipt, and then reimburse yourself through your HSA portal once you're back on American soil.

Bottom line: Pack ahead

Although no one likes to realize they left their travel essentials behind, a forgotten bag doesn't have to mean a total financial drain.

By utilizing your HSA for these 2026 often-forgotten items, you can potentially get a discount on repurchased items. So pack carefully, keep a record, and enjoy the peace of mind that comes with a tax-advantaged suitcase, no matter what you forget.

Happy trails!

This article is for informational purposes only and does not constitute professional tax or financial advice. Tax laws are subject to change and vary by individual circumstances. Consult with a qualified tax professional regarding your specific situation.

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It's a common headline: A billionaire public petitions for higher taxes on the ultra-rich. Yet, you rarely see those same individuals cutting voluntary checks to the U.S. Treasury.

The American tax system isn't built for donations, but rather for taxable income, deductions and incentives. Even if a high-net-worth person sent money to the federal government, that extra cash would simply go toward the nation's $39 trillion national debt — without changing the donor's tax liability.

This disconnect is key, since it helps explain a broader frustration with the IRS tax code.

A recent Pew Research Center study finds that 60% of Americans believe wealthy individuals and corporations don't pay their "fair share" in taxes.

In response, some point out that high earners technically fund a large portion of federal income taxes, but they do so based on income rather than wealth. That difference means more of what makes the ultra-rich wealthy isn't taxed at ordinary rates. This gives wealthier individuals more flexibility to control which assets are taxed and for how much.

Here's how high-net-worth individuals leverage the tax code, who pay the most federal income taxes and what it means for your own income tax bill in 2026.

Why billionaires don't use the 'donation box'

You can't donate to the IRS since your tax bill is a legal obligation, not a charitable choice. You also can't pay another person's income taxes.

However, the U.S. Treasury Department maintains a program called Gifts to Reduce the Public Debt that receives donations to reduce the national debt.

• Since 1996, this program has received roughly $67 million in total donations.
• As of May 2026, the national debt stands at approximately $39 trillion.
• At current federal spending rates (PDF), that 30-year total of donations would fund the U.S. government for about 20 minutes.

As the high-net-worth advocacy group Patriotic Millionaires notes, individual gifts can't replace structural policy.

"A few wealthy people giving our money to the government wouldn't fund a massive investment in our country's infrastructure," the group stated in a release. "Our individual funds simply aren’t enough to make a difference."

Federal income taxes are the bedrock for multibillion-dollar programs such as the Supplemental Nutritional Assistance Program (SNAP), Medicaid and national defense. Since these obligations are generally permanent, they require dependable funds for which the government can budget.

Consistency is key. While the federal government isn't a charity, the importance of consistent revenue is shared with nonprofits.

"Recurring donations are vital to organizational growth and long-term sustainability," NextAfter (PDF), a fundraising research lab, reported in a recent benchmark study. "Not only do they bring consistency ... they also create longer-lasting and more valuable donors."

Who pays the most tax?

According to data from the National Taxpayers Union Foundation (NTUF), the current U.S. tax system is progressive. This means that, as taxable income increases, so does the percentage of federal income tax you pay.

In the most recent reporting cycle (updated April 2026):

What does this table mean? The top 1% earns about 20% of the nation's income, but pay nearly 40% of the taxes. The top 10% earn about 48% of U.S. income but pay about 70.5% of the annual federal income tax bill. Both groups' tax shares exceed their income shares.

It's important to note that the data only covers federal income tax. The table doesn't include payroll taxes (Social Security and Medicare) or state and local taxes, both of which disproportionately affect lower and middle-income earners more than high-income earners, as reported by the Institute on Taxation and Economic Policy (ITEP).

Meanwhile, the U.S. tax gap — the amount of federal taxes owed but not paid — remains a sticking point for your tax dollars. The IRS estimates this gap at roughly $600 billion, with a large share of unreported income coming from the top 1% of earners.

Closing the gap through enforcement on the top 1% alone could theoretically recover $163 billion, per recent Treasury estimates, far more than any donation program could achieve through voluntary checks to the government.

However, the funding levels for IRS enforcement have been a point of significant legislative debate in 2026, impacting how the agency addresses the tax gap and similar initiatives.

How the wealthy employ tax strategies

According to the Pew study, many Americans think some corporations and wealthy people don't pay their "fair share" in taxes. But if the top 10% of earners pay 70.5% of all federal income tax, why the disparity in perception?

Part of the answer lies in the source of income. Most Americans live on "earned income" (W-2 wages, 1099s, etc.), taxed at ordinary federal rates up to 37%, plus subject to payroll taxes such as Social Security and FICA.

But high-net-worth individuals often live on wealth that bypasses these taxes, utilizing a so-called "Buy, Borrow, Die" strategy:

1. Buy. They acquire appreciating assets (stocks, real estate, etc.).
2. Borrow. Instead of selling (which triggers capital gains tax rates), they take low-interest loans against those assets. Loans are not taxable income.
3. Die. Heirs receive the assets at a "stepped-up basis," meaning the capital gains built up over a lifetime are essentially erased for tax purposes.

High-wealth individuals might also make large donations to private foundations to allow for immediate deductions, employ business expense deductions and receive compensation through stock options or distributions (rather than salaries or wages) to further lower their income tax liability.

While these methods are theoretically available to all, unless you have significant capital to begin with, it's difficult to "break in" to the wealth-preservation strategies used by high-net-worth individuals.

Note: These strategies involve significant legal and liquidity risks and are not one-size-fits-all solutions.

The bottom line: Ways to lower your tax bill

Although the average taxpayer might not be able to live off loans against a billion-dollar stock portfolio, you can still move the needle on your own "tax gap" by using the IRS code's intended incentives.

Here are a few ideas for lowering your income taxes (if you're eligible):

• Audit your "voluntary" overpayment. If you're getting a massive refund every year, you're essentially giving the IRS an interest-free loan. Adjusting your tax withholding ensures your money stays in your pocket for investment throughout the year.
• Create your own "tax-free" bucket. You might not have a private foundation, but traditional 401(k)s or individual retirement accounts (IRAs) allow you to shield income from the IRS today. By using pre-tax dollars, you're effectively lowering your taxable income and withdrawing those funds at perhaps a lower rate during retirement.
• Prune your portfolio. Use tax-loss harvesting to offset capital gains with losses (just be mindful of the "wash-sale" rule, which disallows the loss if you buy the same or a "substantially identical" asset within 30 days). Keep an eye on the calendar: Assets held for more than one year qualify for long-term capital gains rates, which, at 0%, 15%, or 20%, are significantly lower than the ordinary income rates applied to short-term gains.

If you're feeling generous …

Starting this year, new charitable deduction rules take effect. Up to $1,000 ($2,000 for married filing jointly couples) in qualified cash donations can be deductible on your federal return, even if you claim the standard deduction.

But whether you send that check to the Treasury to fund a millisecond of federal overhead — or provide thousands of meals at a qualified food bank — the choice is yours. We can't all be billionaires.

This article is for informational purposes only and does not constitute professional tax or financial advice. Tax laws are subject to change and vary by individual circumstances. Consult with a qualified tax professional regarding your specific situation.

Read More

• Residents Driven Out of High-Tax States in 2026: But Will You Still Owe Taxes After Moving?
• Taxpayer Confusion Grows Over Whether IRS Notices Are Real
• First the Penny, Now the Nickel? The New Math Behind Your Sales Tax and Total
• 10 Frugal Habits People Are Using to Save in 2026 With 'Broke Planning'

With gas prices climbing amid tensions in the Middle East (averaging $4.50 a gallon according to AAA, up more than 50% since the start of the war with Iran), President Donald Trump says he wants to suspend the federal gas tax “for a period of time” to help drivers.

But some economists say the policy would likely have only a limited effect, since gasoline prices are driven mainly by global oil markets rather than federal taxes.

What's a driver to do as we head toward the Memorial Day holiday? Read on.

Why a gas tax holiday might not lower prices much

The federal gas tax is 18.4 cents per gallon of regular, layered on top of state taxes (more on those below), but it represents only a small share of what drivers ultimately pay at the pump.

Gas prices are driven far more by global oil markets, which continue to fluctuate. That means even if the federal tax were temporarily suspended, prices would still largely reflect international supply and demand.

Even when costs fall, those savings don’t always quickly reach consumers.

Fuel prices adjust gradually, and companies across the supply chain — from refiners to gas stations — can retain part of the short-term margin depending on competition and local market conditions.

What about state gas tax?

Even if the federal gas tax were paused, drivers in most places in the U.S. would still pay state gas taxes, which are often significantly higher than the federal 18.4-cent tax.

As a result, the impact of a federal gas tax holiday would vary widely depending on where someone lives.

One state has already taken action to address this.

• As Kiplinger reported, Georgia temporarily suspended its state gasoline tax for 60 days in March as fuel prices surged following escalating tensions with Iran.
• The move cut roughly 33 cents per gallon from gasoline prices and about 37 cents per gallon of diesel.

Because Georgia’s state gas tax is higher than the federal tax, the immediate savings there were more noticeable than what a federal suspension alone would provide.

Still, economists note that even state-level tax holidays don't address the core driver of fuel prices: global oil markets. As mentioned, if crude prices remain elevated, pump prices can stay high even with tax relief in place.

On the flip side, out in California, Gov. Gavin Newsom has so far rejected calls for a state gas tax holiday. (Average fuel prices in the Golden State recently soared above $6 per gallon.)

Newsom has argued that suspending the state's gas tax could jeopardize infrastructure funding.

Hidden costs?

Worth noting: The federal gas tax also plays a key role in funding roads, bridges, and transportation infrastructure through the Highway Trust Fund.

Suspending it, even temporarily, could remove billions of dollars in dedicated transportation funding unless Congress replaces the revenue elsewhere, according to the Peterson Foundation.

• The Bipartisan Policy Center has estimated that a five-month federal gas tax holiday, for example, could reduce Highway Trust Fund revenue by roughly $17 billion.
• That matters because the fund is already under long-term strain and has required transfers from general federal revenues to stay solvent.

There is also a political hurdle…

Trump can't suspend the federal gas tax on his own. Congress would need to pass legislation approving the move, and lawmakers would also need to determine how to offset the lost transportation revenue.

Sen. Josh Hawley (R-Mo.) and Sens. Mark Kelly (D-Ariz.) and Richard Blumenthal (D-Conn.) have each introduced proposals to temporarily suspend the federal gas tax — currently 18.4 cents per gallon for gasoline and 24.4 cents for diesel — as a way to provide short-term relief from higher fuel costs.

In a release about his proposed Gas Tax Suspension Act, Hawley stated, "President Trump has proposed to suspend the federal gas tax, and he’s exactly right. American workers and families deserve immediate relief and this legislation will do just that."

Meanwhile, Kelly stated that "suspending the federal gas tax [via the Gas Tax Relief Act] would help bring prices down and give families some much-needed relief."

So, even though Congress has never voted to suspend the federal gas tax, the measure might resonate now on Capitol Hill because gas prices are highly visible and directly affect household budgets. Stay tuned.

What you can do about high gas prices

For consumers facing higher gas prices, most of the real relief comes from factors outside domestic policy. But some practical steps might help.

• Small changes in driving habits, like combining errands, accelerating and braking gently, and keeping tires properly inflated, might help improve fuel efficiency, according to the U.S. Environmental Protection Agency and the Department of Energy.
• Price comparison apps can also help drivers find lower-cost stations nearby, since prices can vary significantly even within the same area.
• Also, keep an eye on states with the highest gas tax and lowest gas tax rates.

And while gas prices tend to move with global oil cycles, they can shift quickly in both directions depending on supply conditions and geopolitical events.

Hopefully, some real price relief will arrive as unexpectedly as the price spikes did.

Related

• States With the Highest Gas Tax in 2026
• Low Gas Tax States to Know Now
• Georgia Temporarily Suspends Its State Gas Tax

Each week in our Ask the Editor series, Joy Taylor, The Kiplinger Tax Letter editor, answers questions on topics submitted by readers. This week, she's looking at four questions on your chances of an IRS tax audit and audit red flags you should know. (Get a free issue of The Kiplinger Tax Letter or subscribe.)

1. What are my chances that I will be audited by the IRS?

Question: I am getting ready to file my 2025 tax return (I applied for a filing extension). Friends have told me that I don't have to worry about IRS audits anymore. Is that true

Joy Taylor: No. That information is incorrect. It is true that major cuts to the IRS's funding and its workforce will reduce the number of tax audits the agency can do each year. In recent years, the IRS audit rate for individuals was significantly below 1%, and we expect this figure to continue to decline, at least over the next few years. But that doesn't mean it's a tax cheat free-for-all. According to IRS leaders, there will be fewer overall audits, but the exams that are done will be more targeted.

The IRS is relying more on data analytics and artificial intelligence to more precisely identify high-risk noncompliance and to improve efficiency. Data-mining software can sift through taxpayer data, expose suspicious activity and identify audit cases.

Additionally, your chances of an IRS audit could go up, depending on various factors or red flags, including the amount of income you report, the complexity of your return, the types and amounts of deductions or other tax breaks you claim, whether you're engaged in a business, or whether you own foreign assets.

2. Tax audits and refundable tax credits

Question: I am a tax preparer, and many of my clients claim refundable tax credits on their federal returns, such as the earned income credit, the refundable portion of the child credit, the Obamacare premium credit and the American Opportunity credit. I heard that the IRS will be eyeing these credits more than ever before. Do you think this is true?

Joy Taylor: Yes. The IRS's enforcement arm is feeling the brunt of the government funding cuts and recent employee resignations and layoffs. Many of the workers who retired or left the IRS were experienced agents and managers with deep knowledge of the tax law and the processes for conducting complex tax audits of individuals and businesses.

We expect that the IRS will go after low-hanging fruit, such as questionable refundable tax credits claimed on tax returns. Most of these audits are done through correspondence, meaning the taxpayer never meets with an IRS employee. They're a bit more cost-effective, since the audit is generally limited to only one or two issues. The IRS also knows that there is lots of money lost each year to erroneous claims of refundable tax credits. The IRS estimated it improperly paid $21.4 billion in refundable credits in fiscal year 2024 alone.

3. S corporation and partnership audits

Question: I am a partner in a closely held limited partnership. I heard that the IRS is using some of its $80 billion windfall from the Inflation Reduction Act to beef up audits of partnerships. Can you provide details on this?

Joy Taylor: It is true that the 2022 Inflation Reduction Act gave the IRS $80 billion to be withdrawn over 10 years for improved taxpayer service, increased enforcement efforts and modernization. In 2023 and 2024, the IRS went on a hiring spree and began to beef up enforcement areas that were neglected over the past decade or so. This included audits of pass-through entities, such as partnerships, LLCs and S corporations, and exams of higher-income individuals.

Much of the IRS's efforts to bolster its enforcement arm were for naught. The vast majority of the IRS's $80 billion windfall has been rescinded by Congress. And since President Trump began his second term in office in January 2025, the IRS has lost over 20% of its total workforce, and its annual funding has declined. And things promise to only get worse for the agency. The Trump administration's fiscal year 2027 budget request for the IRS includes an 18% additional cut in enforcement money and projects fewer than 25,000 total enforcement employees.

The IRS's scarcer audit resources are leading to decreased numbers of audits, including audits of high-income individuals and partnerships. The number of IRS audits of individuals with $10 million or more of income and partnerships has fallen from 6,786 and 3,174, respectively, in fiscal year 2025 to 2,264 and 2,932 in fiscal year 2026. The IRS forecasts even further drops in these audits in fiscal year 2027.

4. Audit red flags

Question: What does the IRS take into account in deciding whether to audit a taxpayer's Form 1040?

Joy Taylor: We don't know exactly the IRS's formula for choosing returns to audit. That's a closely held secret. But we are aware of various factors or red flags that could escalate one's chance in the unenviable audit lottery.

I wrote a story setting forth 15 IRS audit red flags. They are:

• Failing to report all taxable income
• Making a lot of money
• Failing to file your income tax return
• Taking higher-than-average deductions, losses or credits
• Claiming refundable tax credits
• Taking large charitable contribution deductions
• Running a business
• Writing off a hobby loss
• Failing to report self-employment income and pay self-employment taxes
• Claiming rental losses
• Taking a distribution from an IRA or 401(k) before age 59½
• Failing to report gambling winnings or claiming big gambling losses
• Claiming the foreign earned income exclusion when working overseas
• Engaging in virtual currency or other digital asset transactions
• Failing to report a foreign bank account

About Ask the Editor, Tax Edition

Subscribers of The Kiplinger Tax Letter, The Kiplinger Letter and The Kiplinger Retirement Report can ask Joy questions about tax topics. You'll find full details of how to submit questions in each publication. Subscribe to The Kiplinger Tax Letter, The Kiplinger Letter or The Kiplinger Retirement Report.

We have already received many questions from readers on topics related to tax changes in the One Big Beautiful Bill, retirement accounts and more. We will continue to answer these in future Ask the Editor roundups. So keep those questions coming!

Not all questions submitted will be published, and some may be condensed and/or combined with other similar questions and answers, as required editorially. The answers provided by our editors and experts, in this Q&A series, are for general informational purposes only. While we take reasonable precautions to ensure we provide accurate answers to your questions, this information does not and is not intended to, constitute independent financial, legal, or tax advice. You should not act, or refrain from acting, based on any information provided in this feature. You should consult with a financial or tax advisor regarding any questions you may have in relation to the matters discussed in this article.

More Reader Questions Answered

• All Ask the Editor Q&As
• Ask the Editor: Question on Tax Refunds and Penalties
• Ask the Editor: How Can I Resolve My IRS Tax Debt?
• Ask the Editor: Senior Deduction and Tax Filing
• Ask the Editor: Tax Questions on Roth IRA Conversions
• Ask the Editor: Reader Questions on QCDs
• Ask the Editor: What Medical Expenses are Deductible?

As part of a broader push to modernize payments, the IRS has been phasing out paper refund checks. This tax season, that shift has triggered a surge in notices asking taxpayers to confirm or update their banking information.

These letters, known as CP53E notices, are landing in more than 1 million mailboxes, according to some congressional estimates.

Unfortunately, as you might expect, the spike in IRS correspondence could increase the chances of receiving a letter in error, per some social media reports, or create confusion over whether the notices are from fraudsters.

So, how do you know if your IRS refund letter is real? And what should you do if you get one? Here's more to know and some red flags to watch.

Related: IRS May Change Controversial CP53E Letters

Why CP53E IRS letters seem to be everywhere

Let's start with why what's happening is happening.

A CP53E notice from the IRS typically means the tax agency couldn’t deposit your tax refund as requested. That's often due to missing or mismatched bank account details.

But this year, volume is part of the story.

As Kiplinger has reported, the federal government, including the IRS, is phasing out paper checks and steering more payments toward direct deposit. As a result, hundreds of thousands of taxpayers are being prompted to review or fix their banking information.

So, in recent months, there has been a significant surge in the number of legitimate CP53E letters issued by the IRS.

• Congressional data indicate that 1.4 million CP53E notices have been issued as of March 2026, amid the direct deposit push.
• As mentioned, this volume stems from IRS efforts to reduce paper checks, which take longer to process (typically 6-8 weeks, compared with a few days for electronic payments).
• The Taxpayer Advocate Service reports that direct deposit issues affect roughly 5% of filers each year, but the shift to paper checks has affected the number of notices sent this year.

That increase comes amid reports that some people have received notices sent in error or have received the CP53E notice even though they owed the IRS taxes this year.

The whole situation is raising concerns among taxpayers. Some question the tax agency's motives for sending letters to those who shouldn't receive them, while others are unsure about the authenticity of communications they receive purporting to be from the IRS.

What is an IRS CP53E notice?

As mentioned, the IRS typically sends a CP53E notice when the agency can't deposit your tax refund due to missing, outdated, or mismatched bank details on file.

If your letter is legitimate, it usually indicates a processing issue with your refund — not a penalty or IRS audit.

In most cases:

• Your refund is temporarily on hold (usually approximately 21 days until you provide corrected information via your official IRS account).
• The IRS needs corrected or confirmed deposit details.
• You’ll have time to respond.

If you don't take action, the IRS may still eventually send a paper check. It just may take some time, likely about 6 weeks, according to the agency.

How to spot a fake IRS letter: Red flags to consider

Here are some things to look at closely if you receive a letter that you're not sure is real.

Be wary if the letter you receive asks for sensitive personal or banking information.

This might include your full Social Security number, bank login credentials, or detailed account information, or direct you to click a third-party link or scan an unfamiliar QR code. (Avoid scanning those codes in an unverified letter.)

You'll also want to be cautious if the letter's tone is urgent or threatening.

While legitimate IRS letters can be daunting, they usually should not rely on overly panic-driven language. And in the case of refund direct deposit notices, since you typically have roughly 30 days to respond, you will still likely receive a paper refund check if you don't. So, panic language could be a red flag.

Keep in mind: The IRS generally doesn't ask for sensitive data in unsolicited correspondence. Instead, a legitimate notice will typically direct you to log into your official IRS account via the official IRS website, not through a third-party or otherwise unfamiliar link.

Another thing to consider is whether the letter's details match your tax situation.

Some taxpayers have reported receiving notices about refunds they weren’t expecting or about returns for which they are not due a refund.

That kind of mismatch doesn’t always mean fraud is involved, but it’s a signal to pause and verify before acting.

How to verify your CP53E notice and respond

If you receive a CP53E notice, the safest course is to go directly to the IRS website by entering the official IRS URL in your browser. From there:

• Log in to your official IRS online account
• Check whether the notice appears
• You can also call the IRS using an official number

IRS refund status: Bottom line

According to IRS reporting, refunds run about 11% higher on average than last year. The average refund amount has hovered around $3,400, most likely due to changes in the Trump/GOP tax and spending bill enacted last year.

Recent polls suggest that many plan to use that money to pay down debt or cover essentials.

Overall? If a letter that looks like it's from the IRS asks you to share sensitive information, click on unfamiliar or third-party links, or act immediately, take a step back and verify it first.

And if your notice is legitimate and you need to track your tax refund after completing the direct deposit process, the IRS says to allow 2-5 days for your refund information to update online. From there, you can use the Where’s My Refund tool to check your refund status.

This article has been updated to mention taxpayers receiving letters even when they owe the IRS.

More on Tax Refunds

• IRS Refund Schedule 2026: When Will Your Money Arrive?
• 5 States Where Tax Refunds Could Be Later Than Usual
• Why Your IRS Refund Could Be Delayed or Frozen

Millions of people are leaving high-tax states like California and New York, according to recent IRS migration data, and billions of dollars in income are shifting out of both states each year.

In California alone, IRS-based analysis shows roughly $10 billion to $12 billion in adjusted gross income (AGI) has left the Golden State in a recent year, much of it tied to higher-income households.

New York has also seen multibillion-dollar net outflows (about $9.9 billion), particularly from upper-income taxpayers relocating to lower-tax states like Florida and Texas.

At the same time, two new policy developments are reshaping the conversation around what it actually means to “leave” a high-tax state: a proposed wealth tax in California and a second-home tax proposal in New York.

Together, these measures raise a practical question for taxpayers: Does moving from a high-tax state to a low-tax state actually end your tax exposure or actually change how closely it's reviewed by auditors?

California wealth tax coming in 2026?

As Kiplinger has reported, a proposed wealth tax in California is heading to the November 2026 ballot, where voters will decide whether to impose a one-time 5% tax on some ultra-wealthy households.

The measure would apply to a very small number of taxpayers (roughly 250 according to some estimates) at the top of the wealth distribution, based on net worth, including assets like stocks, real estate, and business ownership interests.

Supporters argue in part that the "wealth tax" would raise significant revenue, about $20 billion a year, per the Institute on Taxation and Economic Policy (ITEP) estimates. Critics say it could increase incentives for high-net-worth households to relocate, especially given existing migration trends already showing sustained outflows from the state.

Gov. Gavin Newsom, who opposes the measure, reportedly told the New York Times, “This will be defeated — there’s no question in my mind," referring to the ballot measure.

Also worth noting: Because wealth taxes depend on residency status at the time of assessment, the proposal has also renewed attention on how states determine whether someone is still considered a resident after a move.

New York 'Second-Home Tax' targets luxury property owners

Meanwhile, in New York, Gov. Kathy Hochul and NYC Mayor Zohran Mamdani are working to advance a proposed tax on high-value second homes, often referred to as a "pied-à-terre" tax.

The proposal focuses on luxury properties valued at over $5 million, particularly in high-value urban markets like New York City, that are not primary residences.

Supporters say the annual surcharge would capture revenue from high-end real estate that benefits from city infrastructure and help fund vital public services. In a Tax Day launch video, Mamdani said, “When I ran for mayor, I said I was going to tax the rich — well, today, we’re taxing the rich.”

Opponents argue the measure could discourage investment and further accelerate out-migration from New York among wealthy homeowners.

Interestingly, while structurally different from a wealth tax, the "second home tax" raises a similar issue: how property use and residency status are defined when taxpayers own assets across multiple states.

Residency rules for tax purposes when you move: Why they matter

So what does all of this have to do with relocating?

Moving to a lower-tax state may seem straightforward: change your address, buy a new home, and start fresh. But for tax purposes, due to residency rules, leaving a state like California or New York isn't always that simple.

That's because residency rules determine your status based on where you have established your permanent home (domicile) and how much time you spend in your home state.

It's important to note that residency rules aren’t unique to NY and CA. Every state with an income tax has some version of them, and many rely on similar “facts and circumstances” tests to determine where you reside for tax purposes.

What’s different right now is the spotlight. As more high-income households consider relocating, those rules are getting renewed attention — particularly in states where the financial stakes are rising.

So, how can you potentially still owe taxes to your former state, at least for a period of time? Here are some common situations.

Your "domicile" doesn’t change overnight.

States look beyond a new address to determine where your permanent home really is. If your life remains centered in your old state, it may continue to treat you as a resident.

You're spending too much time in your former state.

Even after a move, crossing the common 183-day threshold in your former state can trigger residency for tax purposes.

Ongoing ties signal you haven’t fully left.

Maintaining a home or holding on to key financial and business connections can work against your claim.

Your daily activity leaves a trail.

In some cases, auditors might review travel logs, credit card records, and even phone location data to determine where you actually spend your time.

The transition year raises questions.

The year you move — when ties overlap, and timing matters most — is often where residency disputes arise.

Here's a simplified example:

A taxpayer moves from California to Florida, buys a new home, and files as a nonresident. But they keep a property in California, spend significant time there, and maintain business ties. If the state determines they didn’t fully break residency — or spent too many days there in California — they could still be taxed as a resident by California on their full income.

To reduce the risk of your former stale's tax bills following you after you think you've left:

• Make the move decisive, not partial.
• Track your days carefully throughout the year.
• Update legal and financial records to match your new state.
• Keep documentation showing when and how you moved.
• Take extra care in the year of the relocation.

Moving to lower tax states: Bottom line

Moving to a lower-tax state can reduce your tax bill, but only if the move holds up under scrutiny. Remember, your residency for tax purposes is generally determined by what you do, not just what you file, and without a clear break, your former state may still have a claim on your income.

Also, keep in mind that no-income-tax states often have to make up for lost revenue elsewhere, so sales and property taxes can sometimes be higher. Consider the tax-tradeoffs of various states before you start packing boxes.

As for what comes next: In California, November could be a key inflection point if voters weigh in. In New York, the path runs through the state’s legislative and budget cycles, where proposals can evolve — or stall — over the coming months. Stay tuned.

Related

• 9 No-Capital-Gains-Tax States Ranked by Cost of Living
• California Wealth Tax Proposal Heads to the Ballot: What It Means for You
• Millions of People Are Moving From High-Tax States Like California and New York: Here's Where They're Going Instead
• States With the Highest and Lowest Income Taxes

Although the April 15 IRS tax deadline has passed, taxpayers in Delaware, Iowa, Virginia, Louisiana, and South Carolina are still on the hook for their state returns — or have just received extra time.

It has been a tumultuous tax season. The 2025 Trump tax bill not only overhauled federal rules but also prompted state lawmakers to wrestle with whether to adopt federal tax code changes.

While these updates may have yielded new tax savings for some taxpayers who live in states that adopted them, the new rules also led to state refund delays, even leading one state tax agency to move its filing deadline as far as October.

So, when is your state tax return due? If you live in one of these states, here's who needs to file by April 30, which taxpayers have more time, and state tax policy to watch as we move further into 2026.

April 30 deadlines: Delaware and Iowa state taxes are due

The two states with income taxes due by April 30, 2026, are Delaware and Iowa. Even though the federal deadline passed on April 15, residents in these states have until the end of the month to finalize their state returns.

"The Iowa Department of Revenue is once again reminding Iowans of the many resources available that can assist taxpayers with filing their tax return," noted Iowa's DOR in a press release, "[State] income tax returns are due on April 30."

What is due by April 30, 2026?

• Individual state tax returns. Both final filings and any tax payments owed.
• Estimated state tax payments. The first quarter installment for the 2026 tax year (in Iowa only; Delaware's estimated payments were due April 15).

Federal estimated tax payments were due April 15, 2026.

Virginia and Louisiana state income tax returns are due May 2026

Taxpayers in Virginia and Louisiana have even more breathing room, with state tax deadlines stretching into May 2026.

• Virginia residents have until May 1, 2026, to file state income tax returns.
• Louisiana taxpayers have until May 15, 2026, to submit their state returns.

What is due in May 2026?

• Individual state income tax returns. Final filings and payments for both Virginia and Louisiana.
• State business tangible property tax returns. This includes returns for specific jurisdictions in Virginia, like Arlington County.

South Carolina taxpayers have a special extended tax deadline for the 2026 tax season that extends beyond May (more on that later).

2026 mail rules for filing state tax returns

You may file by mail or electronically, but most state tax agencies recommend the latter. Not only does e-filing typically yield quicker processing than for paper returns, but it also bypasses the risks associated with the new USPS postmark rule.

Under this new policy, physically mailed returns are often not postmarked until they reach a regional processing center. If you mail your return on the deadline date, your state income filing might not be stamped until the following day, potentially leading to late-filing penalties.

Note on state tax extensions: If you can't file on time, you should file for a state tax extension (which usually pushes your tax filing due date until October 15 or later). This differs from the federal extension, which should have been requested by April 15.

But remember, an extension to a file is not an extension to pay. Be sure to estimate and pay your tax liability by the state deadline to avoid any late-payment interest and penalties.

New tax law changes for states in 2026

As mentioned, several states adopted federal changes from the 2025 Trump tax bill, which are now impacting the 2026 state tax season.

Of the states with April 30 deadlines (or later), conformity varies:

• Delaware: partially conformed, decoupling from business expense provisions and some individual deductions like "no tax on tips."
• Iowa: rolling conformity, adopting most major federal tax changes automatically.
• Louisiana: partially conformed, decoupling from certain business expense deductions.
• Virginia: partially conformed, including the temporary adoption of an increased standard deduction.

What does this mean for you? In many cases, the Trump tax law changes might lend higher tax savings on some state returns (e.g., if you were a worker who qualified for the federal overtime tax deduction).

However, in states that did not conform to these individual tax breaks — like South Carolina — you may be required to "add back" those deductions on your state return, even if you claimed them on your federal filing.

South Carolina 2026 tax extension deadline: October 15

South Carolina state lawmakers debated whether to conform or decouple from the Trump tax law changes for most of the 2026 tax season. As a result, the processing of state income returns for early filers was delayed, and the state return deadline was eventually extended.

"We are automatically extending the tax filing due date for all 2025 South Carolina Individual Income Tax returns to October 15, 2026," the South Carolina Department of Revenue acknowledged in a recent release. "This extension applies only to the deadline to file your return, not to pay what you owe."

The new Trump tax law changes were enacted federally after many states had already concluded their summer legislative sessions. As such, more states may decouple or conform to federal tax policy when legislatures meet for their regular sessions in the next few months. What comes out of those sessions may ultimately impact how much you owe in 2026 state income taxes.

Stay tuned for updates.

Read More

• 5 Reasons Your Tax Refund Might Be Delayed and How to Fix It
• Does Your State Have an IRS Disaster Extension?
• 2026 State Tax Changes to Know Now
• IRS Tax Refund Schedule 2026: When Will Your Refund Arrive?

Missouri is moving toward a major tax decision that could be decided by voters: whether to essentially eliminate the state income tax and replace much of that revenue with higher sales taxes.

The stakes are significant. Missouri’s individual income tax raises roughly $8.5 billion to $9 billion each year — about 60% to 65% of state general revenue — and is the largest source of funding for schools, public safety, and core state services. If the income tax is phased out, most of that revenue would likely be replaced through expanded reliance on sales taxes.

Missouri’s move comes as several other states, including Kentucky, Mississippi, and Oklahoma, have also cut or plan to phase out their income taxes, making the Show-Me State part of a growing national debate over how much states should rely on income taxes.

A central question for voters is this: with no state income tax, who really ends up paying more, and how much will it cost households at the register?

Missouri income tax elimination could follow capital gains tax change

Missouri’s willingness to make sweeping tax changes was already on display last year when it eliminated state taxes on capital gains.

• As Kiplinger reported, that policy, effective as of the 2025 tax year, removed taxes on profits from stock, bond, and other investment sales.
• The measure reportedly cost the state roughly $300 million to $500 million in annual revenue, depending on market conditions.

Now, the question is whether Missouri will go further and end the broad‑based income tax altogether.

As mentioned, Missouri’s individual income tax accounts for roughly 8 billion dollars a year and helps fund schools, public safety, and many core state services. If the income tax is phased out, most of that revenue would need to be replaced by a greater reliance on sales taxes and other changes to the state budget.

Meanwhile, Missouri’s current state sales tax rate is 4.225%, according to the Department of Revenue, though many residents pay more once local taxes are added.

Under the leading proposals, the state would gradually reduce the income tax over several years, with reductions tied to revenue triggers intended to avoid sudden budget chaos.

Missouri Income tax rate 2026: What a change would mean for residents

Right now, Missouri's 2026 individual income tax tops out at 4.7% on taxable income over $9,436 (Single filers; brackets start at 0% up to $1,348, then climb in approx. 0.5% steps).

If the no-income tax plan advances, the practical impact for most Missouri households would be:

• Lower withheld income tax and higher take‑home pay, especially for wage earners
• Higher prices on many goods and services if sales tax rates rise or the taxable base expands
• A shift from being taxed primarily on earnings to being taxed more on spending

Because sales taxes are collected at the register, many residents would feel the tax burden on a daily basis, and many say the ultimate effect would also be uneven.

That's because studies show that households with lower and middle incomes, which often spend a larger share of their income on taxable goods and services, would likely feel the change more heavily than wealthier households whose income is typically more tied to savings or investments.

Proponents and critics: Who wins and who pays

Supporters of the income‑tax‑to‑sales‑tax shift argue that the measure would make Missouri more competitive with no‑income‑tax states like Texas and Florida, reduce reliance on taxing wages, and simplify the tax code over time.

They point to the recent elimination of capital gains taxes as proof that the state is comfortable shifting away from taxing certain forms of income and moving toward a more investment‑friendly system.

Gov. Mike Kehoe has become a leading supporter of phasing out Missouri’s income tax.

In his 2026 State of the State address and subsequent public comments, Kehoe called for the plan to be placed before voters through a constitutional amendment.

He has argued that Missouri’s tax structure "should modernize for the times we’re in and not be burdened by a tax code written in another era," framing the income‑tax elimination as a central part of his economic agenda.

However, some opponents of the measure, including the nonprofit Missouri Budget Project (MBP), warn that replacing roughly $8.5-$9 billion in annual income-tax revenue with higher sales taxes will sharply increase tax rates and potentially force cuts to essential public services.

In a piece on its website regarding the impact of such a proposal on the state's rural communities, MBP writes the following.

"Missouri’s income tax supports nearly 2/3 of Missouri’s state general revenue budget – a critical state funding source for K-12 schools, mental health services, children’s services like childcare and foster care, and services for older adults like Meals on Wheels and respite care. There’s simply no realistic way to make up the revenue lost from eliminating the income tax – meaning harmful cuts to services for Missourians."

• A key argument is that sales‑based taxes tend to fall more heavily on lower‑income households
• That could deepen inequality and make the state's tax system less progressive.

Also worth noting: Missouri’s experiment could also influence how other states frame their own debates over reliance on income taxes, especially as more states look to cut or phase out their personal income tax.

Missouri income tax elimination bill: What happens next

The measure, HJR 173/174, has passed both legislative chambers and awaits Gov. Kehoe's decision by May 22 on whether to place it on the November ballot.

• If it goes to voters, a "yes" vote would begin a multi‑year phaseout of the income tax and a gradual pivot toward relying more on sales taxes.
• That could mean modestly lower income‑tax bills for many households, but also higher everyday costs at the register, especially for those who spend the largest share of their income on taxable goods and services.

For residents, the core takeaway is this: Missouri gave itself a trial run on big tax changes by eliminating capital gains taxes last year. If approved, this next step could be even bigger.

Missouri’s experiment could also influence how other states frame their own debates on income taxes, especially as more look to cut or phase out personal income tax. So, stay tuned.

More on State Taxes

• States With the Highest and Lowest Tax Rates in 2026
• Missouri Eliminates Capital Gains Tax: What It Means for You
• 9 States With No Income Tax Ranked by Cost of Living

Property taxes are a financial strain for many, but are one of the largest sources of funding for local governments in Ohio.

These levies generate roughly $24 billion annually for local governments and help finance schools, police and fire departments, infrastructure, parks, libraries, and more in the Buckeye State.

But now, a proposed constitutional amendment that organizers are trying to qualify for the November 2026 ballot would, if approved, abolish property taxes statewide, as early as next year.

In petition materials supporting the Ohio ballot initiative to eliminate property taxes, organizers wrote: “Property ownership in Ohio feels more like renting from the government, hindering true ownership. This limits our freedom, obstructs wealth transfer to future generations, and keeps families in poverty.”

If passed by voters, the measure could translate into major savings for homeowners but pose fiscal challenges for local services and government budgets.

That’s why some Ohioans are sounding alarms. Here's more to know.

Ohio property tax rate

Ohio’s property tax system is layered.

Residential property is taxed on 35% of its appraised market value, which becomes the taxable value. Local tax rates — including those set by school districts, counties, municipalities, and special levies — are then applied to that value.

The effective property tax rate in Ohio averages roughly 1.3% to 1.6% statewide, above the national average, according to the Tax Foundation.

Here’s an example of how a property tax bill stacks up for a "typical homeowner."

In that simplified example, homeowner property taxes total roughly $3,300–$3,500 per year. And if Ohio property taxes are eliminated, that bill could drop to $0.

But…the revenue would still need to be replaced to effectively fund schools and other important local services.

Ohio proposed property tax changes: Who benefits?

According to reporting on the ballot effort, here's who stands to benefit if Ohio eliminates property taxes.

• Owner‑occupied homeowners would likely see the largest direct savings, especially in urban and suburban areas where property taxes tend to be higher.
• Those with rapidly rising assessments — whose bills have outpaced income growth — would also benefit from property tax relief.
• Investors and commercial property owners would benefit as well, though the net economic impact would depend on how replacement taxes are structured.

However, the full impact of ending property taxes in Ohio would depend on how lawmakers address the revenue loss. Right now, it's unclear exactly what the replacement plan would be.

If not property taxes, where would revenue come from?

Some analysts warn that eliminating property taxes without a clear replacement strategy could create massive shortfalls in local budgets.

A state Office of Budget and Management analysis suggests Ohio could lose about $24 billion in property tax revenue annually if property taxes are abolished.

Possible replacement revenue sources could include:

• Higher statewide sales taxes
• Expanded or increased state and local income taxes
• State budget subsidies or revenue sharing to local governments
• New local tax options or service fees

Each option comes with trade‑offs, and some policymakers caution that shifting the burden away from property taxes could disproportionately affect households with low or middle incomes.

For example, a Tax Foundation analysis suggests that if Ohio eliminated property taxes and replaced them with income taxes, the statewide rate could average around 12.6%. That number could climb above 13% in some counties, with extreme estimates as high as 27%.

Other analyses suggest that eliminating property taxes could require much higher sales tax rates, depending on the mix of alternatives chosen.

Could local services be harmed?

It's important to know that in every state, property tax revenue helps support several essential state services.

Public Schools: Property taxes fund the majority of many local school budgets. Cuts could lead to larger class sizes, program reductions, or teacher layoffs.

Police and Fire: Emergency services in cities and towns rely on property tax levies for staffing and equipment.

Infrastructure: Maintenance of roads, bridges, and local public works projects depends on steady tax revenue.

Libraries, Parks, and Community Programs: These services often operate on tight budgets funded significantly by property tax levies.

As a result, some local officials have described the potential loss of property tax revenue as "catastrophic" for many jurisdictions, because it could force deep cuts in essential services.

Several schools, first responders, and local officials have mounted opposition through the coalition Ohioans to Protect Public Services.

On its website, the group states: "Eliminating property taxes sounds simple. In reality, it creates chaos that will hurt every family, every community, and every paycheck."

The group points out that a move to end property taxes could "wipe out $20 billion in critical services," including those for older adults, at-risk youth, and public health services.

Current Ohio property tax relief

In response to calls for property tax relief, Ohio has recently enacted several reforms.

In December of last year, Gov. Mike DeWine signed five bills intended to limit future property tax increases and expand homeowner tax credits.

Those measures are projected to deliver more than $3 billion in savings for Ohio property owners, according to state estimates.

• One measure expands a state owner‑occupancy credit that gradually increases relief for homeowners over several years.
• Other measures cap increases tied to reappraisals and give counties greater oversight over tax rates.

What Ohio homeowners can do now

If you’re a homeowner watching the Ohio property tax debate:

Review your property tax bill and exemptions. You might qualify for credits or be able to appeal your property tax valuation.

Attend local budget hearings to understand how property tax revenue is being used.

Monitor the signature drive. Petitions are still circulating as organizers work to meet certification requirements for the November 2026 ballot.

Also worth noting: Ohio voters will soon elect a new governor, since Gov. DeWine is term-limited. The 2026 Ohio gubernatorial election is set for November 3, 2026, so discussions about tax relief will likely continue in the coming months.

Ohio property tax debate: Bottom line

Ending property taxes in the Buckeye State could deliver savings for homeowners, but it would also remove one of the state’s most important revenue sources.

Note: Grassroots organizers are still collecting the required signatures for certification, so it's unclear whether the proposal will qualify for the 2026 ballot.

But Ohio isn't alone in considering abolishing property tax. Other states, including Florida, as Kiplinger has reported, have recently considered similar proposals. For more information, see our report: Florida Wants to Eliminate Property Taxes.

And whether the replacement comes through higher sales taxes, higher income taxes, or cuts to core services, someone will ultimately pay the price. So, stay tuned.

More on Property Taxes

• 10 States With the Highest Sales Tax
• 3 States Consider Eliminating Property Taxes This Year
• How to Lower Your Property Tax Bill

Now that Tax Day has passed and many people are taking a closer look at how much they owed the IRS or may have received as a refund, one question comes up again and again: Would I pay less tax somewhere else?

For most people, the answer isn’t straightforward.

That's partly because state taxes vary widely across the country, from places with no income tax at all to states with some of the highest top rates in the nation. But as with the overall cost of living, your true tax burden depends on more than just one number.

Property taxes, sales taxes, and the structure of your income can all significantly affect how much you actually pay.

So, if you're looking for a tax-friendly place to live, here’s a closer look at states with the highest and lowest tax rates in 2026 — and what those differences could mean for your wallet.

State Tax Rates 2026

Tax burden and comparative classifications (including high, moderate, and low relative descriptors) are generally based on the 2026 Tax Foundation state tax burden index.

Cost-of-living comparisons of no-income-tax states generally use the most recently available U.S. Bureau of Economic Analysis (BEA) regional price parity (RPP) data.

Property tax rates are approximate effective rates based on assessed home values and can vary depending on local assessment practices.

Remember: In any state, your actual costs will depend on your income, housing choices, spending habits, tax deductions, credits, and exemptions, as well as local prices.

States with the highest income tax in 2026

The following states have some of the highest top income tax rates and generally rank above average in overall tax burden and state income tax rates.

*States are listed alphabetically, not by rank, within each group.

California

income tax rate: 13.3%

Sales tax: About 8.5%–10.5% combined

Property taxes: Approx. 0.7%–0.9%

California has the highest top marginal income tax rate in the country. While property taxes are limited by state law, high sales taxes and elevated housing costs significantly increase overall expenses.

Why it matters: Even for middle-income households, high housing costs and sales taxes raise the baseline cost of living in the Golden State.

Connecticut

Top income tax rate: 6.99%

Sales tax: 6.35%

Property taxes: About 1.7%–2.1%

Connecticut combines moderate-to-high income, sales, and property taxes across the board.

Why it matters: Overall tax burden in the Constitution State is driven by a combination of income, sales, and property taxes, none of which are the highest nationally, but are elevated relative to many other states.

New Jersey

Top income tax rate: 10.75%

Sales tax: 6.6%

Property taxes: Approx. 2.1%–2.3% (highest in the U.S.)

New Jersey’s tax profile is dominated by exceptionally high property taxes, which affect homeowners across all income levels.

Why it matters: For some Garden State households, property taxes can function almost like a second housing payment layered on top of a mortgage.

New York

Top income tax rate: 10.9%

Sales tax: Approx. 8%–9% combined

Property taxes: About 1.4%–1.8%

New York combines high income taxes with above-average sales taxes and some of the highest property taxes in the country, particularly outside New York City.

Why it matters: Total tax burden can shift significantly depending on where you live within the Empire State, especially for homeowners.

Massachusetts

Income tax: 5% + 4% surtax over $1M

Sales tax: 6.25%

Property taxes: About 1.0%–1.3%

Massachusetts uses a flat income tax but applies an additional surtax on high earners.

Why it matters: A flat income tax structure can still produce a steep effective tax increase in the Old Bay State once income crosses key thresholds.

Do no-income-tax states really save you money?

Even among states with no income tax, i.e., Texas, Florida, Tennessee, Washington, Nevada, New Hampshire, South Dakota, Alaska, and Wyoming, total tax burdens vary widely.

That’s because these states still rely on:

• Sales taxes (often 5%–10% combined)
• Property taxes (Approx. 0.3%–2.3% depending on the state)
• Select local and specialized taxes

For example:

• Texas and New Hampshire rely heavily on property taxes, raising housing costs
• Tennessee and Nevada rely more on sales taxes, increasing everyday spending
• Alaska has no state income or sales tax, but higher overall living costs based on BEA data
• Washington now has capital gains taxes on high earners as well as a newly enacted surtax on income over 1 million.

Why it matters: Eliminating income tax shifts, rather than removes, the tax burden, often onto housing or consumption (via sales taxes).

That brings us to the states with the lowest income tax.

5 lowest income tax states in 2026

The following states rank among the lowest in overall tax burden based on sales tax, property taxes, and cost of living.

Florida

Income tax: None

Sales tax: Approx. 7%–7.5%

Property taxes: About 0.8%–1.1%

Florida remains tax-friendly, though rising housing and insurance costs are eroding affordability.

Why it matters: Housing and insurance costs in some areas of the Sunshine State can reduce the overall benefit of having no state income tax.

South Dakota

Income tax: None

Sales tax: Approx. 6%–6.5%

Property taxes: About 1.2%–1.4%

South Dakota maintains relatively balanced low-to-moderate taxes across categories.

Why it matters: The lack of a state income tax, combined with moderate sales and property taxes, helps keep the overall tax burden in the Mount Rushmore State relatively low.

Tennessee

Income tax: None

Sales tax: Approx. 9%–9.5% combined

Property taxes: About 0.5%–0.7%

Tennessee has no income tax and relies heavily on sales taxes, which are among the highest in the country.

Why it matters: Lower housing taxes help homeowners in the Volunteer State, but everyday purchases carry a higher tax burden.

Texas

Income tax: None

Sales tax: Approx. 8%–8.25% combined

Property taxes: About 1.6%–2.1%

Texas replaces income tax with some of the highest property taxes in the U.S.

Why it matters: Homeownership costs in the Lone Star State often determine total tax exposure more than income does.

Wyoming

Income tax: None

Sales tax: Approx. 5.5%–6%

Property taxes: About 0.6%–0.7%

Wyoming has one of the lowest overall tax profiles in the country.

Why it matters: Low taxes across income, sales, and property contribute to the Equality State having one of the lowest overall tax burdens in the country.

States that fall in the mid-range on taxes

The following states have moderate overall tax burdens, without the high rates of top-tax states or the clear tax advantages of no-income-tax states.

Alaska

Income tax: None

Sales tax: None statewide (local taxes vary)

Property taxes: Approx. 1.1%–1.3%

Alaska has no state income or sales tax, but overall living costs tend to be higher than the national average, according to BEA regional price data.

Why it matters: Despite having no state income or sales tax, overall living costs in the Last Frontier State are higher than the national average, according to BEA data.

Pennsylvania

Income tax: 3.07% flat

Sales tax: 6%

Property taxes: Approx. 1.3%–1.6%

Pennsylvania’s flat income tax is simple, but local and property taxes vary widely.

Why it matters: Local income taxes and property tax differences can significantly affect the Keystone State's total tax burden despite its flat income tax rate.

Nevada

Income tax: None

Sales tax: Approx. 8.1%–8.4%

Property taxes: About 0.6%–0.7%

Nevada remains tax-friendly, but rising housing costs in major metros are driving up overall expenses.

Why it matters: Tax structure advantages in the Silver State can be diluted by housing inflation.

New Hampshire

Income tax: None on wages

Sales tax: None

Property taxes: About1.8%–2.1%

New Hampshire has no income tax or sales tax, but among the highest property tax burdens in the country.

Why it matters: Housing costs are the primary tax pressure point in the Granite State.

Washington

Income tax: None on wages

Sales tax: Approx. 9.2%–10.4% combined

Property taxes: 0.8%–0.9%

Other taxes: 9.9% new tax on annual income over 1 million, capital gains tax on high-earner investment income

Washington doesn't have a broad-based personal income tax, but offsets it with high sales taxes and targeted taxes on high incomes, including a capital gains tax on high earnings and a newly enacted surtax on millionaires.

Why it matters: Tax advantages in the Evergreen State depend heavily on income level.

Bottom Line

How to compare state taxes before you move

State tax rates vary widely, but no single number tells the full story. If you’re comparing states or considering a move, it helps to evaluate:

• Income taxes avoided
• Property and sales tax burden
• Cost-of-living differences

In some cases, no-income-tax states offer meaningful savings. In others, those savings are offset by higher property taxes or higher everyday costs.

Maybe the better question when figuring out where to live this year isn’t which state has the lowest taxes — it might be where you’ll keep the most money after all taxes and expenses are combined.

More on State Tax

• 9 No-Income-Tax States Ranked by Cost of Living
• States with Low and No Capital Gains Tax in 2026
• Retirement Taxes: How All 50 States Tax Retirees
• Another State Could End Income Taxes in 2026: What to Know

As Americans rush to meet the tax deadline this year, frustration about paying too much remains high, and in some ways, seems to be intensifying.

A March Fox News poll found that about 7 in 10 registered voters say their taxes are “too high,” up from roughly 6 in 10 last year. At the same time, a Pew Research Center survey found that about 60% of U.S. taxpayers are bothered "a lot" by the belief that wealthy people and corporations don’t pay their fair share.

Those numbers come as Tax Day 2026 wraps up and follow a sweeping tax overhaul last year when the 2025 tax law, pushed by President Donald Trump and congressional Republicans, was enacted.

Trump tax law 2025 changes and costs

Signed on July 4, 2025, the massive tax legislation known by some as the "big beautiful bill" extended Trump's prior 2017 tax cuts and added targeted breaks aimed at workers and retirees.

Among the most talked-about provisions:

• A deduction for tip income, capped at $25,000
• A deduction for overtime pay, capped at $12,500
• A new $6,000 “senior bonus” deduction
• A modest increase in the child tax credit to about $2,200
• A higher cap on state and local tax (SALT) deductions

But those tax cuts came with significant offsets — and long-term costs.

For example, the new law includes roughly $1 trillion in Medicaid cuts over the next decade and about $187 billion in SNAP (food assistance) reductions through 2034, according to policy estimates.

Analysts project the package will add significantly to the national debt over time, as lower tax revenues outweigh spending cuts.

Tax refund status vs. political promises

One way many Americans experience tax policy is through their IRS tax refunds, and here, the gap between messaging and reality is notable this year.

As Kiplinger reported, Republican lawmakers predicted and touted that the 2025 tax law could boost refunds by as much as $1,000. In reality, early data show that while average refunds are up by about (11%) that only amounts to an increase of roughly $300 to $350 from last year for many taxpayers.

And worth noting: most households are not treating that money as extra spending power.

Surveys show a majority of Americans say they plan to use their refunds to cover essentials like rent, groceries, utilities, and debt payments, rather than discretionary spending or savings.

Inflation rate right now

Another reason tax relief is being overshadowed: prices are rising again.

Recent inflation data shows monthly price increases accelerating again in early 2026 to 3.3% from 2.4%, with energy costs playing a leading role.

Gas prices have jumped sharply amid the Iran War conflict and resulting instability in the Middle East.

According to AAA, national gas averages are now roughly in the mid-$4 range per gallon. That's compared to significantly lower levels before the recent escalation in oil markets.

At the same time, even though the U.S. Supreme Court recently struck down many of Trump's tariffs, some economists note that tariffs imposed or expanded under the Trump administration have added upward pressure to imported goods — from electronics to clothing.

Which new tax breaks people actually like

Not all parts of the 2025 law are viewed equally. Some of the most popular provisions seem to be the most direct:

• Tax breaks on tip income
• Tax breaks on overtime pay

The $6,000 senior deduction has also seemed to draw support among retirees, though its impact varies depending on income level.

By contrast, more complex provisions — like the deduction for car loan interest — have reportedly not been claimed as much thus far on 2025 returns.

Another issue: Corporations not paying their 'fair share'

Beyond individual tax bills, data show that tax fairness remains a concern.

That perception is reinforced by corporate tax data. A 2026 report from the Institute on Taxation and Economic Policy (ITEP) found that at least 88 large, profitable U.S. corporations paid zero federal income tax in 2025. That's despite earning more than $105 billion in combined profits.

• The list includes major firms across sectors, like Tesla, 3M, Honeywell, Yum! Brands, and PayPal, along with several large airlines and consumer companies.
• The ITEP report highlights how widespread the use of deductions, credits, and loss offsets has become in reducing corporate tax liability.

Supporters of lower corporate tax rates say they incentivize investment and economic growth.

Critics argue the benefits are uneven, noting that large corporations often leverage complex tax structures, loopholes, and offshore strategies to minimize their tax burden — often paying effective tax rates well below those faced by individuals.

Tax Day 2026: Bottom line

Tax Day frustration isn’t just about how much people pay the IRS if they owe — it’s about whether tax relief is tangible and whether the system feels fair.

The 2025 tax law has arguably delivered:

• Modestly higher refunds so far
• Some popular deductions for tips, overtime, and older adults
• Expanded tax benefits for businesses and investors

But it also comes with:

• Large projected cuts to Medicaid and SNAP
• Rising deficits and debt pressure
• Inflation driven by energy markets and tariffs
• Persistent concerns about corporate tax avoidance

So, recent tax cuts may have moved some of the numbers for some, but they don't seem to have shifted public sentiment in a positive direction.

As long as tax relief feels uneven for many and the cost of living remains high, most Americans will continue to feel unfairly overtaxed.

Related

• Tax Refund Schedule 2026: When Your Money Will Arrive
• What's in the 2025 Trump Tax Bill?
• Why Your IRS Tax Refund Could Be Frozen or Delayed This Year
• How to Pay the IRS if You Owe

As the April 15 tax deadline approaches, it’s common to take a second look at your return and spot a few things you wish you’d done differently.

But before you panic, it’s important to know that while some errors are easily fixed, others are much harder to change once your return is in the hands of the IRS.

The key is knowing which mistakes are worth correcting. In some cases, rushing to change a minor detail can stretch your processing time out for months, only to lead to the same outcome. Here's more to know.

What you can change on your taxes after you've filed them

Some updates can be made after your return is submitted. However, in many cases, the IRS requires filing an amended return using Form 1040-X.

Common triggers for needing to amend include:

• Reporting Missed Income: This is common if a 1099 or W-2 arrived late or was updated after you hit submit.
• Life Events: Significant changes, like a marriage, birth, or adoption, or the death of a loved one, can fundamentally shift your filing status and eligibility.
• The Qualifying Relative: Realizing after filing that you provided more than half the support for an aging parent could unlock the $500 Credit for Other Dependents.
• Maximizing Credits: A minor oversight on a child's residency or age could mean missing out on the $2,200 Child Tax Credit. Or if you filed before your school sent the final 1098-T form, you might have missed the American Opportunity Tax Credit (AOTC), which can shave up to $2,500 off your tax bill.

Example: When to amend your return

The Situation: You filed in February, but in March, you realize you forgot to claim the new deduction for your car loan interest or your qualified overtime pay.

The Result: Because these new 2025 deductions could directly lower your taxable income, filing a 1040-X is likely worth the wait. It could increase your refund by hundreds of dollars.

Note: This is a simplified example. Whether you should amend your return will depend on your specific tax situation.

Overall, if a change affects what you owe the IRS or how much money you get back, it’s typically worth correcting. However, if you're uncertain, consulting a tax professional can help you decide if the math justifies the extra paperwork.

What’s harder to change after you submit your return

Some decisions are effectively locked in once your return is filed, especially after the Tax Day deadline passes.

Certain tax elections and filing choices are only available up to the original filing deadline. However, once that window closes, your ability to change direction is limited, even if new information comes to light.

Some examples:

• The Joint to Separate Rule: If you and your spouse filed a joint return, you generally cannot change your mind and switch to "Married Filing Separately" once the April 15 deadline has passed.
• Irrevocable Elections: Certain technical choices, like electing to forgo a "net operating loss carryback" or specific business accounting methods, are often permanent once submitted on an original return.
• The 65-Day Rule for Trusts: If you are a trustee, the window to "push" 2025 income out to beneficiaries to lower the trust's tax bill (known as the 65-day election) closes in early March. If you missed that window, you can't "amend" your way back into it later.

When to fix a tax mistake — and when to leave it alone

Notably, not every mistake requires you to file an amended return. Often, the IRS catches and corrects simple math errors for you.

As Kiplinger has reported, under the recently enacted IRS MATH Act, the agency is now required to be much more transparent about these "automatic" fixes.

If the IRS adjusts your return, they must send you a detailed notice explaining exactly which line they changed and why, giving you a clear 60-day window to disagree with their assessment.

Example: When to leave it alone

The Situation: You realize you accidentally typed "$5,200" instead of "$2,500" for a single line of income, but your tax software already caught the discrepancy in your final total.

The Result: If it's a "transposition error" that doesn't change your final tax owed, the IRS will likely reconcile it during processing. Filing an amendment for a $0 change only puts your return at the back of a 20-week line for no reason.

For more information, see Kiplinger's report: Made a Tax Return Mistake? A New IRS Law Could Help You Fight Back.

Overall? If the mistake doesn't change your tax liability or your refund, filing an amendment may not be worth the potential processing delay.

But keep in mind, the above is a simplified example. Your specific tax situation will determine whether an amended return makes sense.

What happens when you file an amended return

Amended returns take longer to process than standard filings.

While some electronic amendments move faster, the IRS officially presents a timeline of 16 to 20 weeks for full processing.

In some cases, tax pros recommend waiting until your originally filed return has been processed and you’ve received your initial refund (if any) before filing an amended return.

What can trigger the IRS to flag your return for review?

If your reported income doesn’t match what’s on file with the IRS (from employers or banks), the system may flag your return. This "mismatch" is a key cause of delays and often occurs with freelance work or investment accounts.

When a return is flagged for inconsistency or identity verification, it moves to a manual review queue.

Taking a few extra minutes to ensure your 1099s match your filing can prevent your refund from being stuck in a months-long backlog.

Changing your tax return after filing: Bottom line

Filing your taxes is a major step, but it’s not always the final one for everyone.

By understanding what the IRS fixes automatically and what requires a 1040-X, you can avoid unnecessary IRS processing delays and make more confident decisions about your money.

Read More

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Every year on April 15, millions of Americans engage in a high-stakes race against the tax clock.

But have you ever wondered why we don't file returns on January 1? Or when we started paying federal income tax to begin with?

The history of Tax Day is a strange timeline of moving days, postmark rules, and a specific holiday in Washington, D.C. that still catches taxpayers off guard. So before you file your return, take our trivia challenge to see how much you actually know about this important date in tax season 2026.

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The 2026 FIFA World Cup kicks off this month with a projected record $150 billion in total wagers — driven largely by millions of first-time bettors.

But while new fans may be studying brackets, a different kind of scoreboard lurks off the field: shifts in federal tax law. Under the newly enacted 90% limit on gambling loss deductions, even fans who finish the tournament break-even could face an unexpected bill from the IRS.

Here is how the new "phantom income" tax works, how a surge of casual players will shift the betting lines, and what you need to track to protect your bankroll.

How first-time bettors shift World Cup odds

Favorable match times for the North American audience, a new 48-team format (up from 32), and unprecedented expansion of legal mobile betting platforms have led to a surge in casual U.S. World Cup bettors for 2026.

According to a survey commissioned by the global payment platform Paysafe, 29% of U.S. bettors are gambling for the first time, and about 60% of global fans plan to wager on the World Cup (where betting is legal).

The influx of new bettors is expected to shift World Cup odds as casual fans usually bet on popular, well-known teams. To protect themselves from losing too much money on favored team wins, sportsbooks will employ various methods, like making these favorite bets less rewarding.

So if you are placing your first wagers, keep your eye on three distinct market trends driven by fellow casual fans:

• Overpriced favorites. New bettors love to wager on household names like France and Spain, which can shorten the odds. This means you have to risk more to win less. Evaluate whether those odds offer actual value compared to the team's true probability of winning.
• The "over" bias. Casual fans tend to bet on high-scoring games because rooting for goals is more fun than rooting for a defensive match. This bias artificially drives up the line for the total number of goals expected, making "under" bets a potential value area. Look for defensive matchups or games with poor weather conditions where total points or goals have been driven up.
• Platform slowdowns. High volumes of bettors could lead to slowdowns in online sports betting performances, including app downtime. If you're placing a time-sensitive bet, try using cellular data, force-closing background apps, or switching to a desktop browser for optimal operational efficiency.

Data was aggregated from online sportsbooks like DraftKings and FanDuel as of June 2026. Check the websites for the most up-to-date information.

New tax rules: The 'phantom income' trap

In addition to more bettors than ever, the next biggest danger for a casual 2026 World Cup bet might just be the newly updated IRS rule governing gambling losses.

That's because historical bets allowed you to deduct your losses against your winnings to owe $0 in federal taxes (assuming you itemized).

In the 2026 tax year, however, federal law caps gambling loss deductions at just 90% of your total winnings, creating what tax experts call taxable "phantom income."

How does it work? Let's say you have a rollercoaster World Cup: you win $3,000 on the group stages but lose $4,000 on the finals.

• Winnings: $3,000
• Deductible losses: $2,700 (90% of your $3,000 win)
• Taxable income: $300

Even though you're down $1,000 in cash, the IRS sees $300 in income. This amount is taxed at ordinary rates (10% to 37%), meaning you're paying the government for the privilege of losing money.

Here's the real kicker: If you take the standard deduction — like roughly 90% of Americans do — you can't deduct any losses. You would be legally required to report and pay taxes on the full $3,000 in winnings, and swallow the $4,000 loss out of pocket.

Reporting rules and the $2,000 threshold

It's also a common misconception among first-time bettors that if you don't receive an official tax form from a sportsbook, you don't owe taxes.

That's not true. Although the IRS recently raised the automatic reporting threshold for sportsbooks from $600 to $2,000 (provided the winnings are at least 300 times the wager), federal law still requires you to self-report every dollar of gambling income, regardless of the amount.

So help protect yourself from a tax audit red flag this season by:

1. Tracking every wager. Maintain a clear, chronological log of every single slip, date, stake, and payout.
2. Separating your sessions. The IRS calculates wins and losses by individual betting "sessions," not your total net account balance at the end of the summer.
3. Keeping digital receipts. Do not rely on your sports betting app to keep your records forever; download your detailed betting history statements monthly.

Also, keep in mind state tax rules. Even though the federal threshold is $2,000, states like Connecticut or Ohio often trigger reporting at just $600. At the same time, if you're betting in "income tax-free" states like Tennessee, you'll likely dodge the state gambling taxes (though rules governing what counts as "legal sports betting" may apply).

And in some states, like California and Alabama, online gambling is illegal. So check your local rules before placing a bet.

Do I have to pay tax on away bets?

If you place an "away bet" — whether in a different state or abroad — you're generally subject to the gambling and tax laws of the location where your wager is physically processed. This can look different depending on where you are, for example:

• Traveling state-to-state: New Jersey (host of the World Cup Final at MetLife Stadium) is highly sports-bet-friendly, but it taxes all forms of mobile and in-person betting. Meanwhile, Washington state does not tax gambling winnings at all, but state law completely bans mobile sports betting, meaning you can only wager in person at Tribal casinos.
• Crossing the border: If you are traveling to catch matches in Mexico or Canada, your U.S. mobile betting apps' "confirm bet" button probably won't work. State regulations require sportsbooks to use strict geolocation tracking, meaning your account will not allow a new bet the moment you cross the border. To wager internationally, you must follow that country's local rules and still report any winnings to the IRS.

The bottom line

Enjoying the 2026 World Cup tournament doesn't have to mean compromising your finances. By maintaining a clean log of your wagers and treating every betting slip as a financial document, you can safely navigate the IRS's new 2026 playbook and ensure an unexpected tax bill doesn't ruin your season.

So stay safe, have fun, and keep the drama on the field, not on your Form 1040.

The information provided in this article is for educational and informational purposes only and does not constitute legal, financial, or tax advice. Wagering decisions are made at the sole discretion of the reader. Consult a qualified tax advisor or certified professional before making financial commitments.

Read More

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In recent years, more states have adopted a single income tax rate, or "flat tax." Unlike progressive systems, where tax rates rise as income increases, a flat tax applies the same rate to all taxable income.

Flat taxes could make certain places more appealing for those looking to keep more of their paycheck. That's likely something people are thinking about as tax season wraps up.

Supporters say flat taxes are easier to understand and plan for and could make some states more competitive. (That could be helpful as people leave high-tax states like California and New York for states with lower tax rates.)

But critics warn that flat tax rates often benefit higher-income households more than those with middle or lower income.

So the big question is: who really pays more when every dollar is taxed at the same rate? Here’s more of what you need to know.

Which states have flat tax rates in 2026

As of this year, more than a dozen states levy a flat income tax. Ohio is the newest addition at 2.75% as of January 1, 2026. (The flat rate applies to income above ~$26,050; income below that is still untaxed.)

The following table shows states that have made the shift in recent years.

Note: Mississippi exempts lower income from taxes, then applies a flat rate to the rest, which is why it’s often grouped with flat-tax states.

Here are the states that have had flat rates for a long time.

Note: Massachusetts taxes most income at a flat rate, with a 4% surtax on income over $1 million.

Even at $75,000 in taxable income, the difference between low- and high-rate flat-tax states exceeds $2,000 a year, and it widens at higher incomes.

Flat tax benefits and drawbacks: Who really pays?

Not everyone is a fan of flat taxes.

Critics argue that treating a $50,000 earner the same as someone making $500,000 feels unfair — higher-income households benefit far more, while residents with middle or lower incomes see little relief.

• For example, in a state with a flat tax of 3.99%, someone earning $50,000 would be left with about $48,000 after tax.
• Meanwhile, a $500,000 earner in that same state would keep about $480,000.
• That’s over $430,000 more in take-home pay, largely reflecting the difference in income, even though both pay the same rate

Note: This is a simplified example. It assumes gross income equals taxable income and doesn't account for tax deductions, exemptions, credits, or federal taxes.

Another argument against flat tax rates is the challenges sometimes created for state budgets. Lower income tax revenue can push lawmakers to adjust or increase other state levies, like sales taxes and property taxes.

• North Carolina's flat tax has been in place since 2014, now has a 2026 rate at 3.99%, and has funded priorities amid growth, though ongoing revenue gaps fuel debates over sales and property hikes.
• Iowa's 2025 flat tax at 3.8% promised simplification and growth for all earners. But some critics projected annual revenue losses of more than $1 billion, raising concerns that lawmakers could turn to higher sales or property taxes to offset the shortfall. Data show those kinds of taxes tend to disproportionately burden middle- and lower-income households.

Similar debates have occurred in other states, with proponents highlighting economic growth and competitiveness, and opponents warning that reduced progressivity can strain funding for essential services.

Understanding these trade-offs is important if you’re considering moving to a different state. A lower income tax may look attractive, but other forms of taxation or reduced services and the overall cost of living can sometimes offset the benefit.

Flat tax examples: What does it mean for your money?

Flat taxes can generally increase take-home pay for some earners, but everyday pressures like rising housing costs, groceries, gas taxes, and energy bills often eat into that extra cash. That can make the net benefit feel smaller than the numbers suggest.

If You’re Middle-Class

The savings could be tangible but modest.

• At $75,000 in taxable income, someone living in Arizona would pay about $1,875 in taxes, compared with roughly $3,975 in Idaho.
• That's a difference of $2,100 a year.

If You're a Higher Earner

The picture shifts at higher incomes.

• At $150,000, a taxpayer in Arizona might owe $3,750, while someone in Idaho could pay roughly $7,950.
• That’s over $4,000 in potential savings, enough to cover several months of groceries, a mortgage payment, or climbing energy costs.

*These are simplified examples that don't account for federal taxes or other credits, deductions and the like.

The income gap is why some argue that flat taxes tend to favor higher earners. While everyone pays the same tax rate, those with larger incomes see the biggest real-dollar savings.

In the end, whether a flat tax actually affects your finances depends heavily on your income and where you live.

Flat tax rates: Bottom line

If you’re considering relocating, taxes are only one piece of the puzzle. A state that looks tax-friendly because of a flat income tax (or even no personal income tax) might not necessarily translate to more money in your pocket.

Understanding the full picture — income tax, other taxes, and cost of living — can help give you a clearer sense of which states truly help you keep more of what you earn.

Learn More

• Millions of People Are Leaving High-Tax States Like California and New York
• 9 No Income Tax States Ranked by Cost of Living in 2026
• How All 50 States Tax Retirees

A "millionaires tax" was signed into law in Washington state this week, and one wealthy Washingtonian is celebrating.

"In 2029, Washington state will start collecting a 9.9% tax on income over $1 million," travel writer Rick Steves wrote in a social media post. "The 8,000,000 Washingtonians whose households make less than a million dollars a year will pay zero under this new tax and enjoy all the benefits of a better-funded state. And for the wealthy (like me and an estimated 30,000 others), every million dollars in taxable income that our households earn after the first million will cost us about $100,000."

As Steves wrote, the tax, which was signed into law on March 30, takes effect January 1, 2028, for tax payments due in April 2029.

Washington Gov. Bob Ferguson has said the tax revenue will help fund K-12 education, health care, higher education and governmental services, as well as expansions to the working families' tax credit, according to local KOMO News.

Steves, who lives in Edmonds, Washington, made some waves with his support for the tax, although it wasn't entirely surprising: Steves has long been an advocate for progressive and Democratic causes, and support for "millionaire taxes" tends to follow political lines.

Steves stands in somewhat limited company of wealthy people who have spoken out in support of being more highly taxed. Here's what he and others have said.

Rick Steves' support for Washington's millionaire tax

Steves wrote extensively about the tax in his March 30 post. In it, he expressed that the tax wouldn't have a major impact on those paying it, but would benefit the public.

Seves added that he's been "investing my tax savings in my community" for about 15 years through donations to a local arts center and symphony as a "self-imposed wealth tax," and believes the state-wide tax will help local communities.

Steves said: "As a wealthy person myself, I see this tax as essentially free money for all Washingtonians. Everybody in my state gains. And speaking from personal experience, I know that anyone who earns enough to be subject to this tax is beyond the point where consuming more adds to their security, their well-being, or even, arguably, their happiness — meaning there will be basically zero human cost."

Warren Buffett's take on higher taxes

Investing icon Warren Buffett has long said he'd like to be taxed more heavily. While Washington state’s new tax targets personal income over $1 million, Buffett has called for eliminating loopholes that allow investors — those who often “make money with money” — to pay a smaller share of their income than people earning far less.

"These [tax breaks] and other blessings are showered upon us by legislators in Washington who feel compelled to protect us, much as if we were spotted owls or some other endangered species," he wrote in a 2011 New York Times opinion piece.

In fact, after that piece, then-President Barack Obama proposed a tax policy known as "the Buffett Rule," reflecting Buffett's principle that "no household making over $1 million annually should pay a smaller share of their income in taxes than middle-class families pay."

"My friends and I have been coddled long enough by a billionaire-friendly Congress. It's time for our government to get serious about shared sacrifice," Buffett wrote.

More recently, ProPublica published an investigation in 2021 that dove into Buffett's tax records and claimed his effective tax rate from 2014 to 2018 was 0.1%.

As part of a longer response to the investigation, Buffett wrote: "I continue to believe that the tax code should be changed substantially. I hope that the earned-income tax credit is greatly expanded and additionally believe that huge dynastic wealth is not desirable for our society. Perhaps annual payout requirements should be increased for foundations. Some time ago, I testified before Senator Baucus in favor of increasing and tightening estate taxes. (My persuasive powers proved to be limited.)"

He added, about his 2011 opinion piece, "I remain OK with what I said, though its effect in Washington was zero."

Jamie Dimon calls this a 'no-brainer'

JPMorgan Chase CEO Jamie Dimon has a somewhat nuanced view on raising taxes, which he's expressed over the years.

"If you said, 'Raise taxes and directly give it to the people who need it'? I'd do it," he said at the World Economic Forum earlier this year. "But that's not what happens. It goes to interest groups and they give it to their friends and all that, which is why the people consider it a 'swamp.'"

In 2024, speaking, like Buffett, of wanting to raise the earned income tax credit, Dimon said, "This is like a no-brainer to lift up society, and I would pay for it by taxing the wealthy a little bit more."

So while he's said he's open to increasing taxes on higher earners, he's balanced it with the idea that he would want those funds to go directly to helping lower earners and communities, an outcome of which he's skeptical.

Just recently, too, in an appearance on Fox News, Dimon acknowledged that "individual taxes, state taxes, corporate taxes," in addition to "quality of life," "drives people out" of places, pointing to New York and California.

The Patriotic Millionaires on taxes

There is an actual group of wealthy folks dedicated to the idea of "taxing the rich."

Patriotic Millionaires was started in 2010 to advocate for higher taxes on high earners. Of course, members of this group have spoken out regularly in their advocacy. The chair of the group is Morris Pearl, who was a managing director at BlackRock.

"What I'm talking about is what policies will not just help me personally, but that I think will be good for our country and my kids' generation," he told The Atlantic in 2016. "I don't want to live in a country where a few people do amazingly well and everyone else does poorly, because anyone, including me and my kids, may end up not being one of the winners."

Earlier this year, Pearl wrote a piece for The Indypendent about raising taxes on millionaires in New York. In it, he said: "As a successful investor, I reject the idea that investors need tax breaks as incentives to invest, create jobs, and grow the economy. That's fundamentally untrue. Even if tax rates on investment income were very high, I would always choose to invest because, the last time I checked, the alternative — stuffing money under mattresses — doesn't produce the greatest returns."

Scott Ellis, a California millionaire in the group, wrote in a piece for Business Insider in January: "Once you get beyond $30 million — and almost no one ever gets there — you get to a point where your life is so good, you really can't materially improve your life anymore. We should implement a very aggressive annual 50% tax on all household wealth over $30 million. Excessive wealth turns into excessive power through huge campaign donations, which threatens and undermines democracy and capitalism."

Abigail Disney, the Disney heiress, is also a member of this group. "It turns out that it is that hard to believe that, that someone would actually do something for the greater good and not in their own self-interest," she told Time last year.

Related Content

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As tax season winds down and spring prompts thoughts of moving, people across the U.S. consider the financial benefits of relocating to a state with no income tax.

While that's understandable, since avoiding state income tax can save money, overall affordability depends on more than just tax policy. Housing, everyday expenses, and even other types of taxes often offset income tax savings.

In 2026, the nine states with no broad-based personal income tax — Alaska, Florida, Nevada, New Hampshire, South Dakota, Tennessee, Texas, Washington, and Wyoming — continue to attract residents. But not all are equally cost-effective.

And…Washington state is now a special case because it taxes some high-income capital gains and, starting soon, income over $1 million. (More on that below.)

Here’s more to know about how these states rank when you weigh both tax savings and the cost of living.

Cost of living in no income tax states

To compare affordability across no‑income‑tax states, we used BEA regional price parities (RPPs) as a rough measure of how expensive each state is relative to the rest of the country. However, lower prices don’t automatically mean more affordable if wages are also lower.

• RPPs are indexed to the national average, where 100 equals the U.S. average price level.
• Values below 100 mean prices are lower than average, and values above 100 mean prices are higher.

We also considered:

• Housing costs: Median home prices and rents (Zillow, U.S. Census Bureau).
• Everyday expenses: Food, utilities, transportation, and healthcare.
• Taxes beyond income tax: Property taxes, sales taxes, and total state‑ and local‑tax burdens (Tax Foundation, 2026).

Which state is the most tax-friendly?

This ranking is a simplified comparison based on average price levels and tax burdens.

Your actual costs will depend on your income, housing choices, spending habits, tax deductions, credits, and exemptions, and local prices.

1. Tennessee: Best overall value

• Income tax: 0%
• Cost of living: Approx. 90 (Roughly 10% below U.S. average, BEA RPP)
• Tax burden: Below average (Tax Foundation)

Tennessee offers a compelling combination of affordability and financial simplicity.

Housing and everyday expenses remain well below the national average, and the state’s relatively low total tax burden (despite higher sales taxes) adds to its appeal. BEA RPP data places the overall cost index at roughly 90, meaning households spend about 10% less than the national average.

Why the Volunteer State ranks first: Low housing and living costs allow residents to retain more of their income, making Tennessee a top choice for those looking for affordability.

For more information, see our guide: 10 Cheapest Places to Live in Tennessee.

2. Texas: Balanced overall, higher property tax

• Income tax: 0%
• Cost of living: Approx. 100 (About average for U.S., BEA RPP)
• Tax burden: Slightly below average, but property taxes are high (Tax Foundation)

Texas benefits from a relatively strong economy and no state income tax. However, property taxes are among the highest in the U.S., and housing costs are rising in major metros like Austin and Dallas.

For more information, see: 10 Cheapest Places to Live in Texas.

BEA RPP data show overall costs near the national average, and the Tax Foundation describes the total state-local tax burden as moderate, partially offset by property taxes.

Why the Lone Star State ranks here: Texas can be a balanced option for those who can manage property taxes while benefiting from no income tax.

3. South Dakota: Broad affordability

• Income tax: 0%
• Cost of living: Approx. 88–92 (About 8–12% below average, BEA RPP)
• Tax burden: Among the lowest (Tax Foundation)

South Dakota combines low costs across housing, utilities, and everyday expenses with one of the lowest total state and local tax burdens.

BEA RPP data show the state is 8–12% below the national average. For households seeking straightforward savings without tradeoffs, South Dakota is consistently cost-effective.

Why the Mount Rushmore State ranks high: South Dakota's broad affordability paired with minimal taxation.

4. Wyoming: Low taxes, moderate costs

• Income tax: 0%
• Cost of living: Approx. 95–100 (slightly below to near average, BEA RPP)
• Tax burden: Low (Tax Foundation)

Wyoming’s overall costs hover near the national average, with moderate housing prices and below-average total tax burdens. Its rural economy can offer relatively fewer job opportunities, and services could be limited in smaller towns.

Why the Equality State ranks here: Moderate costs make Wyoming affordable, but economic and service limitations are tradeoffs to consider.

5. Florida: Popular but rising costs

• Income tax: 0%
• Cost of living: Approx. 103 (Roughly 3% above U.S. average, BEA RPP)
• Tax burden: Below average (Tax Foundation)

Florida attracts residents with no income tax and no tax on retirement income. However, BEA RPP data shows overall costs slightly above the national average, driven by housing in high-demand areas like Tampa, Miami, and Orlando.

Homeowners' insurance premiums are among the highest in the U.S., further increasing costs. The Tax Foundation reports that the total tax burden is below the national average, but rising living costs reduce net savings.

Why the Sunshine State ranks mid-pack: Tax advantage in Florida is partially offset by housing and insurance costs.

For more information, see our report: Florida Tax Tradeoffs: Why 0% Income Tax Doesn't Always Mean Cheap.

6. Nevada: No income tax, Higher everyday costs

• Income tax: 0%
• Cost of living: Approx. 102–108 (About 2–8% above average, BEA RPP)
• Tax burden: Near average (Tax Foundation)

Nevada avoids income tax, but BEA RPP data show overall living costs slightly above average, largely due to housing in Las Vegas and Reno and higher transportation costs.

The Tax Foundation indicates the total tax burden sits near the U.S. median. Rising housing and everyday expenses erode some of the savings from zero income tax.

Why the Silver State ranks here: Nevada is still relatively tax-friendly, but everyday costs can reduce the net benefit.

7. Washington: High costs, new taxes for high earners

• Income tax: No wage income tax; 7% capital gains tax on high earners (9.9%)
• Cost of living: Approx. 115–120 (Roughly 15–20% above U.S. average, BEA RPP)
• Tax burden: Around average (Tax Foundation)

Washington does not tax wages, but housing in Seattle and surrounding areas drives overall costs 15–20% above the national average. A new capital gains tax on high earners further limits the state’s attractiveness for wealthier residents. (And the state just enacted a 9.9% tax on millionaires.)

Sales and property taxes contribute to a total tax burden near the national median, according to the Tax Foundation.

Why the Evergreen State ranks low: High housing and everyday costs in Washington, combined with a new capital gains tax and millionaire tax, can reduce the advantages of a no-wage-tax state for some higher earners.

8. New Hampshire: No wage tax, high property costs

• Income tax: No tax on earned wages (investment income tax phased out as of 2025)
• Cost of living: About 112–115 (Roughly 12–15% above average, BEA RPP)
• Tax burden: Relatively high property tax rate (Tax Foundation)

New Hampshire has no tax on earned wages, but property taxes are among the highest in the nation.

BEA RPP data show overall costs above the national average, and the Tax Foundation confirms that property taxes significantly offset the benefit of no income tax for many households.

Why the Granite State ranks here: High property costs reduce the net financial advantage for homeowners.

9. Alaska: Highest costs despite tax perks

• Income tax: 0%
• Cost of living: Approx. 124–126 (About 24–26% above average, BEA RPP)
• Tax burden: Low overall (Tax Foundation)

Alaska offers no income tax and distributes an annual Permanent Fund Dividend, but elevated prices for goods, groceries, utilities, and transportation make it one of the most expensive states. BEA RPP data confirms a cost index 24–26% above the national average.

The Tax Foundation reports a low overall tax burden, but everyday expenses largely outweigh tax savings for most households.

Why the Last Frontier State ranks last: The high cost of living in Alaska eclipses the benefits of no income tax.

Are states with no income tax better? Bottom line

Avoiding state income tax can save money, but your overall cost of living matters more. States like Tennessee and South Dakota offer broad affordability, while others, like Florida, Washington, and Alaska, offset tax advantages with high housing, insurance, and everyday costs.

If you're thinking about moving to a low-tax state, look beyond income tax and evaluate total expenses, including property taxes, insurance, and cost-of-living differences.

Particularly with prices rising on everything from food to gas taxes, a state with no income tax is only beneficial if your overall expenses remain manageable.

Read More

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• States With the Highest Gas Tax in 2026
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• 9 No-Capital-Gain-Tax States Ranked by Cost of Living

If you're a ride-share driver, delivery person or other gig worker, a simple smartwatch habit could land you in hot water during a tax audit. That's because fitness app users who track business miles might not be aware of the in-app limitations.

For instance, many free versions of distance-tracking apps cap the number of trips you can take, forcing you to record them later. But if you aren't logging your miles correctly at the time of the trip, the IRS can disallow your entire deduction under the contemporaneous record rule.

At the 2026 IRS business mileage rate of 72.5 cents per mile, those trips through Uber, DoorDash, real estate clients, and supply stores can quickly add up to a significant tax deduction.

By incorrectly recording miles, you could be leaving some serious cash on the table — or worse, raising an IRS audit red flag if you include inaccurate trips on your return.

Don't wait until tax season to discover your smartwatch logs are insufficient. Before you file your 2026 return, ensure your tracking meets these non-negotiable IRS standards.

IRS mileage rate and log requirements for 2026

The 2026 IRS mileage rate of 72.5 cents per mile has strict requirements for what constitutes a valid business mileage log. You must meet four specific data points for every single trip to be eligible for a deduction:

1. The date of the trip
2. The destination (address or city)
3. The business purpose (e.g., picking up an order for a delivery)
4. The total mileage logged

Additionally, to help support your claim to an IRS mileage deduction, you must follow these specific requirements:

• "Contemporaneous" logs. You must create your record at or near the time of your trip. ("Estimating" a log from memory or bank statements later is a major red flag for the IRS.)
• No commuting. Remember that driving from your home to your primary workplace (and back) is considered a personal expense and is not deductible. (For this reason, a Reddit user drives to a "central place in town" before starting their route.)
• Odometer readings. You should record your vehicle's odometer reading on January 1 and December 31 each year to establish the total distance driven for the year.

GPS 'dead zones', data gaps and bad reports — oh my!

Though many mileage apps offer "one-tap" tracking from a smartwatch, users should exercise caution when using them (pun intended). Not all convenient features meet the IRS's rigorous standards for a business expense deduction. For instance, GPS-based apps can:

• Lack specific "why" details. If you fail to categorize a trip in the app with a specific business purpose (e.g., dropped off a customer at 123 Main St.), the IRS might disallow the deduction.
• Have no exportable audit reports. Some free or "lite" versions of apps track distance but don't generate reports that might be helpful during an IRS audit. Paid versions of apps such as MileIQ or Stride are popular because they build these logs, but you must ensure you're using a version that exports full data.
• Experience technical "dead zones." GPS relies on satellite signals. In "concrete jungles" with high-rise buildings or rural dead zones, your smartwatch might lose the signal, resulting in inaccurate distance measurements or missed trips entirely.

To mitigate the risk of data gaps, look for mileage apps that offer offline functionality. Apps such as Timeero continue to track GPS coordinates even in "dead zones," syncing the data once your connection is restored.

Beyond live tracking, maintaining redundant digital backups of your logs is a critical — yet often overlooked — step. In the event of a smartwatch malfunction or a lost device, these backups can significantly bolster your contemporaneous records during an IRS inquiry.

Building an 'audit-proof' backup

GPS tracking is a powerful tool, but it shouldn't be your only line of defense in substantiating your IRS mileage deduction. Consider these two backup methods to supplement your smartwatch capabilities:

• The odometer snapshot. In addition to your mileage app, snap a photo of your odometer on January 1 and December 31. This helps ensure you aren't reporting business miles that exceed the number of possible miles in a given year.
• The "analog" backup. Although it feels old-fashioned, a simple notebook in your glovebox is still an IRS-sanctioned way to track mileage. If your smartwatch dies or hits a GPS "dead zone," a quick pen-and-paper entry ensures your contemporaneous log remains unbroken.

However, it's important to note that odometers can be inaccurate, as well, especially if you have worn tires, incorrect tire pressure or nonstandard tire sizes. Having two methods of recording each business trip promotes a complete record of your mileage.

The bottom line? Your smartwatch is a great tool, but like all tools, it can have flaws. If you use your watch to drive professionally and for personal fitness, the burden is on you to prove which specific miles were strictly for business. If your watch breaks, you might be out of luck.

Read More

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• Here's How Long You Should Keep Tax Records
• 12 Tax Strategies Every Self-Employed Worker Needs in 2026
• Overlooked Tax Deductions for the Self-Employed

You're sitting at your kitchen table, ready to file your own taxes, and it hits you — your college student might have earned enough to file an income tax return.

That part-time job, summer internship, or freelance gig can quickly raise questions for the whole family, even when it seems like they didn't make much. That's because whether your college kid actually needs to file under IRS rules depends on how much they earned and what type of income was involved.

And then there's another looming question: if they do file their own return, can you still claim them as a dependent? Here's what you need to know.

Should a college student file a tax return?

Many parents naturally assume that a dependent college student only needs to file a tax return if their earnings exceed the standard deduction amount. (For 2025 returns (those being filed now in the 2026 tax season, the amount is $15,750 for single filers.)

While that's true in some cases, it really depends on the type of income they received during the year. Two IRS rules primarily apply here.

Rule 1: W‑2 earnings

Dependent students generally don’t need to file for W-2 income unless their total earned income exceeds their dependent standard deduction. That's the greater of $1,350 or earned income plus $450, not to exceed $15,750 for 2025.

A $3,000 W2 summer job is below that threshold, so filing usually isn’t required.

Rule 2: Unearned and 1099 income

Unearned income (interest, dividends, taxable scholarships) triggers a return if it exceeds $1,350, even if the student also has W-2 earnings.

Self-employment or freelance income reported on a 1099 must be filed if net earnings exceed $400, regardless of W‑2 earnings.

In many situations, filing results in a refund of withheld taxes rather than an amount owed. But these are simplified examples, and your tax situation may be different.

When 1099 gig income comes into play

Maybe your college student took on freelance opportunities (e.g., tutoring, graphic design, driving for DoorDash, or even getting Venmo payments for babysitting). That income is typically reported on a 1099-NEC form or, in some cases, a 1099-K.

• If their net self-employment earnings exceed $400 — even if total income is modest — they’ll need to file a federal tax return and include Schedule C to report business expenses.
• They’ll also calculate self-employment tax (15.3% for Social Security and Medicare), though they can deduct half of that amount on their 1040, which reduces their taxable income. However, the $400 filing threshold is based on net earnings before this deduction.

Note: Keep in mind that the IRS receives copies of 1099 forms directly from the payers. So skipping the filing could potentially lead to an automated notice later.

For example, if your child earned $2,000 from summer gigs and can deduct $500 for expenses like supplies or mileage, their net income would be $1,500, which exceeds the $400 filing threshold.

For college students with 1099 gig income, the outcome might involve a small amount owed after deductions.

For instance, $8,000 in gross freelance earnings minus $1,500 in valid expenses, like mileage or materials, could result in roughly $6,500 in net earnings and roughly $920 in self-employment tax.

Related: Stop Using Your Smartwatch for Mileage (Until You Read This IRS Rule)

Claiming your college student as a dependent even if they file

Let's turn to that second big question: your ability to claim your college student as a dependent.

The good news is that their filing a return, for a refund or to report 1099 income, doesn't automatically prevent you from claiming them as a dependent. That's as long as you provide more than half of their total support.

That said, many high-earning families encounter limitations on federal education credits due to the income phaseout ranges for joint filers.

• American Opportunity Tax Credit: The AOTC is worth up to $2,500 but begins to phase out at adjusted gross income (AGI) of $160,000 to $180,000 (joint) and $80,000 to $90,000 (single filer).
• Lifetime Learning Credit: The LLC is worth up to $2,000 but begins to phase out at the same AGI as for the AOTC.

If your household income puts you above these ranges — which isn't uncommon for some families who are able to afford college — these credits aren't available to you regardless.

Unfortunately, your student faces the same barrier.

Since you provide over half of their support, they have to check the box on their return indicating that "someone can claim me as a dependent," which disqualifies them from claiming the AOTC or LLC.

In effect, it's a situation where parents miss out on claiming those key education tax credits due to income levels, while your student misses out due to their dependent status.

Reasons to file taxes when you don't have to

Even if your student's earnings don't cross the tax filing thresholds, it might sometimes make sense for them to submit a return.

That's because for W-2 jobs, employers commonly withhold between 10% and 22% for federal taxes upfront.

On $3,000 in earnings, that could mean a $450 or more refund with a straightforward filing.

Though you might skip a filing if there was no withholding at all, and all scholarships received are nontaxable, meaning they covered only tuition and required books. (Room, board, or other expenses can bring a scholarship into taxable territory.)

One more incentive to file: the student loan interest deduction. If your college student paid interest on qualified federal or private loans (up to $2,500 deductible), they might qualify. But that's only if they're not claimed as your dependent and meet MAGI limits for the 2025 tax year.

If a parent is the legal borrower (e.g., a Parent PLUS Loan) and they pay the interest, they can claim the deduction as long as the student is their dependent and the parent's income is below the phaseout ($170,000–$200,000 for 2025).

Note: With this tax break, the deduction is only "lost" if the student is the borrower and the parent is claiming them as a dependent.

State taxes for college students?

So…you're already navigating federal rules, but state taxes add another layer.

As with federal tax rules, whether your college student needs to file a state return depends on their income, where they earned it, and the state's specific thresholds. (Those can sometimes be lower than the IRS limits.)

For example, a $3,000 summer job might not trigger a federal filing requirement but instead trigger a state filing. That's especially if taxes were withheld or your college student worked across state lines.

If your student attends school out of state, their campus paycheck might withhold for the school state, while summer earnings at home follow your home state's rules.

In states with no income tax, like Florida or Texas, this is more straightforward. However, places like California or New York might require filing if there's withholding or part-year work, even below federal levels.

And, check your student's pay stubs for state deductions, since filing a return can mean getting that money back as a state tax refund.

Worth noting: Filing a state return can, in some cases, unlock state education credits. But some require the student to file independently and not be claimed as your dependent. So, for some families, that creates the same double bind as federal education tax credits.

Filing taxes as a college student: Bottom line

So, overall, when deciding whether your child needs to file, W-2 earnings offer some flexibility. When dealing with unearned income, that generally requires filing at $1,350, while 1099 gigs generally trigger filing once net earnings exceed $400.

You can usually still claim your student if you provide most of their support.

Running the numbers through IRS Free File or tax software can help capture any refunds. And, of course, if you have questions about your family’s specific situation, consulting a trusted tax professional can be a smart step.

Related

• The Little-Known Tax-Free Way to Help Pay Your Student Loan
• 14 Education Credits and Deductions to Know
• Does Your Child Need to File a Tax Return?

Income tax cuts are coming to North Carolina, or are they? Thanks to a landmark law passed just a few years ago, Tarheel State taxpayers are slated to see personal income tax rates trigger annually downward until 2028. But a new legislative push seeks to hit the brakes.

Gov. Josh Stein (D) and some Republican state House leaders are warning of a $2.8 billion to $3.5 billion budget shortfall over the next two years. That could potentially threaten funding for critical services unless the income tax cuts are paused.

"We are not a poor state," Gov. Stein remarked to reporters, while proposing a $1.4 billion plan to shore up immediate services — particularly the state's Medicaid program. "But we are making ourselves a poor state by reckless, pre-programmed tax cuts."

However, the GOP-led state Senate remains committed to the rate reductions, meaning the upcoming spring legislative session is shaping up to be a tumultuous battle over the state's long-term fiscal path. Here is what is at stake for your 2026 North Carolina paycheck and beyond.

Income tax in North Carolina for 2026

North Carolina's flat income tax rate is 3.99% for 2026, lower than last year's 4.25%. Under the current legislative roadmap, additional cuts are scheduled through 2028, provided the state hits specific revenue benchmarks.

• In 2027, the personal income tax rate is scheduled to drop to 3.49%.
• In 2028, the personal income tax rate is scheduled to drop to 2.99%.

Note: Additionally, the corporate income tax rate is scheduled to hit 0% by 2030.

The NC Office of State and Budget Management (OSBM) recently projected that the General Fund revenue is on track to exceed the $33.042 billion trigger required to authorize the next round of cuts.

Yet, the benefits are not expected to be distributed equally. According to an analysis conducted by the OSBM, higher-income households stand to see the most significant dollar-amount relief in 2027:

North Carolina state income tax: Is your lower rate coming?

Although the North Carolina income tax cuts are codified in law and set to trigger automatically upon meeting revenue targets, the state's fiscal leadership remains sharply divided.

Notably, North Carolina entered 2026 as the only U.S. state without a new budget, due to a stalemate in the General Assembly over income tax cuts and their impact on public service funding. This means the Tarheel State is currently operating on recurring base funds.

And this legislative session, the debate continues, as Gov. Stein is spearheading calls to freeze further future rate reductions, citing a projected revenue gap of to $3.5 billion by the 2027-2028 fiscal year.

"[This gap would cause] the state to have to make painful cuts to critical services like public safety, education, and health care," Stein stated in a March press release. "As our population rapidly grows and the federal government becomes a less reliable partner, I urge this General Assembly to…hit pause on outdated, irresponsible tax triggers."

But legislative leaders argue that the governor's own spending plan — including the $319 million boost to the Medicaid budget — poses fiscal risks as well.

"Senate Republicans remain committed to addressing the state’s most pressing needs in a responsible, fiscally sound manner," Lauren Horsch, spokesperson for state Senate Leader Phil Berger (R-District 26), issued a statement in response to the plan. "Gov. Stein’s proposal…would create a recurring budget deficit and force the state to increase taxes on working families.”

Meanwhile, the OSBM projected a $370 million revenue surplus for the current fiscal year of 2025-2026. While a surplus is usually good news, State House Speaker Destin Hall (R-District 87) noted that the funds are expected to be "entirely consumed" by rising Medicaid costs.

Bottom line: NC income tax trigger 2027

Because certain economic triggers are projected to be met this year, North Carolina lawmakers might cut the income tax rate to 3.49% in 2027. However, the viability of the 2.99% target in 2028 remains in intense debate, particularly with a potential budget deficit on the horizon.

"We are bearing the fruit of an orchard that was planted a long time ago," Gov. Stein noted during a recent education conference. "But today, we risk hollowing out the institutions that have helped to create our success."

The fiscal cliff Stein warns about dominated last February's budget talks, ultimately resulting in a $600 million stopgap for Medicaid and other essentials but leaving broader funding for public education and infrastructure in limbo.

So for North Carolina taxpayers, the road to a 2.99% income tax rate cut might be blocked by a looming $2.8 billion to $3.5 billion deficit reality — or no budget at all. Stay tuned for more updates.

Read More

• 10 Cheapest Places to Live in North Carolina
• North Carolina Tax Guide
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The recently enacted tax law, known by some as the "big, beautiful bill," has changed the federal child tax credit (CTC) math for millions of American families.

While the headline news is a boost to $2,200 per child, the "fine print" in the 2026 CTC rules has quietly tightened eligibility in ways that could cost you your entire refund.

Take our quiz to see if you're set to claim your maximum credit.

Read More

• How Much is the Child Tax Credit for 2025 and 2026?
• Does Your Child Need to File a Tax Return This Year?
• IRS Reveals Family Tax Credit Amounts for 2026

For millions of retirees, every dollar saved on taxes can help keep up with rising grocery and gas prices, health costs and everyday living expenses.

A new senior bonus deduction in the 2025 Trump/GOP tax and spending bill is one such opportunity. The tax break is designed to lighten the tax load for eligible taxpayers age 65 and older — at least for a few years.

The impact varies considerably by income level. Here's more of what you need to know.

The new senior bonus deduction for older adults

From 2025 through 2028, qualifying taxpayers can claim a bonus tax deduction of up to $6,000 per eligible older adult ($12,000 for eligible couples). This new benefit notably builds on top of existing tax deductions:

• It’s in addition to the standard deduction.
• It stacks with the existing extra standard deduction for those age 65 and older.
• It’s available even if you itemize.

However, the deduction phases out at higher incomes, meaning wealthier retirees might see it shrink or disappear.

Analysis from the Peterson Foundation finds that fewer than half of older adults will receive meaningful benefits from the senior bonus, with the largest gains going to middle and upper-middle-income retirees.

Overall, while it's in effect, this provision can lower taxable income for many middle-income retirees. In some cases, it's enough to eliminate their federal tax liability.

Let’s look at how it could play out in various situations.

Bonus deduction impact on retiree tax bills

Note: The following are fictional, simplified examples to help illustrate the potential impact of the senior bonus deduction. These scenarios are based on the 2025 IRS standard deduction and extra standard deduction amounts. The 2026 amounts from the IRS are slightly higher, but follow the same structure.

These examples also show only federal income tax effects and don't include state taxes on retirement income, which vary widely by state and can increase your overall tax bill.

For more information on state taxes, see our report: How All 50 States Tax Retirees.

How the deduction impacts your tax bill depends on your specific circumstances. Consult with a trusted tax professional to maximize your benefit.

Scenario 1: Senior deduction Social Security 65 and older, single filer with lower retirement income

Joan is 67 and relies on modest IRA withdrawals and Social Security to cover essentials. Her income is $10,000 from her IRA and $20,000 from Social Security.

Because her "combined income" ($10,000 from the IRA + $10,000 from half of her Social Security) is $20,000, below the $25,000 threshold, none of her Social Security benefits are taxed.

Note: Up to 85% of Social Security income can be subject to federal tax. The IRS uses a combined income formula of adjusted gross income (AGI) + nontaxable interest (e.g., municipal bond interest) + 50% of Social Security benefits to determine the taxable amount.

Details:

Result: Joan’s taxable income falls to zero.

It's worth noting that for retirees like Joan, the new deduction doesn’t change much. That's because they were already paying little or no tax. However, the senior bonus could add extra cushion against future income spikes.

Scenario 2: Senior deduction married filing jointly, retirees with moderate income

Jack and Diane, both in their late 60s, draw modest pensions and retirement savings. Their income is $30,000 (IRA) + $10,000 (pension) + $5,000 (bonus) = $45,000.

Details:

Result: Jack and Diane's taxable income drops to zero, since their $45,000 in income is fully offset by deductions, including the standard deduction, the 65-plus extra standard deduction and the $12,000 senior bonus deduction.

Scenario 3: Higher-income retirees, partial deduction benefit

Carolyn and Neil earn more, but can still benefit from the full senior bonus deduction. Their income is $130,000 combined from IRA withdrawals, a pension and part-time wages.

Details:

Result: Their $130,000 income is high enough that even after the full $46,700 in deductions (standard + age‑65+ + $12,000 senior bonus), about $83,300 remains taxable.

They still owe federal taxes and stay in a higher income tax bracket. The senior bonus reduces their bill, but doesn’t come close to eliminating it.

Scenario 4: High-income retirees, senior bonus phase-out

Edward and Maria have $370,000 in income. (Worth noting: Very few U.S. retirees reach $370,000 in annual income. Estimates suggest that well under 1% of Americans age 65-plus earn that much.)

Details:

Result: The senior bonus is fully phased out for high‑income couples such as Edward and Maria. The deduction phase-out begins at $150,000 of income (married filing jointly) and disappears entirely around $250,000, so they don't benefit from the bonus deduction.

Scenario 5: Married middle-income retirees with Social Security income

Linda and Greg’s situation mixes IRA income with Social Security benefits. Their income is $50,000 (IRA) + $20,000 (Social Security).

Result: Linda and Greg still owe some federal tax, but less than before the deduction.

Keep in mind, the bonus deduction doesn’t directly change how Social Security is taxed, despite what some advocates of the bill have asserted. Rather, the bonus reduces overall taxable income, which can indirectly cut total tax owed.

Senior bonus deduction: Bottom line

The senior bonus deduction offers the most value to middle-income households living on pensions, IRAs or modest savings. Older adults with very low-income, who already pay little or no federal income tax, gain only a small buffer. At the other end of the spectrum, high-income retirees see the deduction phase out completely.

While the tax break is a relatively generous add-on, its short lifespan means retirees who qualify should take full advantage while it lasts.

But eligibility matters, so consult a trusted tax adviser to determine what this and/or other deductions in the new tax bill could mean for your financial planning.

Read More

• How the Senior Bonus Deduction Works
• What's in the 2025 Trump Tax Bill?
• How the IRS Taxes Retirement Income
• The Extra Standard Deduction for People 65 and Older

Just as the dust seemed to settle on Washington's tax code, the Evergreen State is once again shifting its fiscal identity.

Historically a "no-income-tax" state, Washington broke a 90-year streak in 2021 by implementing a capital gains tax. Then last year, lawmakers enacted a record-breaking estate tax hike, pushing the top rate to 35% — the highest state "death tax" in the nation.

The hike was intended to address income inequality and generate revenue for public services, such as education and childcare. Following concerns from business leaders regarding a potential "wealth exodus," though, state lawmakers pursued a legislative retreat.

Senate Bill 6347, recently signed by Gov. Bob Ferguson, reverses the estate tax increase. But the relief comes with a significant trade-off: A new 9.9% Washington "millionaire tax" on income. Here's why your heirs might not be out of the woods yet.

Washington estate tax exemption for 2026

Washington is currently in a rare "split" year for estate taxes. Depending on when an estate is settled, two different sets of rates and exemptions might apply.

For the first half of 2026, Washington's estate tax remains at the record highs set last year. However, SB 6347, just signed by Ferguson, "reverses" the higher estate tax changes, starting July 1, 2026.

Note on the "frozen" exemption: Currently, the exemption rises annually with inflation. However, the reversal bill lowered the exemption to $3 million (the level at the end of last year) and froze the amount until 2027.

Washington estate tax rate for 2026

The Washington estate tax reversal significantly lowers the tax rate for large estates. At the same time, the recently enacted law lowers the estate tax exemption threshold, meaning more moderately sized estates might find themselves in the Washington filing pool.

As tax rates and exemptions on Washington estates shift, so does the final bill for your heirs. According to an analysis by the ELG Estate Planning law group, the "reversion" might create two different outcomes:

• The $5 million estate: Under the current 2026 law (until June 30), an estate of this size could face a Washington tax bill of roughly $250,000. Under the reversal law, the same estate might pay approximately $361,050. This is a higher tax bill of more than $111,000 due to a lower estate tax exemption amount. (Since the exemption amount is raised, the final tax bill might be lower than estimated.)
• The $10 million estate: Under the current 2026 law (until June 30), a $10 million taxable estate could result in $1.33 million in estate taxes. With the recently enacted reversion, the bill could drop to roughly $1.26 million — thanks to a lower estate tax rate.

In the latter example, heirs might keep more than $72,000 that would have otherwise gone to the state. Those funds could stay in your family’s accounts.

But is this "death tax" relief enough to offset Washington residents' tax woes?

Washington estate taxes: Legislative changes

While last year's estate tax hike was designed to bolster public services, its rapid reversal in 2026 was fueled by indications of a "wealth exodus" from the Evergreen State.

"We do have a lot of anecdotal evidence that people are making a decision to redomicile," state Senate Majority Leader Jamie Pedersen (D-Seattle) told KOMO News outside the legislative session. "I think it's worth taking that seriously."

A 2026 Association of Washington Business (AWB) (PDF) survey revealed that 44% of Washington business leaders are considering moving their personal residences out of the Evergreen State, citing a rising tax burden as a primary motivator.*

This sentiment follows a string of higher-income departures:

• In March 2026, Starbucks announced it would open a new corporate office in Nashville, Tennessee, a tax-friendly state with no income taxes, and move some operations and personnel there.
• According to data reported by SmartAsset, Washington now ranks eighth-worst in the nation for the net loss of high-earning millennials. In the year following the rollout of its capital gains tax, the state saw a net departure of 222 households earning over $200,000.

However, not everyone agrees that so-called "wealth taxes" are a primary cause of out-migration. The Center on Budget and Policy Priorities considers other factors — such as cost of living, housing, climate and family ties to weigh more heavily on interstate moves.

The state's "anti-exodus" strategy remains counterintuitive: Even as lawmakers retreat on estate taxes, they've doubled down on a new 9.9% "millionaire tax." For many of the state's wealthiest, the message might be mixed.

*Note: The Winter 2026 AWB survey was conducted online with 429 employers across various industries and employee numbers.

Washington millionaire income tax

As reported by Kiplinger, another part of Washington's 2026 proposed tax package is the controversial "millionaire tax." Ferguson, who championed the bill during the 60-day legislative session, is expected to sign Senate Bill 6346 into law by early April.

While the estate tax has been rolled back to entice the wealthy to stay, this new levy is designed to capture revenue from Washington's highest earners — though not immediately.

Key provisions of the Washington millionaire's tax:

• The rate is a flat 9.9% tax on Washington taxable income.
• The tax threshold applies to income exceeding $1 million per year.
• Notably, the $1 million threshold applies per household, meaning a single filer and a married couple filing jointly both share the same $1 million deduction — effectively creating a "marriage penalty" for high-earning couples.
• If signed, this tax goes into effect on January 1, 2028.

The estimated $3.5 billion in annual revenue from Washington's millionaire tax would be earmarked for education and health care, sales-tax relief, and small-business credits.

Critics argue that the new tax will accelerate the state's wealth exodus and damage Washington's economic competitiveness with other states. For more information, check out Kiplinger's report, 9.9% Washington Millionaire Tax Approved: What's Next for High Earners?

Read More

• Washington State Tax Guide
• Washington Approves Capital Gains Tax Increase: Who Pays?
• Could a New Billionaire Tax Plan Put $3,000 in Your Pocket?

A little-known IRS rule and an interesting court case could mean some taxpayers get back penalties and interest they paid during the pandemic years.

Headlines make it sound huge, but the reality is more targeted, not automatic, and in flux at the moment. And, of course, most tax relief comes with deadlines.

So, the question is, are you eligible, and if so, what should you do to claim your money? Here's more of what you need to know.

Could you get a pandemic IRS refund soon?

Let's start with a little background. When COVID hit, the federal government declared a national emergency that ran from January 20, 2020, through May 11, 2023.

During that time, the IRS used its disaster authority under Section 7508A of the U.S. Code to push back various filing and payment deadlines, including due dates for 2019, 2020, and 2021 federal income tax returns.

So what? Well, a recent case in the U.S. Court of Federal Claims, Kwong v. United States, is now testing how those pandemic extensions should be applied.

In that case, the court sided with a taxpayer’s argument that some pandemic-era tax deadlines may have lasted longer than the IRS treated them. That means potentially into mid-2023, including an extra 60 days after the national emergency ended.

If that ruling ultimately holds, it could mean the IRS charged some penalties and interest too early, opening the door for refund claims.

Who might get an IRS pandemic penalty refund

Despite the big numbers being thrown around, not everyone who paid a fee to the IRS during the pandemic would be in line for a refund. The focus is generally on individuals and businesses that:

• Filed or paid late during the pandemic period and were charged penalties or interest
• Paid common IRS penalties, like late filing, late payment, or underpaying estimated taxes
• In some cases, paid additional interest tied to those charges

If you were under an IRS audit, set up a payment plan with the tax agency, or had other collection activity during that period, some of the penalties embedded in those balances could also be in play.

For people with large balances or multiple years at issue, the potential refunds could reportedly be sizable. But keep in mind, this situation is in flux and will ultimately depend on how the litigation plays out.

How the Kwong lawsuit differs from earlier IRS penalty relief

It's important to note that this situation is separate from the automatic penalty relief the IRS already rolled out for certain 2019–2021 returns.

As Kiplinger reported, in that earlier program, the IRS waived or refunded specific penalties for eligible taxpayers and issued credits and refunds on its own. (Eligible taxpayers didn't have to file special paperwork.)

This legal situation is also different from recent announcements about 2022 tax returns and refunds.

Essentially, the IRS is warning that millions who haven't filed their 2022 returns risk missing out on $1.2 billion in unclaimed tax refunds, including overpaid taxes and tax credits like the Earned Income Tax Credit (EITC). The deadline for those who did not file returns back in 2022 is April 15, 2026.

• This time, the refund opportunity stems from a court ruling, not an official, broad IRS policy. That means the tax agency isn't automatically reviewing accounts and issuing checks.
• Instead, many industry experts believe that taxpayers who may be affected will generally need to file a refund claim to preserve their rights while the legal issues are resolved.
• Some note that filing such a "protective claim" now would essentially freeze the statute of limitations for that taxpayer.

IRS pandemic penalty relief deadline

Tax refund claims come with strict time limits, usually based on when a return was filed or when the tax was paid. Because these penalties and interest date back to the pandemic years, some windows on 2020 and 2021 liabilities could start closing as soon as 2026.

As a result, some practitioners are treating mid‑2026 (i.e., July 10, 2026) as a practical "deadline" for many potential claims under this development.

There’s another catch. It wouldn't be surprising if the IRS contests the court’s reading of Section 7508A through an appeal. So, refunds under the Kwong legal theory aren't guaranteed.

How to check if you might qualify

If you’re wondering whether you’re one of the “millions” being talked about, the best place to start is your own IRS account history. You can:

• Log in to your IRS online account or pull account transcripts and look for penalties and interest posted between 2020 and mid‑2023.
• Flag any charges for late filing, late payment, underpaid estimated taxes, or interest on slow‑moving refunds tied to those years.
• Consult with a tax professional whether those items might fall under the extended‑deadline interpretation and whether it’s worth filing a refund request for penalties and interest (Form 843) in your situation.

Even if the court ultimately narrows who qualifies, this situation underscores how much timing matters in the U.S. tax system.

And for those who struggled through the pandemic and then paid extra for missed shifting deadlines, this might be a rare chance to get some of that money back.

Read More

• IRS Tax Refund Schedule: When Will Your Check Arrive?
• How New IRS Rules Could Delay or Freeze Your Refund
• Haven't Filed Yet? 8 Steps to Take Now to Prepare

As we approach the 2026 mid-term elections and the close of a historic tax season, some lawmakers are already pivoting toward new tax relief proposals. Two plans in particular are designed to provide income tax cuts for low- and middle-income households by raising taxes on high earners.

Sen. Cory Booker (D-NJ) recently introduced a plan to almost triple the federal standard deduction to $75,000.

Regarding the proposal, Booker said in a release, "This tax cut would immediately put more money in your pocket every month to deal with the high price of everyday expenses, an unexpected emergency, or to plan for the future."

Meanwhile, Sen. Chris Van Hollen (D-MD) has co-sponsored a plan to exempt up to $92,000 from federal income taxes.

"Far too many Americans are working hard for their paychecks but still having trouble making ends meet," Van Hollen stated in a release about the proposal.

But who actually benefits from these tax-free income proposals, and who would ultimately pick up the tab? Here's what to know.

Cory Booker's no tax on income proposal

Sen. Booker proposed the "Keep Your Pay Act" earlier this month, which would significantly increase the federal standard deduction.

Under Booker's plan, married couples filing jointly would see their 2026 standard deduction rise from $32,200 to $75,000, while single filers would receive a $37,500 deduction (up from $16,100).

Beyond the deduction hike, Booker's plan targets family tax relief:

• Enhanced child tax credit (CTC): Worth up to $4,320 for children under age six and $3,600 for those aged 6 to 17 (up from the current CTC of $2,200).
• Newborn bonus: A new CTC boost of up to $2,400 for the year a child is born.
• Earned income tax credit (EITC) expansion: Tripling the EITC for childless workers (from about $660 to $1,500) by increasing the phase-in and phase-out rates. The proposal also expands the credit eligibility to those 19 and older (removing the age 25-64 restrictions).

To offset these cuts, the Booker proposal shifts the tax burden toward the highest earners and corporations. The plan would:

• Raise the top individual federal tax rates by increasing the 35% and 37% brackets to 41% and 43%, respectively.
• Increase the corporate income tax rate and the stock buyback excise tax rate (specifics have not been announced).

"Americans are working harder and harder, and they're making less and less relative to their parents and grandparents," Booker told NBC News. "....We need big ideas that could redeem the dream of America."

But Booker's proposal isn't the only "big idea" on the table. Another co-sponsored plan seeks to exempt up to $92,00 for the average American worker.

Chris Van Hollen tax plan

Sen. Van Hollen and Rep. Don Beyer (D-VA) have introduced a competing vision for tax relief: the "Working Americans' Tax Cut Act" (WATCA). Instead of creating a higher standard deduction, this plan proposes a new "alternative maximum tax" system.

Under WATCA, the first $46,000 of income for single filers ($92,000 for married couples filing jointly) would be entirely exempt from federal income tax. To qualify, a taxpayer's income would have to be 175% or less of the exemption amount (roughly $80,500 for individuals or $161,000 for couples, per the Penn Wharton Budget Model).

Qualified taxpayers would then calculate their tax bill in two ways and pay whichever is lower:

1. The current federal income tax code.
2. A flat 25.5% rate applied only to adjusted gross income (AGI) above the $46,000 or $92,000 threshold.

Van Hollen proposes a tiered surtax on high earners to ensure the legislation is "fully paid for."

• 5% surtax on incomes above $1 million (or $1.5 million for joint filers),
• 10% surtax on incomes above $2 million (or $3 million for joint filers),
• 12% surtax on incomes above $5 million ($7.5 million for joint filers).

"[The proposal] avoids raising the national debt," Hollen stated in a press release regarding the surtax, "by ensuring the wealthiest pay their fair share."

However, some argue that an enhanced standard deduction provides the most tax relief for middle- and upper-middle-class, since the poorest households often have little federal income tax liability to begin with. Plus, both proposals might be too expensive to implement.

Who would pay lower taxes on 'tax-free' income?

According to Sen. Booker's office, the "median American family would see their taxes cut by roughly 85%." However, a Tax Foundation analysis reveals a massive shift in the federal tax burden from lower-income families to high-net-worth individuals.

Under Booker's plan:

• The top 1% of earners would see an average federal tax increase of $23,050 to $196,183.
• The lowest-income earners (those earning $18,461 or less) would receive the largest tax savings percentage at 11.4%, or $1,257 in after-tax income.
• But those with income between $135,756 and $196,530 would see the largest dollar amount of tax savings, around $6,656.

Meanwhile, under the Van Hollen plan:

• The top 1% of earners could see up to 9.7% increase in their federal income tax bill, hiking taxes by as much as $688,773.
• The largest share of relief (dollar amount and percentage) would target those earning between $40,036 and $76,868, with an average tax savings of $2,273.
• The bottom 20% of earners would receive only a $12 increase in tax savings, or .10%.

While both plans target income tax relief, their differing potential impacts on the national debt have raised concerns over long-term fiscal stability, according to recent projections from The Budget Lab at Yale and the Institute on Taxation and Economic Policy (ITEP).

• The Van Hollen plan is projected to lose at least $100 billion in revenue annually, according to ITEP.
• The Booker plan could result in a $5.4 trillion loss over 10 years, or 540 billion per year, according to Yale.

Furthermore, the Tax Foundation warns that the high marginal rates required to fund these cuts could negatively impact long-run GDP by discouraging investment and reducing labor supply.

Bottom line: Tax-free income in 2026?

With a GOP-controlled Congress and a high price tag — particularly for Sen. Booker's plan — most analysts expect these proposals to stall before reaching a floor vote. However, with mid-term elections coming this November, these "tax-free income" platforms may offer an early look at future economic priorities.

So this may only be the beginning of debates to come. A flurry of competing tax proposals could emerge this spring when Congress reconvenes after spring break. Stay tuned.

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Georgia drivers will soon see some relief at the pump after state lawmakers approved a 60-day suspension of the state’s motor fuel tax.

The measure, expected to be signed into law by Gov. Brian Kemp Friday, will reduce prices by roughly 33 cents per gallon of gasoline and about 37 cents per gallon of diesel, once fuel distributors adjust prices.

The bipartisan legislation comes as high gas prices continue to weigh on household budgets across the state. Global energy disruptions due to the United States conflict with Iran, inflation, and supply chain pressures are among the reasons cited for the emergency relief.

Meanwhile, Georgia will once again send one-time tax rebates to eligible residents this year. Here's more of what you need to know about both types of tax relief.

Georgia gas tax suspended: What it means for drivers

According to AAA, the average cost of a gallon of regular gas in Georgia as of March 20 is roughly $3.79, lower than the national average of $3.91.

(The gas tax in Georgia is 33.3 cents per gallon of regular gasoline and 37.3 cents per gallon of diesel fuel.)

• The suspension applies only to the state portion of the motor fuel tax. Federal and local taxes remain in effect.
• Fuel distributors are expected to pass savings onto drivers within days of the governor signing the bill.
• The relief is intended as a short-term measure.

“By suspending the state motor fuel tax for 60 days, we are delivering meaningful, timely relief to millions of Georgia drivers and families when and where it’s needed most," said Republican Speaker of the Georgia House of Representatives, Jon Burns of Newington.

A driver filling a standard 15-gallon tank in Georgia could save approximately $5 per gasoline fill-up, slightly more for diesel.

Georgia tax rebate 2026 coming soon

This gas tax suspension complements Georgia’s one-time income tax rebates for 2026, which, as Kiplinger has reported, are designed to provide further support for households.

This isn't the first time Georgia has offered similar rebates to its residents.

"We’ve been able to do it four times, and we’ve been able to do it because we’ve been very fiscally conservative with our budgeting," state Sen. Bo Hatchett (R-Cornelia) told reporters.

For 2026:

• Rebate amounts: Up to $500 for joint filers, $375 for heads of household, and $250 for single filers.
• Eligibility: Based on residents’ 2024 and 2025 Georgia tax returns.
• Timeline: Rebates will be distributed later this year by the Georgia Department of Revenue.

For more details on who qualifies and how much residents may receive, see our report: Georgia Tax Rebate 2026 Guide.

Georgia tax holiday: Bottom line

With fuel prices rising, the gas tax suspension is part of a broader strategy to balance fiscal responsibility with household support.

Consumer advocacy groups have generally welcomed the legislation as a proactive step to address immediate cost pressures, especially for low- and middle-income households.

Next steps for residents?

• Gas prices should begin to reflect the suspension not long after the governor signs the bill.
• Tax rebates will be processed later in the year; residents can monitor updates from the Georgia Department of Revenue.

Keep an eye on the prices at the pump and any rebate announcements so you can benefit from both programs.

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Filing your taxes as early as possible has always been a good idea. It’s the most effective way to thwart crooks from submitting a fraudulent return in your name, claiming a refund. And if you are due a refund, the sooner you file, the sooner you’ll have the money in your pocket.

This year, it’s even more important than usual to get a head start on preparing your return. As a result of tax legislation enacted in July 2025, known by some as the One Big Beautiful Bill (OBBB), you’ll need to navigate a thicket of new provisions, covering everything from car loans to property taxes to an extra deduction for those 65 and older.

The good news is that thanks to the OBBB, reductions in federal income tax rates that were included in the 2017 Tax Cuts and Jobs Act — and that were set to expire at the end of 2025 — are now permanent, so taxpayers won’t face a tax hike in 2026.

In addition, the OBBB made permanent an enlarged estate tax exemption that was included in the TCJA. In 2026, estates worth up to $15 million, or $30 million for a married couple, won’t be subject to federal estate taxes. With an exemption of that size, the vast majority of taxpayers won’t have to worry about paying federal estate taxes at rates that range from 18% to 40%.

The exemption will be adjusted annually for inflation; without congressional action, it would have dropped to about $7 million per person in 2026.

Along with extending TCJA provisions that are favorable for many taxpayers, the OBBB contains several tax breaks, expiration dates and other changes that you might miss if you wait until the last minute to file.

Here’s a look at provisions in the bill that could increase your 2025 refund or lower the amount you owe, along with other information to keep in mind as you prepare your return — including ways to make sure you get all the tax breaks you’re owed.

New and noteworthy

Below are some of the most significant tax-related changes from the 2025 tax and spending bill.

Senior bonus deduction

Many taxpayers who are 65 or older will be eligible to claim an additional deduction of $6,000 on their 2025 tax return. This senior bonus deduction, which is scheduled to expire at the end of 2028, comes on top of an existing increase in the standard deduction of $2,000 for single filers who are 65 or older or, for married couples who file jointly, $1,600 for each spouse who is 65 or older.

The expanded deduction means a single taxpayer who is 65 or older will be able to deduct up to $23,750 from taxable income, while a married couple who files jointly will qualify for a deduction of up to $46,700, assuming both are 65 or older. You can claim this additional deduction whether you itemize or take the standard deduction on your 2025 tax return.

The bonus deduction will apply only to taxpayers whose income exceeds the amount of the deduction, so low-income seniors won’t benefit from this tax break.

At the other end of the spectrum, high-income taxpayers could see the amount of the bonus deduction reduced or eliminated altogether. The deduction starts to phase out for married couples with modified adjusted gross income (MAGI) of more than $150,000 and is fully phased out at MAGI of $250,000 ($75,000 and $175,000, respectively, for single filers). Your MAGI is your adjusted gross income with certain deductions added back.

The additional deduction won’t affect how your Social Security benefits are taxed. Taxes on Social Security benefits are based on your combined (or provisional) income, which consists of half of your benefits, your adjusted gross income and any tax-exempt interest, such as interest from municipal bonds. Depending on the amount of your combined income, up to 85% of your benefits are taxable.

The senior bonus deduction is a so-called below-the-line deduction, which means it reduces your taxable income but doesn’t lower your AGI.

"Taxation of Social Security hasn’t changed, but your overall tax bill may be lower because of this deduction," says Catherine Valega, a certified financial planner and enrolled agent with Green Bee Advisory in Burlington, Mass.

Likewise, the bonus deduction won’t shield high-income Medicare beneficiaries who pay a surcharge, known as the income-related monthly adjustment amount (IRMAA), on their Part B and Part D premiums. The surcharge is based on your MAGI, which is also calculated before the deduction applies.

Higher deduction for state and local taxes

Those who itemize will be able to deduct up to $40,000 in state and local taxes (SALT), up from a cap of $10,000 in 2024. The cap will be increased by one percentage point each year through 2029, then returns to $10,000 in 2030.

The SALT deduction allows taxpayers who itemize to deduct property taxes, including personal property taxes on cars and boats. You can also deduct either state and local sales taxes or state and local income taxes, but not both. The increased SALT cap will primarily benefit taxpayers in states with high property taxes, such as New Jersey and New York.

But like the senior bonus deduction, the cap is phased out for higher-income taxpayers. It’s gradually reduced for taxpayers with MAGI above $500,000 ($250,000 for a married individual filing separately), and taxpayers with MAGI of $600,000 or more will be limited to deducting $10,000 on their tax returns.

Since the 2017 Tax Cuts and Jobs Act expanded the standard deduction, only about 10% of taxpayers have itemized. However, the higher cap for state and local taxes will likely increase the percentage of taxpayers who are better off itemizing, says Laurette Dearden, a CFP and certified public accountant in Laurel, Md.

If your 2025 property taxes exceeded the $10,000 cap, it’s worth taking the time to track down your 2025 spending on charitable contributions, mortgage interest, unreimbursed medical expenses that exceed 7.5% of your AGI, and other expenses that qualify as itemized deductions to see whether it makes sense to itemize instead of taking the standard deduction.

Expanded tax breaks for families

For 2025, eligible parents can claim a tax credit of $2,200 per child, up from $2,000 for 2024. The child tax credit (CTC) phases out for singles with modified adjusted gross income of $200,000 or more and married couples who file jointly with MAGI of $400,000 or more.

Eligible taxpayers can claim a credit of up to $500 for other dependents, such as an aging parent or another adult relative whom you support and claim as a dependent on your tax return.

If you adopted a child in 2025, you can claim a credit of up to $17,280 of eligible expenses, and up to $5,000 of the adoption tax credit will be refundable. That means taxpayers with a tax liability of less than $5,000 can still claim that portion of the credit, and some of that amount could be returned as a refund.

A deduction for car buyers

A $7,500 tax credit to buy or lease qualified electric vehicles, along with a $4,000 credit for eligible used EVs, ended September 30, 2025. (You can find the complete list of vehicles that qualify for the credit here.)

If you purchased an eligible vehicle before September 30 and claimed the credit when you bought the vehicle — meaning, basically, that you transferred the credit to the dealer, who passed it on to you in the form of a discount — you must report the transaction on Form 8936.

The seller should have given you a document that shows the vehicle’s eligibility for the credit, which you’ll use to complete the form. You can also use Form 8936 to claim the credit if you didn’t receive it when you purchased your EV.

Prices for cars and trucks rose in 2025, pushing the average monthly loan payment to $748 for a new car and $532 for a used car, according to Experian. However, depending on the type of vehicle you bought, you may be able to deduct up to $10,000 of loan interest. You don’t have to itemize to claim this deduction, but it’s available only for loans taken out to buy new cars assembled in the United States, which rules out many popular models.

The location of final assembly should be located on the vehicle-information label attached to the car or truck at the dealer’s lot; you can also find out where the vehicle was assembled by plugging the vehicle identification number (VIN) into the National Highway Traffic Safety Administration’s VIN decoder website.

The deduction, which is available for qualified vehicles purchased between 2025 and 2028, phases out for individuals with a modified adjusted gross income higher than $100,000 or married couples making over $200,000.

Taxes on your winners

Last year was a great year for investors in the stock market, with the S&P 500 index rising 18%. If you sold investments held for one year or less, your gains will be taxed at your ordinary income tax rate, which tops out at 37% for high earners. Assets held for more than a year are taxed at long-term capital gains rates, which range from 0% to 20%, depending on the amount of your income.

But stocks, mutual funds and exchange-traded funds weren’t the only big winners in 2025.

If you cashed in on any of these assets or activities, you may also owe the IRS a piece of the pie:

Cryptocurrency

Bitcoin hit a record high in 2025, attracting professional and mainstream investors alike. If you invested in bitcoin or other cryptocurrency and took some of your profits off the table, those gains are taxed the same way that gains from the sale of stocks, bonds and other capital assets are taxed.

You’ll owe taxes on your gains even if you used your bitcoin to buy something. When you fill out Form 1040, you’ll be asked whether you received, sold, exchanged or otherwise disposed of a digital asset in 2025, which indicates that the IRS takes these transactions seriously.

Gold

If you took advantage of record gold prices to sell shares of gold-mining companies, or mutual funds and ETFs that invest in gold-mining companies, you’ll pay the same capital gains tax you’d pay for any investment. But the IRS treats profits from the sale of physical gold — such as gold bars and coins — differently.

Those assets are taxed as collectibles, with a top long-term capital gains rate of up to 28%, depending on your income. If you invested in an ETF that’s backed by physical gold, such as SPDR Gold Shares, you’ll also pay the higher collectibles rate for long-term capital gains.

While you’re supposed to report the profits from any sale of gold, the IRS is unlikely to come after you if you sold your grandfather’s cuff links for a couple of hundred dollars to a "We Buy Gold for Cash" retailer. But dealers are required to report sales of gold bars and coins on Form 1099-B if certain conditions related to purity and quantity are met.

If you receive a Form 1099-B, you’ll owe taxes on the difference between the amount you paid for the items — known as the basis — and the amount you received in the sale. If you received the items as a gift, the basis is the amount the gift-giver paid for the items; for inherited collectibles, the basis is the fair market value of the items on the date of the donor’s death. Tracking down the basis is critical, because otherwise the IRS will tax you on the entire proceeds of the sale, says Miklos Ringbauer, a CPA in Los Angeles.

Gambling

The rapid growth of online sports gambling has made it possible to bet on everything from the outcome of a college basketball game to the length of the national anthem at the Super Bowl. Nearly 60% of Americans participated in some form of gambling in the past year, according to the American Gambling Association.

If your bet paid off, your winnings are taxable. If you received at least $600 and your payout was at least 300 times the amount of your wager, you’ll probably receive a Form W-2G, which you’ll use to report your payout as "other income" on Form 1040. In most cases, if you win more than $5,000 and the payout is at least 300 times the amount of your bet, the IRS requires the payer to withhold 24% of your winnings for income taxes.

You can reduce taxes on your winners by deducting your losses — but only if you itemize, and you can’t deduct losses that exceed the amount of your winnings. For example, if you won $100 and lost $300 at the casino, you can deduct only $100. A provision in the new tax law adds another wrinkle: Starting in 2026, you will be allowed to deduct only 90% of your losses, Valega says.

Last-minute tax savers

Before you send your tax return to the IRS (or instruct your tax preparer to do the same), make sure you’ve made the most of tax-advantaged contributions that could lower your 2025 tax bill while enhancing your retirement and health care security.

IRAs

You have until April 15, 2026, to contribute to a tax-deductible IRA. Deductible contributions to a traditional IRA will reduce your adjusted gross income on a dollar-for-dollar basis, which could also make you eligible for other tax breaks tied to your AGI.

If you’re not enrolled in a workplace retirement plan, for 2025 you can deduct IRA contributions of up to $7,000, or $8,000 if you were 50 or older. Workers who have a company retirement plan but earn less than a certain amount may qualify to deduct all or part of their IRA contributions.

For 2025, this deduction phases out for single taxpayers with AGI between $79,000 and $89,000 and for married couples who file jointly with AGI between $126,000 and $146,000. If one spouse is covered by a workplace plan but the other is not, the spouse who isn’t covered can deduct the maximum contribution as long as the couple’s joint AGI doesn’t exceed $236,000. A partial deduction is available if the couple’s AGI is between $236,000 and $246,000.

If you worked for yourself in 2025 or had a side gig, you can sock away even more money. You have until April 15 — or October 15 if you file for an extension — to set up and contribute to a SEP IRA, a retirement plan designed for self-employed workers, small businesses and sole proprietors. For 2025, you can deduct contributions of as much as 20% of net income, up to a maximum of $70,000.

You also have until April 15 to contribute to a Roth IRA for 2025. Contributions to a Roth are after-tax, so they won’t lower your tax bill. But as long as you’re 59½ or older and have owned your Roth for at least five years, withdrawals are tax-free.

Here, too, there are income limits. For 2025, single taxpayers with modified adjusted gross income of less than $150,000 can contribute the full amount; those with income between $150,000 and $165,000 can make a partial contribution. Married couples who file jointly can make the full contribution if their MAGI is less than $236,000; those with MAGI between $236,000 and $246,000 can make a partial contribution.

In the past, you could make only pretax contributions to a SEP, but legislation enacted in late 2022 allows SEP providers to offer a Roth option.

Health savings accounts

You have until April 15 to set up and fund an HSA for 2025. An HSA offers a triple tax break: Your contributions are tax-deductible (or pretax if made through payroll deduction), the money grows tax-deferred, and withdrawals used to pay qualifying medical expenses are tax-free.

To contribute to an HSA, you must have had an eligible high-deductible health insurance policy that went into effect no later than December 1, 2025. The deductible must have been at least $1,650 for individual coverage or $3,300 for family coverage. You can contribute up to $4,300 to an HSA for 2025 if you had single coverage, or $8,550 if you had family coverage.

Those who were 55 or older in 2025 can stash away an additional $1,000. The money in your account will grow tax-free, and withdrawals to pay medical expenses are also tax-free.

Planning for 2026

Once you’ve filed your 2025 tax return, we wouldn’t blame you for taking a hard-earned break. Walk the dog, go to a movie, or do something else that’s more relaxing than poring over your Form 1099s.

But after that, carve out some time to plan ways you can lower your 2026 taxes. With your tax information readily available, this is the ideal time to do it. Some new provisions could affect your 2026 tax bill:

New rules for charitable contributions

If you usually claim the standard deduction, you may have fallen out of the habit of tracking your charitable contributions. But starting in 2026, taxpayers who don’t itemize can deduct up to $1,000 in charitable contributions, or up to $2,000 for married couples who file jointly. Donations to donor-advised funds and private foundations aren’t eligible for this new deduction.

Meanwhile, those who itemize on their tax returns will be subject to a new limit on the amount of charitable contributions they can deduct. That amount has long been limited to a percentage of their adjusted gross income, ranging from 20% to 60%, depending on the type of gift and the recipient. The amount of cash gifts donors can deduct will remain at 60% of AGI in 2026.

However, the deduction will be limited to the amount of charitable contributions that exceeds 0.5% of your adjusted gross income. For example, a couple with an AGI of $300,000 can only deduct charitable donations in excess of $1,500.

If you’re 70½ or older, one way around this new cutoff is to use qualified charitable distributions to benefit your favorite charities, says Tim Steffen, director of advanced planning at Baird.

In 2026, taxpayers who are 70½ and older can transfer up to $111,000 from a traditional IRA directly to charity. QCDs can be done only from an IRA, either one that you own or an inherited IRA. A QCD will reduce your adjusted gross income, and it isn’t subject to the 0.5% haircut on charitable contributions.

Larger catch-up contributions for workplace retirement accounts

The total employee contribution limit to all 401(k) and 403(b) plans for those younger than 50 will increase from $23,500 in 2025 to $24,500 in 2026. The limit for catch-up contributions will rise from $7,500 in 2025 to $8,000 in 2026, so if you’re 50 or older, you can contribute up to $32,500 in 2026.

Participants who are between ages 60 and 63 in 2026 are eligible for a special catch-up contribution of $11,250, meaning they can contribute a total of $35,750.

Changing requirements for high earners who contribute to a 401(k)

Starting in 2026, if you earn more than $150,000 in the previous calendar year, all catch-up contributions at age 50 or older will need to be made with after-tax dollars to a Roth 401(k), 403(b) or 457(b).

There are a lot of good reasons to add a Roth to your retirement portfolio. Withdrawals are tax-free as long as you’re at least 59½ and have owned the account for five years. And you won’t have to take required minimum distributions from a Roth account.

But if you’re a high earner and lose the ability to deduct catch-up contributions to a traditional 401(k), that may cause your 2026 adjusted gross income to increase, which could make you ineligible for tax breaks tied to your AGI. You may want to consult with a tax professional about strategies to offset the loss of this deduction.

Where to get free help

The Trump administration shut down the IRS Direct File program, which allowed taxpayers in more than two dozen states to file their 2024 tax returns directly with the IRS at no cost. However, IRS Free File, a partnership between the IRS and private tax-preparation companies, will still be available to eligible taxpayers.

This year, taxpayers with 2025 adjusted gross income of $84,000 or less can prepare and electronically file their federal tax returns for free through one of the participating Free File programs.

If you need help preparing your return, the AARP Foundation Tax-Aide service provides free assistance from IRS-certified volunteers at more than 3,600 libraries, malls and other locations around the U.S., with a focus on taxpayers older than 50 who have low to moderate income. Use the AARP Tax Locator to find a site near you.

Note: This item first appeared in Kiplinger Personal Finance Magazine, a monthly, trustworthy source of advice and guidance. Subscribe to help you make more money and keep more of the money you make here.

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When you file a joint tax return, the IRS views you and your spouse as a single legal unit. If your spouse commits any tax errors or fraud, you could be in hot water.

That is because the concept of "joint and several liability" means the IRS can legally collect the entire tax debt from you, even if your spouse earned all the taxable income or committed all the fraud or errors.

However, the tax law provides an "escape hatch" known as innocent spouse relief. It's applicable in instances in which the IRS determines it would be unfair to hold one spouse jointly liable for a tax debt.

If you're facing a massive tax bill due to your partner's misdeeds, here's how to determine if you qualify for tax relief and what steps to take to proceed.

Who qualifies for IRS innocent spouse relief?

"Innocent spouse" relief is exactly what it sounds like: The spouse claiming relief didn’t know about the tax return’s irregularities.

If you think you qualify for this type of relief, you must show that:

1. You filed a joint return with a tax understatement, i.e., the tax liability reported on the return is lower than the true tax liability.
2. The understatement was the result of your spouse not reporting income or taking improper tax deductions.
3. You didn't know, and had no reason to know, about the understatement when you signed the return.

What does "reason to know" mean? This IRS standard asks whether a reasonable person in the requesting spouse’s shoes should have known about the understatement. Factors the IRS will take into account include:

• Education and experience. The requesting spouse’s level of education and financial expertise.
• Financial involvement. The requesting spouse’s involvement in the household’s finances.
• Lavish spending. Whether there were lavish or unusual expenditures compared with the normal standard of living, which should have alerted the requesting spouse that more money was coming in than was being reported.
• Deceit or evasiveness. Whether the non-requesting spouse was secretive about the mail, bank accounts or tax records.

The IRS will consider all the facts and circumstances of the request and determine whether it would be unfair to hold the requesting spouse responsible for the tax understatement.

Should the IRS deny relief, the requesting spouse can appeal the denial to the U.S. Tax Court, which will review the request anew (without reference to the IRS’s findings).

Spousal abuse and control are a special consideration. The IRS and the Tax Court take spousal abuse and domestic violence seriously, giving both significant weight in their findings.

For example, the knowledge factor, i.e., whether the requesting spouse knew or had reason to know about the error or fraud, can be mitigated if the spouse was abused or under financial control (in which their access to money or information was limited).

If the requesting spouse signed the tax return under duress, the IRS might treat the "reason to know" factor as favoring them, even if they were aware of the errors or the fraud.

Innocent spouse relief: IRS Form 8857

For innocent spouse relief, the requesting spouse must file Form 8857 (PDF) within two years after the IRS begins collection activity for the tax year in question. The following are considered "collection activities":

• Issuing a Notice of Intent to Levy
• Garnishing wages
• Offsetting a tax refund
• Filing a claim in a court proceeding in which they're a party (e.g., bankruptcy or probate)

Tip: Don’t wait to file Form 8857 to request relief because you don’t have all the documentation you need, such as your ex-spouse’s records. You can always provide the missing documents while the case is ongoing. Be aware that in filing Form 8857, the IRS will contact your ex-spouse.

When 'I do' becomes 'I don’t'

If you find yourself saddled with the tax misdeeds of your spouse about which you knew nothing, file a Form 8857 with the IRS asking for innocent spouse relief. As mentioned, you shouldn’t delay; you must do this within two years after the IRS begins its collection activity.

Be prepared for the tax agency to look not just into your financial life but also into various aspects of your relationship with your spouse.

That process might feel uncomfortable, but if it means shedding a life-altering tax debt you didn’t create, it might be a necessary trade-off. Consult a trusted tax professional to see whether innocent spouse relief is right for you.

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Just as the first Stay NJ checks arrived in mailboxes last month, the program's future has been thrown into question. The new Stay NJ tax relief program faces significant cuts in Gov. Mikie Sherrill's inaugural 2026 budget proposal (PDF).

Stay NJ is the third in a series of New Jersey property tax relief programs, including the Affordable New Jersey Communities for Homeowners and Renters (ANCHOR) program and NJ Senior Freeze. In the last year, these programs have provided a record-breaking $4.3 billion in direct property tax relief, including $600 million from Stay NJ alone.

"Stay NJ is a great program," Sherrill said in a press release, "...but it benefits households that make as much as $500,000 a year. I'm changing that to safeguard Stay NJ for middle-class seniors."

Yet the proposed tightening of income thresholds on Stay NJ recipients and the expiration of a certain ANCHOR bonus could mean some residents miss out on New Jersey property tax relief. Here's what to know.

ANCHOR and Stay NJ property tax relief

Sherrill proposed tax cuts to the following property tax relief programs as part of the 2026-2027 New Jersey budget plan:

• Stay NJ. Lowering the income cutoff from $500,000 to $250,000, and cutting the maximum property tax savings from $6,500 to $4,000.
• ANCHOR. Allowing the bonus $250 in tax savings to expire for homeowners 65 and older, but renters of that same age would still qualify.

No proposed cuts would impact the New Jersey Senior Freeze program.

As a consequence of the proposed property tax cuts, some New Jersey taxpayers would see their maximum credit slashed. For instance:

• An older adult paying $20,000 in property taxes, if eligible for all New Jersey property tax relief, could lose $2,500 in tax savings.
• Another older adult paying $10,000 in property taxes, if eligible for all New Jersey property tax relief, could lose $1,000 in tax savings.
• Older adults earning between $250,000 and $500,000 would get nothing in property tax savings under the new plan.

The new property tax provisions are expected to save $500 million in costs for the new fiscal year, according to the proposed budget plan, though not everyone is on board with cutting property tax relief benefits.

Property tax in New Jersey is the highest ever

The New Jersey property tax relief cuts are part of a broader $60.7 billion plan to aid the state's deficit crisis (more on that later). Yet some argue that scaling back relief is counterproductive to the Garden State's long-term affordability goals.

"The last thing that should be cut is property tax relief," state budget officer Sen. Declan O'Scanlon (R–Monmouth), reportedly told local news outlet NJ101.5. "Instead, it's one of the first things cut…It kills me."

New Jersey property taxes are among the highest in the nation. According to the state Department of Community Affairs, the average property tax bill hit a record high of $10,560 last year. Consequently, property taxes remain the primary driver of "out-migration" as residents flee for more tax-friendly states.

Programs such as ANCHOR and Senior Freeze were established to lower out-migration rates, with the Stay NJ program explicitly designed to help older adults "age in place."

"For many New Jerseyans, property tax relief programs like Stay NJ, ANCHOR, and Senior Freeze are essential," Chris Widelo, state director of AARP New Jersey, said in a statement following Sherrill's state budget proposal.

"[These benefits] are the difference between staying in their homes or being forced to move," Widelo added.

Yet proposed tax relief cuts are expected to help slash the state's $3 billion structural budget deficit.

According to Sherrill's office, the state's current fiscal crisis is the result of a "perfect storm," including the expiration of COVID-era federal subsidies, years of underfunded state pension payments, and funding cuts implemented by the Trump administration.

Without the proposed property tax savings cuts and other budgetary maneuvers, Sherrill warns that New Jersey state coffers could be depleted within two years.

New Jersey state tax proposal

The property tax savings cuts aren't the only provisions included in the New Jersey budget proposal. Sherrill's proposed budget also includes:

• Various corporate fees, such as a new per-employee fee for companies with at least 50 workers enrolled in NJ FamilyCare (Medicaid) who don't provide health insurance and new limits on net operating losses and the alternative business calculation tax deduction.
• A record-breaking $12.4 billion on K-12 school aid, and $1.4 billion for preschool education.
• More than $7 billion toward New Jersey's state pension system.
• More than $100 million is being allocated to the state's Supplemental Nutrition Assistance Program (SNAP) and Medicaid coverage in counties affected by federal funding cuts.

The New Jersey budget proposal has a long way to go before finalization. The state's Assembly and Senate will hold hearings before drafting and voting on a final budget bill. The finalized bill will then move to Sherrill's desk for signature or veto by June 30, 2027, New Jersey's deadline for a new state fiscal budget.

Stay tuned for updates.

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