There may be errors in spelling, grammar, and accuracy in this machine-generated transcript.

Roger Harris: Hello again everyone. It's another federal tax update podcast. It's Annie Schwab and Roger Harris back with you and Annie. How you doing today?

Annie Schwab: I'm doing pretty good. I will say I would be better if I was in my hometown today. Um, it is Mardi Gras. It is Fat Tuesday. I'm from New Orleans, but today I'm sitting in my office in Dallas.

Roger Harris: Doing [00:00:30] a podcast.

Annie Schwab: This is what it is.

Roger Harris: Yeah. So what would be different if you were back in New Orleans? I mean, for those of us who have never been to Fat Tuesday in New Orleans, what are we missing and what are you giving up to do this podcast?

Annie Schwab: Yeah, well, the best part is hanging out with your friends and family on the street, eating some. You know, it's either Popeyes or crawfish. One of the two. Um, but it's just the, you know, spending the day outside watching some of these floats are just extravagant. I mean, there [00:01:00] people spend so much money and so much time. Um, it's always great to see. And then the music in between all the floats, they have bands from different schools. Um, so, you know, the kids want to catch the throws. The the adults are kind of admiring the, the floats and all the costumes and decorations and those kinds of things. Um, and then you can never go wrong with the food. So.

Roger Harris: Um, is this.

Annie Schwab: Today's the last day to get a king cake. If you haven't king cake.

Roger Harris: All right. Yeah.

Annie Schwab: Today's the day.

Roger Harris: We don't. We used to get some around here. [00:01:30] We don't have any anymore. So.

Annie Schwab: Yeah, the grocery stores don't do it justice either, to be honest.

Roger Harris: Yeah, I'm sure they're better from New Orleans. Yeah. Okay, well, so why are we here today? Other than to talk about Mardi Gras? Um, we're going to talk about some topics that, um, we've talked about through earlier podcasts, but now we're into a tax season. We're beginning to get some feedback from our offices and other, uh, people we talk to to about how the filing season [00:02:00] going. What kind of issues are coming up, maybe some tricks or something to help you navigate, you know, because this is new, not just for us in the practitioner community, but it's good for our client, new for our clients. And so, you know, we're just going to kind of revisit a lot of topics. We're going to talk about some things that we probably haven't talked about, but we want to talk about it in light of what we're doing now. It's anecdotal. It's still early in the tax season. You know, we haven't you know, we may have completely different opinion or completely different idea, you know, a month from now, but at least based on what we're seeing [00:02:30] now, um, we thought we'd revisit some of the things that we've talked to you about and kind of give you a little more current events, uh, take on it. So, Andy, why don't you kick us off and get us started?

Annie Schwab: Um, yeah. So I, you know, tax season started on well, essentially opened on the 26th of January. We're, you know, February 17th here. Um, I know returns are being filed. There are some of those returns who, you know, with the child tax credit or earned income credit. Something like that. Maybe. Kind of holding [00:03:00] up. I know there are still some forms that are pending, but for the most part, what we've seen, at least through our offices, um, is that returns are going out. Uh, refunds are being issued. Um, most within 2 to 3 weeks. Um, we had a crazy anomaly. One of our workers, one of our colleagues at the office actually got her refund was at five days. Five days?

Roger Harris: Yeah. Five days after electronically filing, they had their refund. I've never heard of that, even in previous years. That's amazing.

Annie Schwab: Yeah. So [00:03:30] we, um. I mean, it seems to be going relatively smoothly. I know, you know, some of the delayed forms, um, some of the states are not quite ready to kind of process returns, but it's still really early in the season. I mean, we're we're sitting here in mid-February. Um, you know, I haven't seen where I haven't heard any reports of, you know, these horrible, you know, breakdown in In communication or those kinds of things that I'm sure the wait times on hold [00:04:00] are still lengthy, but that's to be expected during tax season, in my opinion.

Roger Harris: Yeah, there's still some hit and miss. If you listen to our podcast that we did, uh, prior to this one with Jennifer McMillan, uh, the NBA had done some initial polling and they had some, some concerns of what they were seeing. Um, a lot of it, I think more or less had to do with the phones and the people answering. I mean, we've had a situation here where the person answering the phone clearly didn't understand, you know, wasn't trained as well as we would [00:04:30] like them to be. And I just think those, you know, we've we've been saying all along, heading into this tax season, we're all going to have to be patient. We're all going to have to expect things not to be as functional or as smooth as we would like it. Given that the IRS has a lot of new people, a lot of lost, lost, a lot of good people. And so, uh, but so far, I mean, you know, like I said, it's just February the 17th, so We got a long way to go, right? Yeah. So far. Uh, you know, it's. It could be worse. [00:05:00]

Annie Schwab: Absolutely. Well, I will say, given the new tax legislation. So tip and overtime tax deductions for 2025, that's that is where we're getting a lot of questions not only from our office owners, but their clients are reaching out. Um, we're seeing some you know, this year is challenging right. 2025 is challenging. The law passed. It went retroactive to 20 to January of 2025. Um, the employers are actually not required. They've got to [00:05:30] get out of jail. Free card. Um, so they're not required for 20, 25 to actually separately report tips or qualified overtime.

Roger Harris: Right.

Annie Schwab: And the IRS has, you know, some safe harbor guidance, which makes it different, difficult for us to determine. Okay. Well, what are the qualified tips and overtime pay? Like what if you're not required to separately state it and give me the number. But the client saying, oh, I had qualified tips or I had overtime pay. Us as practitioners [00:06:00] are sort of standing here like, give me something. Like, you gotta let me have something to know how to put a number on the tax return. So I think that probably will be the most challenging part of the actual tax preparation. Um, we have I mean, there's just lots of new things. I mean, there's other new things, but I feel like this one is something that's just not as cut and dry, at least for 2025.

Roger Harris: Yeah, I think overtime is going to be particularly challenging. I mean, tips, at least the guidance we have and the [00:06:30] fact that there was some tip reporting historically that we could fall off, rely on. So I think a lot of it's going to be and we'll talk a little bit about it. What you know, what's our role. What can we do? What do we do if a client brings it up? Should we bring it up if a client does it? You know, those sorts of things. I think overtime is going to be the one that maybe haunts us the most. But who knows? You know.

Annie Schwab: For sure. And and as we. The other challenging part with this is, you know, we're sitting here in February of 26 and I [00:07:00] haven't I personally have not seen a lot of guidance come out because technically, starting in January of this year, that you will be required to track the eligible overtime and tips and then be ready for the mandatory reporting at the end of 26. So there's going to be some communication with, you know, whoever's doing the books. How are you coding this? Who's running the payroll? Um, what kind of daily logs or templates or spreadsheets or apps or whatever method. [00:07:30] Now, restaurants probably already have something in place, but, you know, the there could be lots of industries that are not familiar with the daily tracking because the tip report, you're supposed to report tips and any tips over $20. If you make more than $20 in tips by the 10th of every month prior. So like January's tips if you made more than 20 bucks needs to be reported by February 10th. And that's not new that that has always been the case. But for, you [00:08:00] know, clients who are not used to that rule probably aren't tracking it or doing that reporting. So I think for me, I think sooner the better that you can talk to your clients about what's going to be needed in order to get the mandatory reporting of tips and overtime correct for 2026. You know, let's not wait till June to start. Start dealing with it. But I haven't seen a lot come out, um, recently on the 2026 kind [00:08:30] of tips and tricks and what they'll take and how they're going to, you know, do do the, the treatment.

Roger Harris: And it may be that you're going to have to reach out to whoever is your provider of payroll services. I mean, if it's ADP, Paychex, gusto, an Intuit product, somebody else, I mean, they may all have different ways that they want you to do something so that they can capture the information that will be on the W-2 next year. So, uh, hopefully the payroll providers have reached out to you and at least told you [00:09:00] from their perspective how they need you to input certain data that they need to then capture and make sure they can reproduce it on the, uh, W-2 at the end of the year. So, um, and they may all have slightly different ways. You know.

Annie Schwab: I did I researched, um, I looked at ADP, gusto and Aces, and they all have a recommended method for, you know, coding things, codes to distinguish between regular wages and overtime premium [00:09:30] or, um, you know, double overtime or whatever you have. But it's all little slightly different. Um, so you're right. I mean, that's the best thing is if you are using a third party, find out, get trained up on what you need to do in order to get it correct so that we're not redoing stuff or chasing the problem towards the end of the year.

Roger Harris: And if you're dealing with some small firm, that's some people make sure they understand the rules. You mentioned overtime premium. You know, that's the real number [00:10:00] we need to know about. Not just, you know, how much overtime did they receive because not all of that qualifies. So right. So you know, it's going to be incumbent that the payroll provider that your clients are using know the rules and that they know what to capture and how to capture it and how to report it, not just, well, I just have to capture all the overtime that's out there. And again, I'm confident most of the big national company know that. But if you're using Poly's payroll service, I don't know [00:10:30] if. Yeah. You know, are they fully up to speed in what overtime. Again tips. Tips is pretty straightforward if you know the right industry and things like that. And you know what, you know where service charges fit in. And, um, the one thing we are seeing and I don't know if this is the right time, we'll go. I'm going ahead and mention it is something new called a non tip. Fee is showing up and I've seen that read about that. I've never seen it personally, but I've read about it where um restaurants are putting a no tip fee [00:11:00] that if you don't tip, this fee gets automatically added. Now, I think it's pretty clear that wouldn't qualify as a tip, but as a consumer, um, check your bill.

Annie Schwab: Look at your bill closely.

Roger Harris: Yeah, because I saw one instance where the no tip fee was added and the person caught it, and in the tip box put a negative because they didn't want a tip for whatever reason.

Annie Schwab: For whatever reason.

Roger Harris: I don't know why, but they didn't want to leave a tip. So when that fee showed up, they went into the tip line and put a negative to offset [00:11:30] it.

Annie Schwab: So interesting. So always have to be more careful. I know.

Roger Harris: Don't just swipe your credit card, tap it and move on.

Annie Schwab: And move on.

Roger Harris: Pay attention when you're tipping to see what else is there they're making. They may be all kind of little fees hidden that are called something else. Again, most likely those fees aren't. Can't speak across the board, but they're not voluntary, so I don't think they'll qualify for any of the the tip benefits that that we're talking about.

Annie Schwab: Yeah I agree it's going to be a little tricky to kind [00:12:00] of navigate through that. But I think 2025, we're just kind of rolling the dice doing the best that we can. Yeah. 2026 hopefully the the we'll have some structure. So it'll be a lot easier um, to take a, you know, to determine what's, what's accurate and who's responsible for handling those things. You know, is it the employer. Is it the the waitress. Is it the tax preparer. You know, who's got the burden. So um, for this year, I guess here we are.

Roger Harris: Yeah, [00:12:30] here we are. And we're going to I mean, this is a podcast, obviously, but it's also something you can see on YouTube. And uh, we're going to Annie's going to show some slides here that obviously if you're listening to us while you're.

Annie Schwab: Driving, Don't do that.

Roger Harris: Driving or running. You know you're not going to be able to see it anyhow. So we'll try to explain it and make sure you understand it. But again, if you really want to see the handouts, because some of these are things we've seen, you know, and you know, some suggestions on maybe what you [00:13:00] should look for. Uh, you can go, uh, look at the podcast on YouTube and actually see the slides. So, uh, kind of a little prep, don't be shocked if you hear us referring to something. And obviously if you're listening to it, you can't see it. Well, describe, I guess, any what's on the screen for those that are in their car. Um.

Annie Schwab: Right. So I have a W-2 here. Um, there's nothing, uh, in the tip box. But however in box 14, there [00:13:30] are two codes. One says qualified overtime for 400 bucks, and the other one says qualified tips for 100 bucks. And so what? You know, what are we supposed to do with that? A client brings this to you. They say, Yeah, I mean, I had a little bit of tips. Yeah, I had a little bit of overtime. But we've got these two numbers here and we're not sure exactly how those numbers were calculated. Um, we would look at box seven obviously for the tips. Um, but if that [00:14:00] tip number in box seven doesn't match $100, which is in box 14, why is it different? Uh, are these in addition to are these, you know, how big are the discrepancies. So again quest, you're going to have to question, perhaps ask for a pay stub. Um, to try to figure out if. Can I just go with this. Do I just put these numbers I can just run with, um, and maybe they are and and and maybe, you know, a simple conversation with the the client would [00:14:30] make this more clear. But, you know, given just these two, um, qualified overtime and qualified tips, you know, it's not cut and dry.

Roger Harris: Yeah. I mean, and these are things that we've seen now, you know, again tips. The first thing you can do is what kind of business is it? Is it even a qualifying business where the tips matter? Um, you got to question why it's here, but not in the tip box on the W-2. If it's a real tip, um, we're going [00:15:00] to find a lot of things that we have to go back to the employer and talk about, you know, this year, because of that, um, we'll get to the overtime in a second. But I guess if that was presented to me, the first thing I'd do is I'd see what kind of business it is. If it's, say, let's just make it obvious it's a hairdresser. So tips are likely. Yeah, I'd still want to know. Is that all you got? Why isn't there anything in the tip box on the W-2? Because that's the place we can put reliance on.

Annie Schwab: Yeah, we did get guidance from the IRS that we. [00:15:30] It's okay to rely on box seven.

Roger Harris: So what does this represent? Does this tip I mean I'm assuming these are tips that came through the employer and went back out to the employee. And yet it's not in box seven. I don't know if that's going to cause any matching issues down the road, but if it's a hairdresser or a restaurant where the business is qualifying, you know, any, I guess I'd go with it. But, you know, I'm still not comfortable.

Annie Schwab: I'd ask some questions and maybe document, but, you know, without anything to say that this is incorrect, [00:16:00] I'd go with it too.

Roger Harris: Yeah. Now the overtime is a different animal because, um, there's no other place on the W-2 it's supposed to be.

Annie Schwab: Right?

Roger Harris: So I think, you know, you know, I guess the first question, let me step back before we address this, because here's the first question I'm dealing with. So if every taxpayer comes to you and they don't bring up overtime, should we ask them, do they have overtime?

Annie Schwab: I do, I think so it's part of our organizer. So our questionnaire that we send [00:16:30] out to our clients. And I think it begs the the question to open the discussion. Um, especially if there's a client that you know, is in, you know, an industry that's overtime is common, I would ask.

Roger Harris: Okay. So we're going to ask every client that comes in. For some this may be the first time they've ever heard about it. You know for others because there's going to be I think clients are going to come in and either ask about it because they say they have it or they're going to not even mention it. And then we bring it up. And again, this [00:17:00] is where if if there's nothing there, the client says, well, yeah, I think I worked overtime. Then we got to send them back to the employer in my opinion, for some, some additional even if there's numbers here, you know, this would be true. I think in some instances, even if they put this number like you're showing on this W-2, that someone just saying, yes, I worked overtime. And here's a number. Are we comfortable that that's as far as we need to go.

Annie Schwab: I [00:17:30] think I would ask for at least you know, do you get paid time and a half? Um, you know, how often do you work overtime? You know, this says $400 of overtime, so that can't be that much that many hours. Um, I think I would just do a smell test for reasonableness, like, oh, what are your normal hours and how often do you work overtime? And is this time and a half and what's your hourly rate? Um, and kind of just give it a little smell test. [00:18:00]

Roger Harris: Yeah. Because remember, it's got to be overtime consistent with the Fair Labor Standards Act. So the first, you know, so you should at least ask, is this based on more than a 40 hour work week. Is this based on time and a half that it's not some other number based on an overtime calculation in that business that doesn't match the Fair Labor Standards Act. So I think you have to ask some basic questions. And I think something Annie just said is important. You can almost do a quick math test to kind [00:18:30] of see if it seems reasonable, like, okay, so you know what, your hourly rate. Let's keep it simple and say you work in the same place all year. You don't have 27 jobs, which would make it really tough. But let's assume you work in the same restaurant and they tell you I'm making $20 an hour, so $40 an hour, 40 week, 40 hours a week at $20 is 800. Whatever. 800 times 52 is is what I would be looking at as a base number. And then do they have more or [00:19:00] less than that on their W-2? They have less than that. Then I got to ask more questions because that doesn't make sense. If you work there and got paid for 52 weeks, if you had, you know more than that, then that might tell me that there's possible there's some overtime. But again, that's that would theoretically be the entire amount, not the.

Annie Schwab: Not the premium.

Roger Harris: Premium amount. So you know, you can do some, some math test if you have a simple case of one employer for the whole year and a steady hourly rate. I mean, if they if their hourly rate [00:19:30] changes during the year and, you know, they got multiple employers, that's not going to be. But I think we're going to have to ask some questions. So, um, Um, I guess the first thing I would do would ask that I'm speaking for me here, Andi then you speak for yourself. If I saw this W-2 with a $400 of overtime on it, I would at least ask them to go back to their employer and acknowledge that they got paid overtime. I don't expect the employer to know the amount. Well, they came up with 400, so at least I might ask them. In this case, well acknowledge [00:20:00] that this person did receive overtime. And how did you calculate that it was $400? Yeah. See what they can bring me because I think that would help me. And then if they don't and the employer says, I gave you the W-2, that's all you're getting. And I'd go with gut feel.

Annie Schwab: Yeah, I think I'd go with it. So all right, next one I'm gonna move my screen here. Um, hopefully you guys will be able to see it. Um, so we've got another W-2 here. Um, in [00:20:30] box 14. This time the W-2 says O premium. So the first one we talked about said qualified overtime. This one says OT premium. Um, and in that case, you know you're looking at, you know, a different terminology, same box. Um, and if you look at so basically this is like a client comes to you and they say, hey, I'm getting am I getting back the full $2,000 that's listed here as overtime [00:21:00] premium, or am I getting a portion my full my full overtime pay for the year was 6900. So the the client has some detail. The client is saying, you know, my full overtime pay was $6,900. Uh, am I going to get back my $2,300 noted here in box 14? Um, and this one is is pretty easy to kind of figure out. Basically, what if you got $6,900 [00:21:30] as overtime and they say it's time and a half? If you divide that number by three, you get $2,300, and the W-2 here says 2,304.26. I mean, that's pretty close, right? I think I would I would personally go with this one. I also think the term premium, that's the term that's used, um, and the Fair Labor Standards Act. And I feel like if you're coding something as a premium seems pretty legit that they know what they're doing. Um, again, [00:22:00] you know, a quick test over. Oh, you got 6900. Here's the premium divide by three. Reasonable to me. Um, I don't know. Would you ask more questions, Roger?

Roger Harris: You know, I'll make sure I document, you know, when they give me these answers. This is why the organizer is important. And hopefully that your organizer helped you capture the numbers that you just gave us, you know? Yeah. The full overtime was 6900. The premium amount was this again. It's coming. This is coming from the employer. Uh, so it's not the client self-interest [00:22:30] being served here or the taxpayer. Uh, and again, if it's a large company that has the wherewithal to understand all this. Again, I hate to say this, but some mom and pops putting information out. You know, I might question a little bit more. But again, I think the key thing is that the organizer or something documents that you ask these questions. You came up with these numbers. Uh, I think they're going to be leaning on us as well as the taxpayers, as long as we've made some reasonable attempt [00:23:00] to to do this. I mean, if it if the total overtime was 3000 and the premium was 2600 or whatever, then I might, you know, have a pause. But this seems to pass the smell test. So yeah, I'd go with it, but I'd like to have these, you know, everything in my file, you know, so I can, uh, say this is what I did to prove that this was reasonable. Because I think reasonability is, as far as we can go this year, proving something down to the absolute t absent of something coming [00:23:30] from an employer that showed everything, uh, is going to be impossible.

Annie Schwab: Okay, we've got another one here. Um, again. Box 12. This time the description says um. 0bbb overtime. So ob ot and it's like 800 bucks, right. Um, we're, we see the wages, total wages of like 21,000. But this is really [00:24:00] all the detail, um, that we, that we have um, on this one, I would definitely ask some questions. Um, I know so the, the overtime is like, I don't know, less than 3% of the total wages. I mean, it's not a huge number, but perhaps like a pay stub or something where you can determine is that the full amount, is that the premium? Um, kind of. How did they come up with that number?

Roger Harris: Yeah. And maybe the employer, you know, [00:24:30] needs to chip in here again. I think anytime the employer has put some number on a W-2, they should have some sort of backup information that, you know, they could share with us to help us know, you know, what this number represents, because I think this tells me the employer is trying to do it the right way, whether they have the right understanding or not. It's a different story. So again, I think we're going to be sending our clients, our taxpayers back to the employer a lot, you know, this [00:25:00] year. And that's just an unfortunate reality given that we have retroactive and no reporting. So yeah, I mean I feel I feel pretty good anytime it comes from an employer on a document like a W-2 or some separate document, whatever it is. But I still might want to ask some questions, because we're relying on the knowledge of the employer and their payroll provider to to make this the right number or the right number under the law. I don't I'm sure that number [00:25:30] is backed up somewhere, but I don't know if they know what they're doing. Maybe the. The big risk is that they put all overtime on the W-2 two the full amount without understanding that, because the way it says no tax on overtime is a little bit misleading, if that's all you know. First of all, there is taxes payroll taxes on it number one. So it's not no tax. And secondly it's not on all the overtime. It's on the premium overtime.

Annie Schwab: Exactly. That term that that portion um is what you're looking for.

Roger Harris: Yeah. So. [00:26:00]

Annie Schwab: Uh, a couple more here. Um, we've got this is just an earnings statement. So it's for the last pay period of December. Um, and so I'm looking at an earnings statement where it indicates that the regular rate is 30 bucks. So you get paid 30 bucks an hour. Um, your PTO rate is also 30 bucks. That doesn't really come into play here. And it says your overtime rate is $45. So looking at [00:26:30] that, I would agree your overtime is time and a half. The 30 plus the 15 is the 45. And we see some calculations here basically indicating that they're calculating the overtime for the period. So the premium is the 15 bucks. And it says they have overtime of three hours. So my calculation would be the 15 times three which is $45 of qualified overtime premium. So it's not [00:27:00] all 45 times three hours of overtime. That's the total overtime. But it's the difference between the regular rate at $30 and the overtime rate at 45. The difference is 15 times the three hours gives you 45. Would you agree?

Roger Harris: Yeah. And I think what I would hope is that when they get their December pay stub that we have these year to date numbers now, we're not going to be so lovely. You know, we're not going to have all the hours and everything. But I think in this instance if I saw an [00:27:30] individual pay stub that looked like this. And then I saw some year to date numbers where at least it told me the total amount of overtime. I think this would be a place where I'd be comfortable with the dividing it, you know, by three example. They gave us the dividing it by three, because I've seen an individual pay stub that gives me the impression they know what they're doing. They're doing it the right way, that it's Fair Labor Standards Act. And then I could take that total overtime number on my year to date by December 31st [00:28:00] pay stub. And I feel pretty good about that.

Annie Schwab: I'd go with it.

Roger Harris: Yeah, this is probably the best we could get in a year with no requirements to do anything, because they're showing us what they're doing on a month. Now. I'd hate to have to add up 52 of those, but.

Annie Schwab: Well, hopefully, hopefully you've got a year to date running total. And they've been treating it the same way throughout the entire year. And so that you could go with it. Yeah.

Roger Harris: Yeah. Because remember if they can only bring you weekly pay stubs and you got 52 of them that somebody's going to have to pay for that. Time to go. [00:28:30]

Annie Schwab: Calculate.

Roger Harris: Those 52. Uh, and I would probably tell the client my hourly rates are a lot higher than yours. So if you want me to do it.

Annie Schwab: Yeah, right.

Roger Harris: I'm happy to do it. But you're paying my rates. If you go home and you do it and bring me the totals, then I might save you some money. Uh, but, uh, hopefully they'll have a year to date.

Annie Schwab: Yep. Um, here's another example again. It's, uh, a pay stub, uh, for December, the last month of December. [00:29:00] Um, and we've got, we've got clearly provided the, the regular pay rate of 22 bucks. Um, so if we have that as a, as the pay rate, um, what we would have is half, you know, time and a half would be 33, 22 divided by two. Time and a half you get 33 hours. And here they're calculating the 33 hours, I'm sorry, $33 as the amount that is the total overtime. [00:29:30] So if the regular rate was 22, the overtime rate is 33. The difference is $11. So that's your premium times the hours of overtime, which gets you close to like 600 bucks. So that would be my calculation, which is not what is shown on the stub because it's taking the full 33 times the hours. So I would think you would have to back into the qualified overtime premium.

Roger Harris: Right. And that's why I said [00:30:00] overtime is going to be more challenging I think, than tips, because what some people call overtime versus premium overtime versus qualifying overtime versus, you know, that's where we're going to have to be careful to, to try to understand the terminology that someone's using. What does that number represent? And see if we take the number on the W-2 at face value, or if we have to do some digging to figure out what, how much of that number would would qualify? And, um, again, [00:30:30] that's just the problems that happen when you make things retroactive. And it required record keeping that no one knew they had to do. Uh, for part of the year. And no one really switched, you know, midstream, to my knowledge. Well, maybe some did, but for the most part, if you didn't have it for the first six months, it didn't do you a heck of a lot of good to change your systems to track it for the last six, because you still were stuck with the first part of the year. So it's just one of those unfavorable [00:31:00] and unforgettable consequences of, uh, retroactive tax law. It's great for the politicians. It's lousy for taxpayers and tax practitioners.

Annie Schwab: Yeah, exactly. All right, let's do one more and then we'll move on to to something else. Um, this one's kind of interesting. Again, a W-2. We've got, um, in box 14. What it says is 1.5 times over time and underneath it. And it gives you a number of like $20,000. And [00:31:30] then underneath it, it says two times over time and it gives you like a $300 number. So here they're saying obviously this they're calculating time and a half and then they're calculating double over time. You've got two different figures here. Um total wages are around 60,000. And it's saying that time and a half was 20,000. To me that's a big chunk. Um, so I'd have to I would probably ask for a little bit more detail. Talk about, you know, this time and a half of, you [00:32:00] know, 20 grand. Um, I would divide that number by three, assuming it's time and a half and go with the third of it, that that would be my hunch. I think 20,000 compared to 60,000 is too big. It says time and a half. I would take that number and calculate the premium by dividing by three.

Roger Harris: Yeah, I think that's that in this instance, that's kind of what makes sense. I think there may be some where you really can't tell, you know.

Annie Schwab: Yeah.

Roger Harris: And so the question [00:32:30] is what do we do when there's again, we don't I'm not going to get any more information than what we have. The number that we're given is reasonable, but it's not distinguishable as to what it is. And so you're sitting there with your client, and you know that if you take a third of it, everybody's safe, but the client wants to take it all because they say it represents the premium. What do we do in that instance? Um, I think that's going to be a challenge. And I think that's going to happen [00:33:00] to us at some time this year that they're going to say, no, no, I know that's the premium amount. And again, the W-2 in and of itself says that's possible, you know, doesn't tell you that it is, but it tells you it's possible that the, the wages and the hourly work out. I think, you know, the question there is, do we protect ourselves and say, I'm only going to take a third of it because I think that's better for me. Uh, are we going to give the client what they want and take it all? And if so, [00:33:30] how do we document that? I think that's going to be a challenge. And I'm going to speak for me. And you speak for, first of all, it's the client's tax return.

Annie Schwab: Yeah.

Roger Harris: They're taking a bigger risk than we are, if I can reasonably believe what the client says and the client understands the ramifications, if they're wrong.

Annie Schwab: That's the point.

Roger Harris: And they will document the fact that they are representing this is correct. And it's again and it passes us reasonable [00:34:00] smell test again, then I'd probably take it if the client, you know, felt that strongly about it. But if uh but again everybody you all have to make your own call on that one. That's how I do it. And you say what you would do.

Annie Schwab: Yeah. No, I would divide by three. I would, they would have to show me that a third of their total wages was qualified overtime premium and I'm not sure that would pass a smell test unless they had additional documentation, but I [00:34:30] either. Whatever we both we both agree. What I would like to talk about real quick is the two time overtime. So Fair Labor Standards Act does not allow for double overtime pay to qualify as the premium. The 0.5 is, but the part that gets you from 1.5 time and a half to two times is not right. So that's going to take a little bit of calculating, um, to determine what [00:35:00] portion of what they're saying of two times overtime. So let's say 300 bucks is their double overtime. You would need to back into what the premium amount time and a half would be.

Roger Harris: Yeah.

Annie Schwab: So a little bit of work for this one for sure.

Roger Harris: One other scenario I think we could possibly face this year. And we'll talk about what we would do in that situation. Someone comes to us and says, I get paid $1,000 a week and I work 60 hours a week. I want to claim overtime [00:35:30] now. Um, salaries under the Fair Labor Standards Act addresses who can be paid a salary because most people historically, before now paid, tried to pay people salaries to get out of paying them overtime. Uh, that they wanted to base their weekly salary near certain responsibilities of managing of people and things like that. Well, now the tables have turned. Those people who got salaries now [00:36:00] wish they were paid hourly and got the same amount of money, so they could deduct some of that. But again, if they qualify as a salaried person under the Fair Labor Standards Act and there is no overtime. Correct. It's there.

Annie Schwab: Hasn't changed. That's been.

Roger Harris: Still there. So yeah. Just because somebody wants to claim overtime, uh, and they're paid a salary and they work more than 40 hours. I can agree with all those statements. Yes, you work more than 40 hours, so you're working overtime in the sense of a 40 hour workweek. But you qualify as a [00:36:30] salaried person, and therefore it's perfectly legal for them to pay you a salary. And at least as of today, based on we've seen, no guidance that says you can impute overtime into a salaried person's paycheck and deduct it. So but I expect somebody's going to come in and want to do that because I don't doubt they work 60 hours a week.

Annie Schwab: Absolutely. But yeah, it's not that. It's that your profession doesn't qualify for that calculation.

Roger Harris: Right. So you know, whatever you're doing, you [00:37:00] or you've got to admit that you cheated the system for all the years up to now that you really didn't qualify as being a salaried employer, I mean, employee. And yeah, that's right.

Annie Schwab: I'm not I won't be surprised by that either.

Roger Harris: No, because then they probably do owe you more because I can tell you what the what the wage and hour people would do in that instance, they would assume that that thousand dollars a week is your 40 hour a week salary, and you're going to be the employer is going to owe you some more money, and then you're probably you might get some more money, but you're probably going to lose your job.

Annie Schwab: Yeah. [00:37:30] It's not going to go well for you.

Roger Harris: It's not going to end well.

Annie Schwab: No, no, no. Well, I do hope um, I know we usually don't screen share and all that. Um, I do hope that was helpful to kind of walk through some, some examples, um, and hear sort of how we would handle the questions. We would, we would ask um, hopefully your, your having some cut and dry scenarios, but if you get a weird one, um, come back and listen to the podcast, view the, the screenshots. And if you agree with Roger and I, [00:38:00] um, hopefully we helped you out.

Roger Harris: Yeah. And again, I don't I think you can tell from this podcast we're not saying that there's a right or wrong answer. Every situation is going to carry a slightly different set of facts. You know, there's going to be potentially to the ability to get more information in some cases, not in others. You know, there's just a lot of factors that are going to come into play this year and we're going to have to deal with it. And, um, I think we have to make sure we can show that we did a good job of trying to comply with the rules and the law. [00:38:30] And I think if we do that, the service, though, they haven't said it to us, they've said it to employers and they've said it to employees. They're going to be lenient. I think they'll follow those same guidelines with us and we'll be lenient. But we have to show that we made an attempt to, uh, apply the law properly and not just take on face value, any number that somebody throws at us.

Annie Schwab: There's some due diligence requirements.

Roger Harris: And how much you have to do and what you have to do will be different. And again, remember when you [00:39:00] and remember when you're calculating your fees, you didn't ask for this. This is this is something that, you know, uh, Congress passed, the president signed. It will ultimately help the taxpayers if they able to to not pay tax on some of their income. But that doesn't mean we have to do all this for free. So your fees should reflect the time that you have to spend to calculate or verify or make yourself comfortable. And the [00:39:30] client should know that, you know, they're still going to get a whole lot more. If they get well, they won't if you give them the answer they don't like. But that's that's too bad, you know? Um, so just remember, your fees this year have to reflect more than because you probably a lot of you probably charge by form. So this is just something that goes on a form. But if you had to spend five hours to figure out what to put on that form, uh, that perform charge probably isn't going to reflect that.

Annie Schwab: Yeah, sure. All right. Well, [00:40:00] we do have some time left, and I'd love to switch gears. Um, something that we haven't really dove into yet and on our podcast. And that has to do with meals and entertainment. And the reason I'm bringing it up now, um, even though we're in tax season, is because there have been significant changes on what's no longer deductible or 50% deductible or 100% deductible as it relates to meals starting in 2026. So [00:40:30] while it doesn't affect the current tax season returns that everybody's working on, it does impact, again, educating the clients on how to code certain things, educating your staff on on what to how to treat certain types of meals. So I'm going to go through a couple of examples. Um, and then um, hopefully this will at least shed some light on what's different, what's changed and then how to treat them.

Roger Harris: So like I [00:41:00] said, they're going to infect you. I bet you right now when some of these are made clear to you, you're doing them in your office today.

Annie Schwab: Oh for sure.

Roger Harris: Yeah.

Annie Schwab: For sure. Yeah. So again.

Roger Harris: A lot of publicity, but it's kind of.

Annie Schwab: I know I'm actually surprised that we haven't had more pushback on this. Um, so again, not related to 2025 tax return. This is 2026 starting in 2026. Um, there are these previously were 50%, um, deduction and now they're no deduction. [00:41:30] So expenses for the operation of an employer operated eating facility, for which the value of the meals provided to the employees is excluded from their income. That one I can kind of get on board with.

Roger Harris: Yeah, that would make sense.

Annie Schwab: Expenses for food and beverages associated with an employer operated eating facility. Kind of similar to the to the third, um, expenses for meals that are furnished on an employer's business premise for the convenience of the employer [00:42:00] and are excluded from the employee's gross income. That one, to me, is, um, I mean, it's the whole on the premise for the convenience of the employer. Um, so again, take that one with a grain of salt in my opinion.

Roger Harris: Yeah, because I'm sure a lot of you are doing that during tax season. You're bringing in lunch or dinner for your employees while they work. Yeah. Long hours.

Annie Schwab: Uh, exactly. Um, okay. So [00:42:30] then let's jump to the 50% deductible. Um, some of some of these, some of these are, you know, no changes, but, uh, business meals with employees, clients, customers or business associates, you know, you got to document it. Purpose of the meal, those kinds of things. Meals while traveling away from home on business. Again, using kind of this per diem rates or some sort of calculation of meals away from home, meals at business meetings, but not the on site cafeteria. So if you go rent [00:43:00] space or something and bring in business meals, um, meals at entertaining entertainment events. Um, you'd have to be able to break out the difference between, you know, all of the charges for this entertainment event. What portion is actually related to meals? Um, so again, those those I think are very common. Um, I wouldn't I think that's probably more self-explanatory.

Roger Harris: Yeah.

Annie Schwab: And then our 100% here, um, meals treated [00:43:30] as employee compensation, um, or as income to non employees. Meals provided at recreational social events. So that that still remains at 100%. Meals provided to the general public and then meals sold to customers or provided by restaurant employees. So let's look at a couple of scenarios here. And we can kind of walk through them. Roger, I think it's easier when you when you look at something in a specific scenario. So dinner [00:44:00] for employees while working late at the office. Um, that's a zero.

Roger Harris: Right.

Annie Schwab: No deduction a 50 that that's a zero.

Roger Harris: Now you can pay for it, but you can't deduct it.

Annie Schwab: Right?

Roger Harris: Yeah.

Annie Schwab: Lunch ordered in for staff during a meeting or training. Again, that one used to be 50. Now it's zip. It's zero. Um. Meals treated as employee compensation. That one's still at 100%. Here's [00:44:30] a good one. Airport meal during a trip to meet a client. 50%. Yep. That's coffee and snacks in the break room for employees. This one I know. Especially. You know, what's you throw all kinds of snacks and drinks and coffee and stuff in the cabinet. So employees, you know, if they get a little hungry, they can grab a snack. Uh, that is at 0% now. So that's probably one that most of the listeners are doing.

Roger Harris: Yeah. And that's the one that kind of what are we trying to get here? I mean, so [00:45:00] most of us have coffee in our break room that the company provides, and we don't charge the employee to come in there and make a cup of coffee. Um, I guess I'm not saying we know the answer to this, but let's say every time you come in the break room, make a cup of coffee. You got to leave $0.50. Yeah. Uh, first of all, who's going to police it? And who do you do all that. Right. Would that make it deductible because the employee is paying for it? Or do we have to say, [00:45:30] well, what's what's a cup of coffee worth.

Annie Schwab: Well, and put it into employee compensation. Right.

Roger Harris: Yeah. And if I go to, uh, Starbucks and pay $7 for a cup of coffee versus, you know, does that mean they're going to cut off my coffee in my hotel room or, you know, I'm just I'm just trying to understand. I know this has probably raised some money to help pay for something else, but, I mean, come on. I mean, yeah. Uh, I think generally speaking, what most of us are supposed to do now is if we provide coffee in the break room and we pay [00:46:00] it to standard coffee service, then that's not a deductible expense, right? We can still do it, but we just can't. Can't deduct.

Annie Schwab: How would you apply that to, you know, fill in your water bottle? I mean.

Roger Harris: Yeah, I mean, the whole thing just no snacks are different story. I don't know how many. I mean, I know here we provide coffee for our folks. We don't have food, you know. Well, we only have food if somebody sends it to us.

Annie Schwab: Yeah.

Roger Harris: You know, like, if somebody is going back to Mardi Gras, if somebody sent us a king cake today, we just stick it in the conference [00:46:30] room and let people have at it. But I don't know that I'd worry about I don't know. First of all, we don't have a deduction to claim somebody gave it to us. But but the coffee that we provide for most of our staff now, technically we should not deduct. And I'm assuming that means the coffee, the cups, the.

Annie Schwab: Creamers.

Roger Harris: The creamer, the whole the stir sticks, everything you know is not deductible. But then what happens, like we do when we have guests visiting us and we're trying to get [00:47:00] them to join our company and we provide them with coffee. Does that put it in a different category? Well, nobody nobody's going to track that, you know, no cups of coffee. Did the guest drink the staff, I mean but but again, I'm just I'm questioning this is one of those things. It's like really I mean, why did you go here.

Annie Schwab: How much it so much.

Roger Harris: How much money are you going to raise off of taxing the coffee in the break room for companies? And just there should have been a de minimis amount at least, that you.

Annie Schwab: Could actually that would have been a great idea. [00:47:30]

Roger Harris: Yeah. You know, if you spend more than $100 a week, then it's nondeductible I mean, something, but I don't know. This is the kind of stuff that irritates me that somebody sat in the back room and they were trying to get something else in the bill and said, well, you know, we need we need to raise some money. And somebody said, well, if you tax coffee in break rooms, you can build a nuclear plant or something, I don't know.

Annie Schwab: Right, right.

Roger Harris: And so we got it.

Annie Schwab: Well, I mean if the big takeaway and I'll go through [00:48:00] two more because these are also very common. You know, if you, if you, um, go to a restaurant with a prospective client, that's still 50%. Um, if you if you catered dinner for, like, your employee holiday party, that's still 100%. So not everything has changed. But I think the real takeaway on this is okay for 2026, we need to talk to our clients about, you know, educating them on the different types of deductibility [00:48:30] of meals. I don't know if that's a client letter or you record a short video or you send an email, um, maybe do something like a decision tree, like if if you fall into this category, this is where it goes. I do suggest having a chart of accounts where it's 50%, 100% deductible or nondeductible. Start training them to code those things properly in your chart of accounts so you're not fishing through receipts at year end trying to figure out, well, where's this supposed to go? Um, I think it's just I think it's the takeaway [00:49:00] is better documentation and communicated earlier in the year. The same thing with tips and overtime treatment is going to be different in 2026. We're in 2026. Let's not wait until the end of the year. And we're trying to, you know, figure out what happened and where did all this, you know, where did this land in your balance sheet or your income statement and, um, really get ahead of it before you get too deep in the year?

Roger Harris: Yeah. Because I think most of us probably for years we had that. I don't know if it was one year, you know, post Covid when they were trying to encourage people [00:49:30] to go to restaurants and go.

Annie Schwab: To restaurants.

Roger Harris: They gave you a 100% deduction. But for the most part, we've just piled everything into a meal and entertainment and took half of it and moved on. So now literally we're going to have to track the coffee different than the taking a client out and things like that. So it's going to be a little more record keeping, a little more things there, or you just make the decision, it's not enough. I ain't claiming any of it and you just want to count. It all goes in meals and entertainment. None of it's deductible. And you know, again, [00:50:00] client has to decide the benefit of the deduction versus the record keeping that they have to put into place to get some amount of a deduction. And because my position is going to be if you don't keep the records and tell me how to do it, it's all Nondeductible Nondeductible.

Annie Schwab: And that's I mean, that's why I think talking to the clients earlier in the year just makes it that much easier. You know, they get to June, July, August and you're like, well, heck, I haven't done it all year. Why start now? I'll just start in, you know, 27 [00:50:30] or something. Yeah. Um, so I do I do think it it's a good talking point.

Roger Harris: Yeah. Well, it's something you need to talk because I don't know how much this is. Some businesses. This might be a lot of money, I don't know. Yeah.

Annie Schwab: Yeah. Um. All right. Roger. Well, we're getting to the top of the hour. Um, there was just a couple of things I wanted to remind folks of. Um, this year, the IRS is phasing out their paper checks. I'm sure whatever software you're using to prepare tax returns, you're getting reminders [00:51:00] or diagnostics or something that's telling you make sure you enter a bank account information. Um, this was something that came out in September of 25. Um, it did get I think it got a little bit of publicity. I don't know if the, you know, from the taxpayer sense. I'm not sure they are aware that they're not going to get their refund if they don't put in a bank account, um, unless they meet some of these hardship exceptions. Um, but what I do want [00:51:30] to remind everybody of, if you file a tax return for someone and you don't put a bank account information, let's say your software lets it go through, the IRS is going to send a notice and it's going to tell the taxpayer, hey, we can't send you your money until you log into your online web account and enter your banking information and then or indicate that you have a hardship.

Annie Schwab: And we'll go check your account in the next 2 to 4 weeks, and then we'll process your [00:52:00] your refund. However you indicate whether you put the banking information or you meet an exception. So it's just going to be delayed processing. So I just I encourage you there. If you don't if you have a client that's not a banking client, go get a bank account or use IRS direct pay. Um, there's some EFT that can be used. Um, I know that they've already put out some like debit credit card type things, um, that you can get. So encourage [00:52:30] your clients to, to pick an avenue where the return gets processed when you, when you e-file it and not go back and forth with, oh, get the notice log in here, enter the information. Hopefully they got it. Now you're waiting weeks just to get the refunds. Just avoid all of that and handle it before you file the tax return.

Roger Harris: Yeah. And go ahead and just and make it a routine because to Annie's point you're going to delay the refund significantly if you ask them to send you a [00:53:00] paper check because they're not going to. So we're going to have to jump through hoops. You just we need to make sure we have bank accounts on all of our clients, even those that oh, because you can still send a paper check to the IRS.

Annie Schwab: Currently.

Roger Harris: Currently. But we don't know how long that will even last. So you might as well go ahead and get ahead of the game. Get a bank account for everyone each year. Verify that bank account still relevant and active and correct, and it'll get you refunds to you quicker without the hassles. And they [00:53:30] still can pay on April the 15th.

Annie Schwab: Oh yeah.

Roger Harris: And it just doesn't it just you know, we just got to break some habits of I like to write them. You know, the funny one is I like to write them a check. I don't like to give them my bank account information. Well what do you think is on the check. You mail them. So. Yeah. Yeah. I mean, that sounds like. Yeah, I don't want them to have my bank account information. Well, they got it, right. Yeah. Trust me, they got it. So again, spend a little time up front making sure this year if you don't have a bank account for your tax clients, get one whether they owe or not. Put it in the [00:54:00] system. It'll stay there because sooner or later it's going to save you a whole lot more time than the fact that you got it, than if you ignored it and have to chase it down in real time.

Annie Schwab: For sure. And I understand that that's kind of a, you know, probably should have put it on your organizer before they went out. And most of your organizers are now out, but it takes a simple phone call to get that information, and it'll save you a lot of headache at the same time.

Roger Harris: Yeah. Again, just it's just it's just the fact, you know, right now, uh, [00:54:30] and I understand why they don't want to send out paper checks, and there's fraud. There's time, there's cost. There's all kinds of things. There are exceptions. But again, that's not going to speed up your refund trying to qualify for an exception.

Annie Schwab: No. Well all right Roger. That was all the stuff I had for today.

Roger Harris: Well that was again it wasn't new topics, but hopefully it was a new twist that you guys, you know, enjoyed and some real world. And we're going to continue to monitor how tax season goes. And [00:55:00] you know, you know, report what we're seeing and hearing as we move forward. Um, like I said, I would say so far I'm cautiously optimistic about how things are going, which could change tomorrow. You know.

Annie Schwab: Of course. Well, I hope that your tax season, everyone's tax season is going well. You're taking time for yourself and and, you know, talking slowly with your clients and use patience because they're going to have a lot of questions this year [00:55:30] with a lot of new things. You probably have extra phone calls and emails to respond to, but hopefully everything is off to a good start for you and we will continue to come back with additional topics updates. Um, so keep us in mind as you navigate through tax season. Take a take a listen. And, um, that's all I have today. Roger.

Roger Harris: Well, Annie, thank you for, as always for for joining me and putting a lot of effort into preparing this stuff for this. And thanks to all of you for listening. Uh, we're [00:56:00] very appreciative of all of you that have listened. We got to see some numbers on how many people have listened to our podcast in 2025, and we can't thank you enough. We hope that you will continue to listen and tell your friends if you're, um, have people who don't know about this podcast and send us some suggestions. If there's topics you'd like us to cover, we would love to. We're doing this hopefully to be relevant to you, not to us. So if you've got something you want us to talk about, let us know and we'll do the best we can. And continued [00:56:30] success during this tax season. Good luck to everyone. Uh, hope you enjoyed today's podcast. We'll be back in a couple of weeks with another one. Again, Annie, thank you for all you do. Thank you for listening. Have a good day and we'll be back soon with another federal update podcast.