A tipped worker’s 2025 Form W-2 won’t show a separate tips figure anywhere on it — the box that’s supposed to carry it wasn’t updated in time for the law that created the deduction. A family opening a new children’s savings account faces a similar gap: the form exists, but exactly who’s allowed to sign it depends on rules that are still, in places, only proposed. Two new pieces of the One Big Beautiful Bill Act (OBBBA) illustrate the same pattern practitioners will keep running into through 2026 and 2027 — real, current law layered on top of paperwork and guidance that hasn’t fully caught up.
The Qualified Tips Deduction: A Deduction the 2025 Forms Can’t Show
New IRC §224, enacted by the OBBBA and effective for tax years 2025 through 2028, lets an eligible individual deduct qualified tips received during the year, up to $25,000, phasing out starting at $150,000 of modified AGI for single filers and $300,000 for joint filers. It’s claimed on new Schedule 1-A attached to Form 1040 — and it’s a deduction from AGI to taxable income, not an above-the-line adjustment, so it doesn’t affect any AGI-based phaseout elsewhere on the return. It also changes nothing about the underlying FICA or self-employment tax on that tip income, which remains fully taxable exactly as before.
The catch for the 2025 filing season: neither the 2025 Form W-2 nor the 2025 Forms 1099-NEC, 1099-MISC, or 1099-K were revised to separately break out cash tips or occupation. IRS Notice 2025-69 bridges that gap with transition relief — an employee may substantiate the deduction using Social Security tips in Box 7, total tips reported to the employer on Form 4070, a voluntary Box 14 entry, or unreported tips from Form 4137, while a non-employee relies on daily logs, POS reports, or other contemporaneous records alongside whatever 1099 was actually issued. That relief covers which statement satisfies the law’s documentation requirement — it doesn’t relax the underlying §6001 recordkeeping burden. A preparer accepting a client’s round-number tip total at face value, the way a W-2 wage figure might reasonably be accepted, is treating an unverified number as if it carried an information return’s reliability, which for 2025 it typically doesn’t.
A Worked Example: Two Tipped Clients, Two Different Ceilings
A restaurant server with a W-2 reports $9,000 in Box 7 Social Security tips for the year — straightforward substantiation, no separate net-income limitation applies to a W-2 employee, and the full $9,000 is eligible for the deduction subject only to the MAGI phaseout. A self-employed rideshare driver keeps a daily log showing $11,000 in tips for the same year, but after ordinary business expenses and the deductible portion of self-employment tax, the driver’s net business income comes to only $7,500. Under §224(c), the driver’s deduction is capped at $7,500 — not $11,000 — regardless of how well-documented the larger figure is. The deduction can’t create or increase a business loss, and there’s no carryforward for the difference. Two clients with comparable tip totals land on different deduction amounts because one of them is subject to a net-income ceiling the other isn’t.
Trump Accounts: A New IRA Variant With Its Own Election Rules
Section 530A, also added by the OBBBA, creates the Trump Account — a type of traditional IRA under §408(a), established for a child under 18, treated like an ordinary IRA except for a defined set of special rules that apply during a “growth period” running until January 1 of the year the beneficiary turns 18. An eligible individual must satisfy three conditions together: a valid election has been made, the child hasn’t turned 18 by the end of the election year, and the child’s Social Security number was issued before the election — not merely that one exists by the time the account is opened. No contribution of any kind is permitted before July 4, 2026, regardless of when the account itself was established.
The election is filed on Form 4547, and who’s allowed to file it depends on whether it’s bundled with a separate pilot-program contribution election. If it is, the authorized individual is whoever anticipates the child will be their qualifying child under §152(c) for that tax year. If the initial-account election stands alone, a strict priority order applies instead: legal guardian, then parent, then adult sibling, then grandparent — with no skipping ahead. This ordering rule now appears in the current Form 4547 instructions and in proposed Treas. Reg. §1.530A-1, but the regulation remains proposed, not final, and the IRS has asked for comments on whether a different method should apply. A preparer should describe it to a client as the current operative rule, not as settled, permanent law.
A Worked Example: The Election That Files Successfully but Names the Wrong Person
A grandmother files Form 4547 for her grandchild, believing the family priority order makes her eligible since no legal guardian is involved. What she doesn’t check is whether either parent is available and simply hasn’t filed — the priority order runs guardian, then parent, then adult sibling, then grandparent, in that sequence, and a living, reachable parent sits ahead of a grandparent regardless of who’s more actively involved in the child’s care. If a parent later disputes the election, the grandmother’s filing may not have been made by an authorized individual in the first place. Because the IRS won’t process a second initial-account election for the same child once one has already gone through, getting the priority order wrong the first time isn’t something a corrected form can necessarily fix.
The Common Thread for 2026 Filing Season
Both provisions share the same practical shape: real, currently effective statutory law, paired with transition guidance or proposed regulations that are still being finalized around it. Treating Notice 2025-69’s transition relief as a permanent feature of §224, or treating the Form 4547 priority order as settled rather than proposed, risks giving a client confidence the current guidance doesn’t actually support. The safer approach is tiering every representation correctly: statute is binding, interim notices are reliable but subject to change, and proposed regulations remain exactly that until finalized.
UNICEI’s courses Schedule 1-A: Tips, Overtime, and Vehicle Loan Interest and Trump Accounts: Contributions, Investments, and Distributions cover both provisions in full — eligibility, documentation, and the practitioner traps in each.