IRS Draft Form Reveals Tax Deduction for Tips Lacks Marital Benefits
Nevada Congressional Delegation Urges IRS to Address Marriage Penalty in No Tax on Tips Provision
The Internal Revenue Service (IRS) has issued a draft form (Schedule 1-A) to summarise the new deductions from the One Big Beautiful Bill. However, the form has sparked concerns among the Nevada congressional delegation, who have expressed their worries about the marriage penalty in the No Tax on Tips provision.
In their letter to the IRS, Senators Masto and Rosen, and Representatives Titus, Horsford, and Lee, encouraged a taxpayer-friendly interpretation of the No Tax on Tips provision. They highlighted issues like auto-gratuities, the Gaming Industry Tip Compliance Agreement, joint returns with ITINs, specified service trade or business restrictions, and the marriage penalty.
The No Tax on Tips provision in the One Big Beautiful Bill is an income tax deduction subject to a phase-out and a limitation. However, the language in the draft form (Schedule 1-A) does not indicate that Congress's intention was for the deduction cap to be doubled in the case of a joint return. Consequently, the $25,000 limit in the No Tax on Tips provision is applied on an individual basis, not doubled for joint returns.
This shared deduction limit for married taxpayers results in the marriage penalty in the No Tax on Tips provision. The delegation's letter addresses this issue, emphasising the need for a fair interpretation that does not unfairly penalise married taxpayers.
Interestingly, the car loan interest deduction does not require joint filing, unlike the No Tax on Tips and No Tax on Overtime deductions, which require joint filing for married taxpayers. For the overtime deduction, the limit is $12,500 on a single return and $25,000 on a joint return.
The IRS draft form (Schedule 1-A) does not address these concerns raised by the Nevada congressional delegation. In Part II No Tax on Tips, Line 7 is set as the smaller of the amount on line 6 or $25,000. This leaves the marriage penalty intact for the No Tax on Tips provision, as discussed previously.
Members of Congress from Nevada, including Representatives Mark Amodei and Dina Titus, have intervened with the IRS to prevent excessively high tax payments for married-person income tax deductions. The delegation's letter underscores the importance of addressing these issues to ensure fairness and equity in the tax system.
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