At Around the Tax World, you can find out all about what’s going on in the wonderful, worldwide world of tax. Every month, we’ll feature a few mini-articles on what’s been going on in the world when it comes to tax, and fully available for viewing even if you don’t have a subscription.
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In The Headlines
Trump pushes back on foreign digital services taxes by threatening 100% tariffs. In a recent social media post, the president spoke against these taxes, which he views as intentionally targeting American tech giants like Alphabet, Amazon, and Meta. At this time, about half of European countries in the Organisation for Economic Co-operation and Development (OECD) have either implemented, proposed, or announced a digital services tax. In response, President Trump has threatened to retaliate with 100% tariffs against these countries and has set a July 4th deadline to finalize trade deals with the European Union. Previous tariffs introduced by the president were invalidated by the Supreme Court, so it is unclear which statute Trump would use as the basis for these new tariffs. After the Supreme Court rules against Trump’s use of the International Emergency Economic Powers Act for his April 2025 tariffs, the president imposed new tariffs under the Trade Act of 1974, but these only last for 150 days without congressional approval.
Job seekers rejoice: Hiring spikes for the second month in a row. In the U.S., the total number of job openings rose from about 7.59 million in April to almost 7.6 million in May. This slow-and-steady increase surprised economists, who largely predicted that available positions would decrease by 10% before the summer. Now experts are changing tune and anticipating an expansion of the labor market. Industries that are seeing especially large hiring spikes include construction, hospitality, leisure, manufacturing, and wholesale trade. However, a number of industries did see a decrease in job postings, such as health care, finance, and technology. Analysts note that these sectors are likely more impacted by A.I. adoption, whereas blue collar jobs that are not as affected are on the rise. Despite the fact that job openings are increasing, companies seem more hesitant to send out offer letters: May was the third month straight that the number of total new hires dropped.
The U.S. auto industry faces uncertainty as a major trade deal stalls out. The United States-Mexico-Canada Agreement (USMCA) has not been extended by its deadline and is now in danger of expiring. USMCA replaced the North American Free Trade Agreement (NAFTA) under President Trump, but now it seems that the administration is reconsidering the deal. This is expected to especially impact the automotive industry, which constitutes about 18% of trade between the U.S., Mexico, and Canada. In total, USMCA facilitates the trade of $2 trillion in goods each year. A central issue for the U.S. government is the “rules of origin.” This aspect of the deal determines what country a product comes from and which goods are eligible for perks like reduced tariffs or duty-free trade. The U.S. is expected to advocate for revised rules that would result in more of its vehicles qualifying for trade benefits.
What's New In The Tax World?
Could the federal gas tax be on its way out?
Fluctuating fuel prices have been a hot topic since the start of the war in Iran. As the cost of importing oil skyrocketed, local governments began looking for ways to offer relief. The most popular remedy? Gas tax holidays. A number of states have already suspended their gas tax for a season, including Georgia, Indiana, Kentucky, and Utah. A slew of other states—such as Alabama, Arizona, Connecticut, Florida, Maryland, New York, Pennsylvania, and South Carolina—have proposals pending.
Now the federal government may also be jumping on the gas tax holiday bandwagon. President Trump recently stated that he intended to suspend the federal gas tax, which stands at 18 cents per gallon. Combined with state taxes, the total fees come out to an average of 51 cents per gallon. This is a fairly small percentage of the average national gas price, which stood at $4.50 per gallon in June—50% more per gallon than prices at the start of the Iran war. If the federal tax was suspended, the average cost would still be 35% higher than before the war.
The next steps are ultimately up to Congress, which has the authority to amend tax law. Two similar bills, one in the House and one in the Senate, have been proposed that would suspend the gas tax. The downside? This tax provides the most revenue for federal highway and public transit programs. Suspending the federal tax would likely cost the U.S. about $2.5 billion per month. The proposed bills would use money from the general fund to offset lost revenue, but this could increase the federal deficit and introduce instability to the Highway Trust Fund over the long term.
Meanwhile, a number of states will see gas tax increases starting in July. For most states, July 1st is a regularly scheduled adjustment date, which means that state legislatures have to decide whether to pause the automatic increase or leave it in place. California’s gas tax went up by 2.2 cents per gallon, and Washington is just behind it with a 2% increase. Maryland and Nevada also had scheduled increases of 0.6 cents and 1 cent per gallon, respectively.
State-By-State Updates
California approves a tax on Trump’s “anti-weaponization” fund. Governor Gavin Newsom recently signed a bill that introduces a 100% state tax on any money received through this fund. The tax would apply to any payments received from 2026 through 2030. This tax was framed as an indictment of the “anti-weaponization” fund itself, which was created as part of the settlement of Trump’s lawsuit against the IRS. The $1.776 billion fund was designed to compensate individuals who claimed to be unfairly targeted or investigated by the federal government under the Biden administration. Now any California residents who receive a payout from this fund would have to pay the exact same amount in taxes to the state. However, this tax may never come into play—the fund was put on pause after being criticized by both Democrats and Republicans and is unlikely to move forward.
Illinois’ new budget package includes changes to corporate income tax, capital gains tax, and digital assets tax. The state recently approved a record-setting $55.9 billion budget for the upcoming fiscal year. This will be partly funded by over $800 million in new taxes. The biggest change that will increase state revenue is the extension of the cap on deductions for net operating losses. This will increase income tax for corporations who would have otherwise reported losses. Deductions will be limited to the greater of 15% of net income or $500,000. The state also introduced a new tax on social media companies with large user bases. This tax is expected to raise $200 million in yearly revenue. Illinois also approved a digital asset tax on major crypto exchanges, which will levy 0.2% of the value of the cryptocurrency involved. This tax is expected to generate $60 million in annual revenue. Lastly, the bill separated the state’s tax code from the federal tax code in order to tax capital gains on stocks from qualifying small businesses. This is also expected to raise $60 million a year.
New Jersey advances a bill to tax private prisons. A bill was passed by the Assembly at the end of June that would impose fees on the operators of private jails. Only two private detention facilities currently exist in New Jersey: Delaney Hall and Elizabeth Detention Center. Both prisons contract with U.S Immigration and Customs Enforcement and hold immigrant detainees. For this reason, the bill has been seen by opponents as an attempt to curtail the Trump administration’s mass deportations. Advocates of the bill say that it promotes accountability for prisons that may be attempting to profit off of these detentions. Delaney Hall was specifically reopened to accommodate deportations. The bill sets the fees at 8% of the value of the detention facility’s government contract and a monthly fee of $15 per inmate per day. In all, the new tax would generate as much as $16.2 million in annual revenue. Funds would go toward providing legal services for families of detained individuals and programs addressing food and housing insecurity and job training needs.
North Carolina may repeals its sales tax on certain baby products and feminine hygiene products. The House unanimously passed the “Tax-Free Family Essentials Act,” sending the bill on to the Senate. Included in the sales tax exemption are diapers, baby wipes, tampons, panty liners, menstrual cups, sanitary napkins, and other feminine hygiene products. The bill originally included prenatal vitamins and over-the-counter children’s medications, but it was removed due to conflicts with a regional agreement. North Carolina’s sales tax is set at 4.75%. However, combined with local taxes, many consumers pay about 7% in taxes for these items. The proposal is expected to be considered by legislators the same week as the state’s new two-year budget. Approving this sales tax exemption would reduce state revenue by $50 million and cut local revenues by about $25 million each year. Lawmakers are also considering a proposal to invest $500 million in a Major League Baseball stadium, which advocates of the sales tax exemptions say points to the fact that the state has money to spend.
Tax Planning Tips
Do Trump Account contributions need to be reported as a gift to the IRS?
Trump Accounts, tax-advantaged investment accounts for children, can start receiving contributions as of July 4th. Estimates suggest that over 6 million children have been signed up so far. What do parents need to know? Trump Accounts, or 530A accounts, are available to children under age 18 who have a Social Security number. Children born from 2025 through 2028 are also eligible for a one-time contribution of $1,000 from the U.S. Treasury. Parents, guardians, relatives, and even employers can contribute up to $5,000 a year in after-tax dollars. As a bonus, the IRS is waiving the gift tax return filing requirement for these contributions. However, funds invested in a Trump Account will count towards the annual gift exclusion, which is set at $19,000 for 2026. By waiving the requirement, the IRS intends to lessen the paperwork burden on taxpayers and reduce work for itself in the process.
To open a 530A account, parents and guardians can fill out IRS Form 4547 or visit TrumpAccounts.gov.
New solar projects will no longer be eligible for tax credits—what does this mean for the industry?
As of July 4th, new construction projects will no longer qualify for solar tax credits. Projects that missed this deadline but are put in service by the end of 2027 may still qualify for tax credits, but not many projects are likely to manage that quick a turnaround. Fortunately, many large developers were able to plan ahead, and over 200 gigawatts’ worth of energy projects launched before the tax credit deadline. This is expected to enable growth to the tune of about 40 gigawatts per year for the next decade. Companies that started in time can still claim a 30% federal Investment Tax Credit (ITC). However, the end of the tax credits could curtail future growth. Demand is increasing, but not necessarily enough to offset the cost of new projects. Solar is currently the largest source of new power generation in the U.S. Some in the clean energy industry are advocating for new tax credits, but others found that after paying transaction costs and legal fees, they did not gain much from the previous tax incentives.
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CURRENT EDITION
2026 Changes to Form 2441 and Dependent Care Benefits
The credit for dependent-care expenses (such as daycare costs) has long been stuck at 20% for “average” taxpayers. It finally gets a permanent boost in 2026 (for returns filed in 2027). Also, the amount of money a taxpayer can put into a dependent care assistance program is increasing by $2,500 for 2026. This change presents a chance for taxpayers and tax pros to reevaluate which is better – claiming the credit or using a flex plan.
Turning Intellectual Property into Interest Deduction Capacity: Use of an IP Holdco After the OBBBA
Many taxpayers have lived with a frustrating mismatch since the Section 163(j) limitation tightened after 2021 – the business may generate plenty of cash, yet its interest deductions are limited because adjusted taxable income (“ATI”) is too low, e.g., due to capex. The 2025 restoration of depreciation and amortization addbacks makes ATI planning relevant again, especially for groups that own valuable intangible property (“IP”), and the choice of legal entity to house group IP may have very different tax consequences as discussed in this article.
Do You Know U.S. Tax History?
In recognition of the 250th anniversary of the adoption of the Declaration of Independence on July 4, 1776, let’s review 250 years of tax history. Our nation’s tax systems have evolved over two and a half centuries as ways of doing business and living have changed. Also, expectations of services the public wants and needs from the government have grown, resulting in tax changes to generate increasing amounts of tax revenue. Along the way, lawmakers have considered principles of simplification, equity, fairness, economic growth and effective tax administration that have shaped our tax laws. This article offers questions and answers to cover a range of interesting aspects of our federal tax history.
