Tax News February 2026

January Tax News Flash

January 14, 2026 - United States Postal Service (USPS) adjustments: avoid late tax filings

January Newsroom (Important Reads – in case you missed it)

January 7, 2026 – The 2026 tax filing season begins in California

January 20, 2026 – California Franchise Tax Board advises taxpayers on USPS postmark updates and filing deadlines

Statute of Limitations (SOL) for Disaster Postponed Due Dates

Tax deadlines may be postponed as a result of a state of emergency declared by the Governor or major disasters declared by the President. However, postponed due dates do not change the beginning date of the SOL period. A disaster postponement can only change the last day of certain tax deadlines.

Generally, to be entitled to a credit or refund of an overpayment, a claim for refund must be filed by the later of:

• 1 year from the date of overpayment.
• 4 years after the original return due date.
• 4 years after the date of a timely filed return, if the return was filed within the automatic extension period.

California individuals and businesses impacted by the 2022-2023 winter storms qualified for a disaster postponement and had until November 16, 2023, to file and pay taxes. This means a 2022 tax return filed by November 16, 2023, is considered timely.

However, this disaster postponement did not change the original due date of a 2022 tax return. If the return is filed after the automatic extended due date, the four-year statute of limitations period begins from the original due date of the tax return, which was April 15, 2023.

It is important to note the disaster postponement due date should not be confused with an extended due date. For example, if an original 2022 tax return was filed on November 16, 2023, taxpayers have until April 15, 2027 (4 years from the original due date of the return) to file a claim for refund, not November 16, 2027 (4 years from the postponed due date). If your clients were affected by the 2022 winter storms in California, ensure any claims for refund are filed timely within the SOL period.

Visit our Claim for Refund and Emergency Tax Postponement webpages for more information.

Senate Bill (SB) 711 Federal Conformity Bill – Impact to Reporting Alimony Payments

Following the enactment of SB 711, California conforms to the Tax Cuts and Jobs Act (TCJA) treatment of alimony for any divorce or separation instrument executed after December 31, 2025, or for any divorce or separation instrument executed on or before December 31, 2025, and modified after that date, if the modification expressly provides that the amendments made by this subdivision apply to such modification.

Generally, for California purposes, alimony or separate maintenance payments are deductible by the payer spouse and includible in the recipient spouse's income if paid under a divorce or separation agreement executed before December 31, 2025. Therefore, for taxable year 2025, California taxpayers will continue to follow pre-TCJA law to determine if alimony is deductible from or includable in income.

However, alimony and separate maintenance payments received are not included in gross income if made under a divorce or separation agreement:

1. executed after December 31, 2025; or,
2. executed on or before December 31, 2025, but later modified if the modification expressly states the repeal of the deduction for alimony payments applies to the modification.

Because of these changes, taxpayers will be required to report the month and year of their divorce or separation agreement on Schedule CA beginning in taxable year 2025.

For more information about how to report alimony payments in taxable years 2025 and 2026, go to Alimony.

Form 4197 - Reporting for Certain Deductions, Credits, Exclusions, and Exemptions

We have legislatively mandated reporting requirements per Revenue and Taxation Code (R&TC) Section 41, and we are required to report on specified deductions, credits, and exclusions to the California Legislature to allow them to evaluate the performance of each specified tax expenditure.

Generally, the Legislature specifies the metrics used to evaluate the tax expenditure's performance and occasionally the reporting requirement includes metrics not reported on the State’s tax return. To meet these reporting requirements, we created Form 4197 to capture additional metrics.

If you have clients with any of the following 2025 tax expenditure items, please report these items on Form 4197:

• Cannabis (CBIS)
• Deployed Military Exemption (DME)
• Thomas and Woolsey Wildfires Exclusion (TWWE)
• Turf Replacement Water Conservation Program (TRWCP)
• Emergency Financial Aid Grants (EFAG)
• American Rescue Plan Act Student Loan Forgiveness (ARPSLF)
• Kincade Wildfire Exclusion (KWE)
• Zogg Wildfire Exclusion (ZWE)
• Wildfire Mitigation Payment (WMP)

Table to provide additional guidance to complete the form:

Tax Expenditure Item	Code - Enter in column (a)	Additional Columns Requested
Cannabis	CBIS	Complete Part I, columns (a), (c), and (d). (If deductions apply, complete column (b)). If receiving the tax benefit as a partner, member, beneficiary, or shareholder of a pass-through entity, complete Part II, columns (a) through (e).
Deployed Military Exemption	DME	Enter in column (g) the number of employees (including yourself) that the corporation or the LLC employed
Thomas and Woolsey Wildfires Exclusion	TWWE	Enter amount in column (e) – Exclusions
Turf Replacement Water Conservation Program	TRWCP	Enter amount in column (e) – Exclusions
Turf Replacement Water Conservation Program	TRWCP	Enter amount in column (e) – Exclusions
Emergency Financial Aid Grants	EFAG	Enter amount in column (e) – Exclusions
American Rescue Plan Act Student Loan Forgiveness	ARPSLF	Enter amount in column (e) – Exclusions
Kincade Wildfire Exclusion	KWE	Enter amount in column (e) – Exclusions
Wildfire Mitigation Payment	WMP	Enter amount in column (e) – Exclusions

For more information, go to FTB Form 4197, and FTB Form 4197 Instructions.

For more information about previously released reports go to Data, reports, and plans.

New and Enhanced Business Entity Self-Services

We continue to do our best to provide additional new self-services and enhancements for the tax practitioner community and small business owners. We are excited to share new self-services to make your life easier without having to call FTB:

Business Entity Payment Plans

This new service launched, in a limited capacity, March 17, 2025, allows business entities (BE) to request a payment plan online, or by logging into their MyFTB account. Additional capabilities are now available which include:

• MyFTB – ability to request a skip payment, update bank information, request a projected payoff amount, and request a payment plan reset.
• Online via ftb.ca.gov –ability to view payment plan status.

Business Entity Exempt Application Self-Service Expanded

The ability to submit a BE Exempt Application online via MyFTB or Tax Professionals accounts first became available for customers on September 30, 2024. The service has recently expanded to allow Tax Professionals and businesses to submit BE Exempt Applications without full access to a MyFTB account. Forms submitted online should include an original signature of an individual authorized to sign for the organization, such as:

1. An officer
2. A director
3. A trustee (If the organization is a trust)
4. An authorized representative with a valid form FTB 3520-BE, Business Entity or Group Nonresident Power of Attorney Declaration or FTB 3520-PIT, Individual or Fiduciary Power of Attorney Declaration

• Tax professionals without an active relationship on file with FTB will be able to submit the BE Exempt application online from their MyFTB account.
• Businesses will be able to register for a basic account and submit the BE Exempt application online.

Suspended or Forfeited Business Entities

This may be a good time to inform your business clients about the information available and the steps to revive their suspended or forfeited business entity. FTB suspended, or FTB forfeited, generally means the business entity was suspended or forfeited by FTB for failure to meet its tax requirements.

For example, a business entity is suspended or forfeited if they fail to:

• File a return, or
• Pay
  • Taxes
  • Penalties
  • Fees
  • Interest

If a business entity is suspended or forfeited, the Secretary of State (SOS) cannot accept termination documents. The business entity must complete all the following requirements before they can submit termination documents to SOS:

• Pay all outstanding balances due.
• File any delinquent tax returns.
• File a revivor request form.

To revive an entity, use the Online Revivor Assistance Request Form.

For more information, go to My Business is Suspended.

For department contact numbers, refer to Phone/fax.

Adjusted Interest Rates

For the period July 1, 2026, through December 31, 2026, the interest rate will be 7%. This is the rate compounded daily that accrues with respect to various state taxes, to include:

• Personal income
• Corporate income
• Franchise

The rate for corporation tax overpayments for the same period is 4%.

For more information, Interest and estimate penalty rates.

Internal Revenue Service Updates

We partnered with the IRS to provide monthly IRS articles to assist our tax professional and small business communities, and we are excited to share this information; however, questions about the content should be directed to the IRS.

Use online tools when claiming One, Big, Beautiful Bill tax advantages for families and education

IR-2026-16, Jan. 28, 2026 — The IRS encourages taxpayers to use online tools and take a few simple steps to prepare for claiming new and expanded tax benefits under the One, Big, Beautiful Bill. Families planning to claim the Child Tax Credit, the Adoption Credit, or pay for educational expenses should review these changes before filing.

National Taxpayer Advocate delivers Annual Report to Congress; finds taxpayer service was strong in 2025 but foresees challenges for taxpayers who encounter problems in 2026

IR-2026-15, Jan. 28, 2026 — National Taxpayer Advocate Erin M. Collins released her 2025 Annual Report to Congress, finding that taxpayers generally fared well in their dealings with the IRS in 2025 and that most taxpayers are likely to have a smooth experience in 2026.

Taxpayer Advocate Service announces 2026 funding for Low Income Taxpayer Clinic grant recipients

IR-2026-14, Jan. 27, 2026 — The Taxpayer Advocate Service announced the award of more than $22.5 million in matching grants to 145 qualified Low Income Taxpayer Clinics nationwide for the 2026 grant year, which runs from Jan. 1, 2026, to Dec. 31, 2026.

IRS issues frequently asked questions about Executive Order 14247: Modernizing Payments To and From America’s Bank Account

IR-2026-13, Jan. 27, 2026 — The IRS issued frequently asked questions to help taxpayers, businesses, and other stakeholders understand the changes under Executive Order 14247: Modernizing Payment To and From America’s Bank Account.

IRS opens 2026 filing season

IR-2026-12, Jan. 26, 2026 — The IRS opened the 2026 tax filing season and began accepting and processing federal individual income tax returns for tax year 2025.

Treasury, IRS issue FAQs to address the new deduction for qualified overtime compensation under the One, Big, Beautiful Bill

IR-2026-10, Jan. 23, 2026 — The Department of the Treasury and the IRS issued frequently asked questions in Fact Sheet 2026-01 related to the new deduction for qualified overtime compensation under the One, Big, Beautiful Bill.

IRS joins national partners to launch EITC Awareness Day

IR-2026-11, Jan. 23, 2026 — The IRS and partners nationwide launched the annual Earned Income Tax Credit Awareness Day outreach campaign to help millions of eligible low-to- moderate-income, working Americans claim the Earned Income Tax Credit.

Treasury, IRS: Supplemental basic allowance for housing payments to members of the military are not taxable

IR-2026-09, Jan. 16, 2026 — The Department of the Treasury and the IRS confirmed that supplemental basic allowance for housing payments made to members of the uniformed services in Dec. 2025 are not to be included in income by those who received the payments; they are not taxable.

Treasury, IRS provide new safe harbor explanations for retirement plan administrators

IR-2026-08, Jan. 15, 2026 — The Department of the Treasury and the IRS issued guidance for certain retirement plan administrators, updating safe harbor explanations to reflect tax law changes made after Aug. 6, 2020.

Treasury, IRS issue guidance on the additional first year depreciation deduction amended as part of the One, Big, Beautiful Bill

IR-2026-06, Jan. 14, 2026 — The Department of the Treasury and the IRS issued Notice 2026-11 that provides taxpayers with guidance on the permanent 100% additional first year depreciation deduction for eligible depreciable property acquired after Jan. 19, 2025, provided by the One, Big, Beautiful Bill.

IRS Advisory Council issues Annual Report

IR-2026-07, Jan. 14, 2026 — The IRS Advisory Council issued its annual public report, offering recommendations to the IRS on a range of new and continuing issues in tax administration.

Use IRS Free File to conveniently file your return at no cost

IR-2026-05, Jan. 9, 2026 — IRS Free File will begin accepting individual tax returns, giving eligible taxpayers an early opportunity to prepare and file their federal income tax returns ahead of the official start of the 2026 filing season later this month.

IRS.gov resources can help answer questions about the One, Big, Beautiful Bill

IR-2026-04, Jan. 9, 2026 — Taxpayers may be able to take advantage of new deductions that could reduce taxable income and increase refunds due to the One, Big, Beautiful Bill, passed by Congress in July 2025.

IRS announces first day of 2026 filing season; online tools and resources help with tax filing

IR-2026-02, Jan. 8, 2026 — The IRS announced Monday, January 26, 2026, as the opening of the nation’s 2026 filing season. This year, several new tax law provisions of the One, Big, Beautiful Bill become effective, which could impact federal taxes, credits and deductions.

Treasury, IRS issue proposed regulations reflecting changes from the One, Big, Beautiful Bill to the threshold for backup withholding on certain payments made through third parties

IR-2026-03, Jan. 8, 2026 — The Department of the Treasury and the IRS issued proposed regulations that would revise the threshold for when certain third-party settlement organizations are required to perform backup withholding to comply with changes made in the One, Big, Beautiful Bill.

Prepare to file in 2026: Get Ready for tax season with key updates, essential tips

IR-2026-01, Jan. 6, 2026 — With the 2026 filing season quickly approaching, the IRS is urging taxpayers to take a few simple steps now to prepare for filing their 2025 federal income tax returns.

Ask the Advocate

The Taxpayers’ Rights Advocate’s Office Welcomes New Team Members!

As the tax filing season ramps up and workloads increase across the tax community, the importance of strong advocacy, experienced leadership, and a well-supported team is important. In that spirit, I am delighted to welcome Chris Schell and Sara Hopkins to the Taxpayers’ Rights Advocate’s Office (TRAO) as we continue to strengthen our leadership and expand the expertise of our team.

Chris has more than 14 years of Franchise Tax Board (FTB) service, and offers extensive experience across audit programs, enterprise initiatives, and leadership development, along with a strong foundation in tax. Sara brings nearly a decade of FTB service, contributing expertise in tax-exempt organizations and enterprise modernization efforts, and is currently pursuing a law degree. Together, their knowledge, experience, education, and collaborative, taxpayer-focused perspective will further enhance our advocacy efforts and strengthen the support we provide to California’s tax community.

To all tax professionals working diligently through this busy season: thank you for your dedication and commitment. Your efforts are essential to helping taxpayers meet their obligations and navigate the complexities of California’s tax system. Remember to take care of yourself. It is important to prioritize your own well-being to avoid burnout. Please know my team is here to help where we can. Our strengthened TRAO team with Chris and Sara on board will continue its advocacy on behalf of taxpayers.