Plus: State and local tax refunds, credit card swipe fees, taxing legal awards, college endowments and the IRS, nonprofits, tax trivia and more. |
I am one in 33,185,550.
That is, give or take a few thousand, the number of small businesses in the United States. According to the U.S. Small Business Association (SBA), small businesses—those with fewer than 500 employees—employ 61.7 million Americans, nearly half of private sector employees. And, from 1995 to 2021, small businesses created 17.3 million new jobs, accounting for 62.7% of net jobs created since 1995.
For over 60 years, the SBA has observed National Small Business Week to celebrate small business owners. This year, National Small Business Week 2025 will take place May 4-10.
The IRS will also celebrate National Small Business Week with tools and insights for small business owners to successfully navigate tax filing requirements. You can check out some of the resources from the IRS here.
One potential tax blind spot for small businesses? Payroll taxes. As an employer, you pay the employer’s share of Social Security and Medicare taxes (that’s 6.2% for Social Security and 1.45% for Medicare) on behalf of your employees. You are also responsible for collecting the employee portion from your employees’ paychecks and remitting those taxes, together with federal income tax withheld from your employees’ wages, to the IRS.
Payroll taxes are often called trust fund taxes. This is because, as you just read, you are required to collect and remit those taxes on behalf of someone else—in this case, your employees. If you don’t deposit those funds on time, no matter how good a reason you might think you have for using the money for something else, the IRS will demand payment, plus penalties. Any failure to pay—even late payment—is serious.
Small businesses can improve compliance by relying on technology, including artificial intelligence, or AI. If this is the part where you fear your eyes may glaze over, take a breath. You likely use AI in lots of tasks, like calendaring and sending email. It’s increasingly baked into daily tasks. That includes specialized business applications, too, like the classification of products. A single misclassified product can flow undetected into invoicing, accounting, financial reporting, and tax filing systems. Each platform, trusting the information it receives, will pass the error along until the mistake is discovered, usually by a tax auditor who may issue a hefty bill. AI systems can analyze vast amounts of product data—including descriptions, specifications, and images—to suggest accurate tax classifications. By learning from historical data and classification patterns, AI can help reduce human error, speed up the classification process, and handle enormous product catalogs with ease.
AI can also help families with small businesses build wealth. As global markets adapt to technological changes and economic shifts, family-held businesses risk becoming obsolete. Traditional estate planning techniques, models, and assessments must evolve to keep up. Modern tools in technology have to be integrated not only in business operations but also in managing families, their relationships, and their wealth to preserve and grow assets for future generations. Adapting traditional and proven estate planning with modern tools and strategies focused on innovation in governance and investment is critical to preserving legacies built over generations.
Of course, technology can also create unexpected challenges—like more costs. Increasingly, Americans like reaching for plastic to pay bills. A study by the Federal Reserve Bank of Atlanta indicated that, as a share of all payments by number—including bills, purchases, and person-to-person (P2P) payments, made in person or remotely—more were made by credit card (32%) than other forms of payment (debit cards came in second at 30%).
While shoppers and billpayers love the convenience of credit cards, they aren’t fans of the associated fees and costs. Neither are businesses. According to National Retail Federation Senior Vice President for Government Relations David French, swipe fees are one of retailers’ highest operating expenses. Those fees hit a record $172 billion in 2023, French says, driving up consumer prices by over $1,100 a year for the average family.
Credit card fees are typically tacked on to the total transaction amount, including charges for items that don’t benefit the business directly—like tips and sales taxes. A Washington D.C. bill is the latest to hit back at credit card swipe fees. The Fair Swipe Act of 2025, introduced by D.C. Councilmember Charles Allen, would prevent banks and credit card companies from collecting processing fees on sales tax and gratuities—charges that businesses don’t even keep.
Other states have introduced similar legislation, including Illinois, Colorado, and Kansas. Additional states may follow as more businesses and consumers push back against high processing fees.
You’ll find more information about small businesses this week on Forbes, including my updated small business toolkit. As a small business owner and an advisor to small businesses, I know how hard it can be to stay on top of what you need to know. That's why we're packaging that information for you in one place—look out for it.
Finally, I’ve been overwhelmed (in a good way) by the response to my call for movie nominations. In case you missed it, my son was recently stunned to learn that I had, years ago, written about the tax consequences of one of his favorite movies, “Ratatouille.” It was part of a series where I evaluated the tax consequences of movies referred by readers. It was great fun, so I’m easing back into it for the summer of 2025. If you have a movie for me to review—especially those with an interesting tax or financial crimes twist—send me an email (kerb@forbes.com) for consideration.
I already have the first one teed up for May 4. If you’re a fan of the movie (or the series), you can likely guess what it is. Another hint: The Force is strong with this one.
Enjoy your weekend,
Kelly Phillips Erb (Senior Writer, Tax)
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This week, a taxpayer asked:
Last year, I got a tax refund. This year, I got a 1099-G that shows the refund. I was told that I was supposed to report it on my tax return this year, but that doesn’t make sense. Did I need to report it? I didn’t.
My answer is maybe. Form 1099-G can be issued for a lot of things. It’s sort of a catch-all form for federal, state, or local governments to report unemployment compensation, taxable grants, agricultural payments, reemployment trade adjustment assistance (RTAA) payments—and, importantly for you, state or local income tax refunds, credits, or offsets.
If you receive Form 1099-G for a state or local income tax refund, you’ll want to pay close attention to box 2, which reports refunds, credits, or offsets of state or local income tax you received. This amount may be taxable to you—but only if you itemize your deductions on Schedule A and claim your state or local income tax paid as a deduction. If you claimed the standard deduction on your tax refund, the amount you received from the government for a refund, credit, or offset isn’t taxable.
You may also see an offset amount reported on Form 1099-G. This can happen when you were supposed to receive a tax refund, but it was seized for another obligation, like past-due child support. It will still be reported as though you received it.
If your refund is not taxable, you wouldn’t need to report Form 1099-G income on your return, so if you missed it, I wouldn’t sweat it. The safest bet is to forward all of your information forms to your tax pro—or if you’re using DIY tax software, include all of your forms in the intake (there will likely be an interview screen with questions so that you can verify that it is not taxable in your situation).
—Do you have a tax question or matter that you think we should cover in the next newsletter? We’d love to help if we can. Check out our guidelines and submit a question here. |
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Statistics, Charts, and Maps (Oh My!) |
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President Donald Trump has suggested that the IRS could yank Harvard’s tax exemption—a move that lawyers say likely won’t hold up in court. Nonetheless, Trump amped up the threat this week, posting on Truth Social, “We are going to be taking away Harvard’s Tax Exempt Status. It’s what they deserve!”
Whether the IRS will follow up on the threat isn’t clear. But there’s a more immediate tax threat to America’s wealthy private universities—dramatically raising (and perhaps extending to more schools) the current 1.4% tax on the net investment income of college endowments. House members have proposed boosting the rate to 10%, 14%, and as high as 21%, which matches the corporate tax rate.
The current endowment tax was first adopted in 2017 to help pay for Trump’s signature tax cuts. Back then, the GOP-controlled Congress used the same “reconciliation” process it’s using now—one which enables Republicans to target colleges in a massive tax and budget package that doesn’t need any votes from Democrats.
The current endowment tax only applies to private colleges with more than 500 paying students and an endowment equal to $500,000 or more per student. According to IRS data, 56 schools paid a total of $381 million in endowment tax for calendar year 2023.
The IRS can’t legally name names, but Forbes identified 41 schools that are almost surely subject to the tax, since their endowments were worth more than $500,000 per student as of June 30th, 2023, according to Department of Education data.
Stock prices rose sharply in the second half of calendar year 2023 and 2024, so additional schools became subject to the tax as the value of their endowments grew. Forbes calculations show that current proposals by House Republicans, if combined, could subject as many as 127 schools to the tax.
You can see in the chart (above) a list of the ten colleges with the largest endowments as of fiscal year 2023. Click over to see a complete list of schools likely paying the endowment tax now.
For more on the presidency and tax-exempt status, check out:▻ Why Trump’s Efforts To Revoke Tax Exemptions Are So Dangerous For Democracy
▻ Can Trump Revoke Harvard’s Tax-Exempt Status? 3 Benefits Are At Stake |
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When you think about what you consider to be taxable income, you generally think of the usual suspects like wages, tips, interest, stock dividends, rents, and royalties.
But what about legal settlements and jury awards? That will likely be a consideration in a massive verdict out of Georgia, where a jury awarded John Barnes approximately $2.1 billion ($65 million in compensatory damages and $2 billion in punitive damages) in a case involving Roundup. There will surely be an appeal, but if it stands, the tax consequences will be significant. That’s because punitive damages and interest are always taxable.
It doesn’t stop there. Compensation for personal physical injuries is typically tax-free, while damages for emotional distress are taxable. But if you claim the defendant caused you to become physically sick (for example, resulting in insomnia, headaches, or stomach disorders), damages for emotional distress can be tax-free. On the other hand, if the emotional distress caused you to be physically sick, that would be taxable. Confused yet? The order of events and how you describe them matters to the IRS.
There’s another consideration: under a tax change that took effect starting in 2018, there is no longer a universal deduction for legal fees. That means that many legal fees can no longer be deducted, forcing some plaintiffs to pay tax even on monies their attorneys collect—that’s the case even if the attorney must also pay tax on the same money. If that sounds mathematically wonky, here’s the explanation. If you are a plaintiff with a contingent fee lawyer, the IRS treats you as receiving 100% of the money, even if the defendant pays your lawyer directly. Your lawyer must also pay tax on the money they receive to handle your case.
(There can be workarounds for plaintiffs, but they require specialized advice.)
Not all lawyers’ fees face this bizarre tax treatment. If the lawsuit concerns the plaintiffs’ trade or business, the legal fees are a business expense, and if your case involves claims against your employer, or certain whistleblower claims, those legal fees are also deductible. Increasingly, legal settlements require advice on taxing damage awards, preferably before the case settles. If you are handling or facing a lawsuit, don’t forget to consult with your tax professional early in the process. |
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Tax Filing Dates And Deadlines |
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