IRS Rates | September 2025 [1]
- Applicable Federal Rate
Applicable Federal Rate (“AFR”) is the lowest interest rate allowed by the IRS without having a loan be deemed a gift. The purpose of this restriction is to prevent gifts being disguised as loans (i.e., parents “loan” kids $1MM at 0.00% rate). When AFR rates are low, there are a lot of creative ways to manage liquidity, capitalize trusts, and handle interfamily finances using Promissory Notes. When rates are high, estate vehicles like Charitable Remainder Annuity Trusts (“CRATs”) become more attractive as the up-front charitable deduction is larger.
- §7520 Rate
The §7520 Rate is related to the valuation of long-term or future interests. It’s most used with GRATs, annuities, and estates. The rate is based off the Mid-Term AFR rate (120%, rounded to the nearest two-tenths).
Legislations, Guidance, & Judicial Cases
APPEALS COURT REJECTS TRUMP’S GLOBAL TARIFFS [2]
A federal appeals court late Friday struck down the Trump administration’s signature tariffs, finding that the president had gone too far in his use of emergency powers to rewrite U.S. trade policy.
The 7-4 ruling from the U.S. Court of Appeals for the Federal Circuit upheld a lower-court decision that undercuts a core tenet of President Trump’s economic agenda. The majority found the president overstepped his authority under a 1977 law known as the International Emergency Economic Powers Act, or IEEPA.
The decision is a significant blow to one of the signature policies of Trump’s second term and sets the stage for the case to go to the Supreme Court. The appeals court allowed the tariffs to remain in place through mid-October to allow the parties time to ask the high court to hear the case.
TREASURY POSTS PRELIMINARY LIST OF JOBS ELIGIBLE FOR NO TAX ON TIPS [3]
Treasury posted a preliminary list of occupations that customarily and regularly receive tips for purposes of the “no tax on tips” provision of H.R. 1, P.L. 119-21, commonly known as the One Big Beautiful Bill Act.
The official proposed list of such occupations will be part of forthcoming proposed regulations. The IRS anticipates that the official proposed list will be substantially the same as the preliminary list.
TREASURY, IRS ISSUE FAQS TO ADDRESS THE ACCELERATED TERMINATION OF SEVERAL ENERGY PROVISIONS UNDER OBBB [4]
The Internal Revenue Service today issued frequently asked questions (FAQs) in Fact Sheet 2025-05 relating to the modification of sections 25C, 25D, 25E, 30C, 30D, 45L, 45W, and 179D under the One, Big, Beautiful Bill Act (OBBB).
These FAQs provide guidance on several energy credits and deductions that are expiring under OBBB and their termination dates.
The FAQs also provide clarification on the availability of the new clean vehicle credit, the energy efficient home improvement credit and the residential clean energy credit, among others.
IRS URGES EMERGENCY PREPAREDNESS AHEAD OF PEAK DISASTER [5]
As hurricane season peaks and wildfire risks remain high, the IRS urges individuals and businesses to create or update their emergency preparedness plans as part of National Preparedness Month.
Disaster readiness starts with safeguarding critical documents, recording valuables and knowing how to access IRS support. Keeping updated records can speed up recovery and make it easier to apply for disaster assistance and emergency relief if a disaster strikes.
STATE TAX CHANGES TAKING EFFECT JULY 1, 2025 [6]
Summer has arrived, and states are beginning to implement policy changes that were enacted during this year’s legislative session (or that have delayed effective dates or are being phased in over time). Generally, most state individual and corporate income tax changes take effect on January 1, the beginning of the calendar year, for consistency through the tax year. However, some important tax policy changes take effect on July 1, which is the beginning of the fiscal year for all states except Alabama, Michigan, New York, and Texas.
Among the state tax changes that most commonly take effect on July 1 are excise and sales tax changes, though states made notable changes elsewhere as well, such as South Carolina’s reduction in its top marginal individual income tax rate and Washington’s implementation of a new estate tax rate schedule with a top rate of 35 percent.
Other Headlines
Domestic Headlines
- IRS announces tax relief for taxpayers impacted by severe storms, straight-line winds, and flooding in Texas. [7] The Internal Revenue Service announced today tax relief for individuals and businesses in parts of Texas affected by severe storms, straight-line winds. and flooding that began on July 2, 2025. These taxpayers now have until Feb. 2, 2026, to file various federal individual and business tax returns and make tax payments.
Following the disaster declaration issued by the Federal Emergency Management Agency (FEMA), individuals and households residing or having a business in Burnet, Coke, Concho, Edwards, Hamilton, Kendall, Kerr, Kimble, Lampasas, Llano, Mason, McCulloch, Menard, Real, Reeves, San Saba, Schleicher, Sutton, Tom Green, Travis, Uvalde, and Williamson Counties qualify for tax relief.
As a result, affected individuals and businesses will have until Feb. 2, 2026, to file returns and pay any taxes that were originally due during this period.
- Dismal jobs report fuels expectations of faster rate cuts. [8] The August employment report settled whether the Federal Reserve would resume rate cuts in two weeks—it will. Now comes the harder question: How far and how fast will officials move to keep cutting after September?
A meaningful slowdown in job growth this summer has shifted expectations for cuts throughout the rest of the year. Rather than cutting at every other meeting as previously anticipated, officials are likely to debate whether to continue with consecutive cuts of a quarter percentage point through their remaining meetings this year. Officials meet again in October and December.
- IRS seeks to fill ‘critical vacancies’ as workforce declines 25%. [9] The IRS, which has lost about 25% of its workforce this year, is moving to fill some jobs by various means, including asking employees who accepted deferred resignations if they want to stay on the job.
The “IRS has identified areas where staffing reductions created a potential gap in mission critical expertise and is exercising its discretion to offer you the opportunity to rescind your Deferred Resignation Program/Treasury Deferred Resignation Program (DRP/TDRP) agreement” reads the email, sent Wednesday to managers.
Two days later, the IRS emailed employees who accepted deferred resignations.
“The IRS has identified critical vacancies that need to be filled and is exercising its discretion to offer you the opportunity to rescind your Deferred Resignation Program/Treasury Deferred Resignation Program (DRP/TDRP) agreement,” the email sent to staffers said.
- Fed Governor Lisa Cook sues to stop Trump from firing her. [10] Federal Reserve governor Lisa Cook sued President Trump on Thursday, seeking to block his move to fire her from the central bank, in an unprecedented legal battle testing the president’s power over the independent central bank’s seven-member board.
The lawsuit filed in Washington, D.C. federal district court alleges Trump violated the law by attempting to remove Cook from her post without a valid reason.
In announcing his move on Monday to fire Cook, Trump cited allegations that she submitted fraudulent information on mortgage applications. Bill Pulte, a Trump appointee who leads the Federal Housing Finance Agency, publicized the allegations and referred them to the Justice Department. Cook hasn’t been charged with any civil or criminal violation.
Cook’s lawsuit said Trump “concocted” a basis for her firing in violation of the Federal Reserve Act, which says the president must show cause to remove Fed governors. His move, she alleged, represented an extraordinary attack on the central bank’s independence.
- Mend, don’t end the property tax. [11] Surging home values have amplified calls to cut or even abolish the property tax. Because property taxes rise with home values, homeowners may fear being squeezed by larger tax bills. Those fears aren’t unfounded: The median bill rose about 30 percent between 2019 and 2024—still far short of soaring home values, but with wide variation across states.
Yet despite sharp increases, property taxes have not run amok. The real challenge is finding practical ways to protect residents without undermining the fiscal bedrock of local governments.
- One Big Beautiful Bill Act’s corporate tax changes benefit U.S. manufacturing the most. [12] The One Big Beautiful Bill Act (OBBBA), passed into law in July 2025, includes the largest set of tax cuts for individuals and businesses since the 2017 Tax Cuts and Jobs Act (TCJA). One major goal of the OBBBA is to encourage greater domestic investment for tangible production in the United States. As measured by the change in tax liability in 2026 and over the budget window, the OBBBA provides the biggest benefit to corporations in manufacturing and less to those in service industries.
For corporations, the OBBBA revives and makes permanent 100 percent bonus depreciation for short-lived investments, repeals five-year amortization of domestic research and development (R&D) expenses in favor of immediate expensing of R&D, and makes permanent a more generous limitation for interest deductions. The new law also creates a new 100 percent deduction for structures associated with tangible production, temporarily available for buildings placed into service before 2031, and reforms the international tax system.
While these tax changes reduce tax liabilities for most C corporations, the size of the tax cuts has different impacts depending on the corporation’s industry and related operations. Using Tax Foundation’s Taxes and Growth Model, we find that corporations in manufacturing, information, and mining will see the largest reduction in tax liability in 2026 as a share of their value added. As a group, C corporations will see a 0.6 percent reduction in tax liability as a portion of 2023 value added in 2026, amounting to $137.2 billion.