Fed Cuts Rates, Signals More to Come Amid Labor Market Concerns
The Federal Reserve approved a quarter-point interest rate cut on Wednesday September 17th, lowering the benchmark rate to a range of 4.00%-4.25%, and signaled two additional cuts may follow by year-end. The move reflects mounting concerns over a softening labor market, even as inflation remains elevated. Chair Jerome Powell described the decision as “risk management,” noting unusual weakness in both labor supply and demand. The Fed’s updated projections—its “dot plot”—show a majority of officials favoring further easing in the coming months, despite internal divisions and growing political scrutiny.
While recent economic growth and consumer spending remain strong, job creation has slowed and unemployment has edged up to 4.3%, the highest level since 2021. Additional dynamics also hovered over the meeting, with the influence of newly appointed Governor Stephen Miran, raising questions about the central bank’s independence. Despite these tensions, markets remain focused on the Fed’s path forward, now shaped by both economic uncertainty and shifting leadership dynamics.
IRS Finalizes Regulations on SECURE 2.0 Catch-Up Contributions
The IRS has released final regulations (T.D. 10033) clarifying several provisions under the SECURE 2.0 Act. These include definitive rules for catch-up contributions by certain high-income earners, implementation guidance for plan administrators on the new Roth catch-up contribution requirements, and details on increased catch-up limits for eligible employees.
While the final regulations generally align with the proposed rules issued in January 2025 (REG-101268-24), they also introduce key updates. These include how wages from multiple employers are aggregated to determine Roth catch-up eligibility, correction methods for noncompliance, treatment of deemed Roth elections, and special considerations for plans covering participants in Puerto Rico. In general, the final regulations apply to tax years beginning after December 31, 2026, although certain government and collectively bargained plans have extended implementation timelines. Importantly, the final rules do not alter the administrative transition period provided under Notice 2023-62, which remains in effect through December 31, 2025.
IRS Clarifies Reporting Corrections for ERC-Related Wage Deductions
The IRS has issued updated guidance to help businesses correct wage expense reporting tied to the Employee Retention Credit (ERC), a refundable tax credit introduced during the pandemic. Employers who claimed the ERC were required to reduce their wage expense deductions by the amount of the credit, as receiving both a deduction and a credit for the same wages would constitute a double tax benefit. To simplify corrections, the IRS now allows businesses that overstated wage deductions to report the excess amount as income in the year they receive the ERC payment—rather than filing amended returns for prior years.
For employers whose ERC claims were disallowed, the IRS permits increasing the wage expense in the year the disallowance becomes final, or alternatively, amending the original return. Accurate recordkeeping remains crucial, especially as businesses may be required to repay disallowed credits with interest and potential penalties. The guidance emphasizes that clear documentation—such as government shutdown orders, revenue decline evidence, and wage records—is essential for supporting ERC eligibility and ensuring proper tax treatment.
IRS Treats Community Trust and Affiliated Nonprofit Corporation as Single Entity
The IRS has issued its first ruling confirming that a community trust and its affiliated nonprofit corporation can be treated as a single entity under Regulation §1.170A-9(f)(11)(i). When the conditions outlined are satisfied, the entities may be treated as one for purposes of the filing requirements under IRC Section 6033. As a result, a single, combined Form 990 (Return of Organization Exempt from Income Tax) may be filed for both organizations. Since the regulations themselves do not explicitly mandate consolidated filing, this clarification provides meaningful guidance for nonprofits with affiliated entities, helping to streamline and simplify their annual reporting obligations.
