Securing Your Pet’s Future with Estate Planning

Securing Your Pet’s Future with Estate Planning

Have you considered what would happen to your pet if you passed away or became incapacitated? Although most people outlive their beloved animal companions, pets still need consideration in estate planning. It is especially important for animals with longer life expectancies or higher costs of care, such as dogs, cats, horses, parrots, turtles, and animals with special needs.

Risks of Not Planning for Pets

Without clear provisions in your estate plan, the risks for your pet are significant. In the short term, your pet could be left alone without food and water in an emergency and could feel panicked, distressed, or abandoned. In the long term, your pet might be placed with someone you would not have chosen, taken to a shelter, or even euthanized.

Contrary to popular belief, informal arrangements with family or friends are generally not legally enforceable, and simply adding your pet to your will often isn’t enough. Your pet’s care cannot wait until your will is probated, and wills do not provide ongoing control or oversight of the caregiver, your pet, or the funds left for their benefit.

Planning for Your Pet’s Needs

The good news is you can take steps to protect your pets. By including the documents below in your estate plan, you can authorize someone to care for your pets in an emergency and designate who will ultimately care for them if you cannot. These documents also give you control over how pets are cared for and how any funds set aside for them will be managed.

Pet Trust

A pet trust is the most reliable way to ensure your pet is cared for if you die or become incapacitated.  A pet trust may be a part of your existing trust or created as a separate document. It allows you to:

  • Name a caretaker for your pet(s) and create a legal, fiduciary obligation for them to provide care according to your instructions.
  • Set aside money for your pet’s expenses. The trustee will distribute these funds to the caretaker or directly to service providers such as veterinarians.
  • Appoint a trustee to oversee the caretaker and ensure funds are used solely for your pet’s benefit in accordance with the trust’s terms.

A well-drafted pet trust allows you to name backup caretakers, ensuring your pet’s long-term stability and protection if your preferred caretaker becomes unable to serve.

Durable Power of Attorney for Pet Care

A durable power of attorney (DPA) for pet care authorizes someone else to seek medical care and make related decisions for your pet. It specifies the extent to which that agent may act on your behalf. This document can also be used by a pet caretaker while you are away on business or vacation.

Alternatively, provisions for your pet can be added to your own DPA, if it is “effective immediately” rather than “effective upon incapacity”, sometimes called a “springing” DPA.

Pet Care Instructions

Pet care instructions provide detailed guidance for your pet’s daily needs. The instructions will be a separate document that is incorporated into your pet trust by reference. This allows you to update your pet care instructions, as your pet’s needs and preferences change, without having to amend the trust. These instructions should include:

  • Food preferences and dietary restrictions
  • Medical history and current medications
  • Behavioral traits, quirks, likes and dislikes, and fears
  • Emergency contacts
  • Anything else you want a caretaker to know

Like the DPA for pet care, this document can be left with someone caring for your pet while you are away. It can also guide adoption decisions and reduce your pet’s stress if they must be rehomed. For example, noting that a pet is fearful of young children can help prevent an unsuitable adoption. Keeping these instructions updated ensures your pet receives consistent, informed, and compassionate care.

Wallet Card

A wallet card is a simple but vital safeguard for pet owners. If you are found incapacitated or deceased away from home, the card alerts responders that you have pets and provides contact information for someone who can step in to care for them. Similar to adding “in case of emergency” contacts to your phone, it ensures your pets are not left alone for days without food, water, or attention.

Protect Your Pets with Estate Planning

When we take in a family member with fur, feathers, or otherwise, we become responsible for their care not only for our lifetimes, but for theirs as well. Creating these documents provides a comprehensive plan that ensures your companions are never left vulnerable, giving you peace of mind.

To learn more about securing your pet’s future, contact your Varnum estate planning attorney or a member of Varnum’s Estate Planning Practice Team.

This advisory was originally published on August 12, 2019, and updated on October 20, 2025.

USCIS Clarifies $100,000 H-1B Fee: U.S.-Based Graduates and Workers Exempt

U.S. Citizenship and Immigration Services (USCIS) has issued new guidance clarifying the scope of the recently announced $100,000 H-1B petition fee introduced under a September 19, 2025, White House proclamation. The clarification provides important relief for U.S.-based employers and foreign nationals already in the United States.

USCIS confirmed the $100,000 fee will not apply to H-1B petitions filed for individuals already in the U.S. This includes:

  • Recent international college graduates on F-1 status changing to H-1B,
  • Current H-1B employees seeking amendments, extensions, or changes of status, and
  • Existing H-1B holders traveling internationally and returning to the U.S.

The fee will apply only to new H-1B petitions for workers outside the U.S. or for individuals who must leave the country before their petition is decided, including those who previously held H-1B status.

Employers may request a case-by-case exception if a worker’s presence is in the national interest and no qualified U.S. worker is available.

Varnum’s Immigration Practice Team is closely monitoring developments and will continue to provide updates as guidance evolves. Employers with pending or upcoming H-1B petitions should review their case strategy to determine whether any filings may trigger the new fee. Contact Varnum’s Immigration Practice Team with any questions.

Estate Planning Essentials for New Parents: Protect Your Child’s Future

Estate Planning Essentials for New Parents

Welcoming a child is one of life’s greatest joys and greatest responsibilities. Amid the sleepless nights and endless demands on your time, estate planning may not be at the top of your immediate to-do list after bringing home a baby. However, taking the time to put a plan in place is an essential step to ensure your child is protected and cared for, no matter what the future holds.

Key Documents Every Parent Should Have

  1. Will and/or Trust: Regardless of how wealthy you are, a Will is needed to:
    • Nominate a legal guardian and a conservator for your minor children.
    • Specify who will receive your assets rather than leaving distribution up to state law.
    • Name a personal representative to settle your affairs.

      In addition to a will, many parents choose to create trusts, even when their assets are not complex, to better control how and when distributions are made to their children in the future.

      While an 18-year-old is legally an adult, most parents prefer that their children be older and more mature before inheriting significant funds without oversight. Holding assets in a trust allows children to access the funds for meaningful needs such as education, starting a business, or purchasing a home. At the same time, a trustee oversees investments and distributions. This structure prevents a child from quickly exhausting an inheritance and helps ensure that trust assets are managed wisely and used for long-term benefit.

  2. Beneficiary Designations: Retirement accounts, life insurance policies, and some bank accounts pass directly to the individuals named as beneficiaries and are not governed by your will. Keeping these designations current is a simple but critical planning step.

  3. Financial Power of Attorney: Authorizes a person you trust to pay your bills and handle financial matters if you cannot. Often, spouses serve as each other’s agents under a financial power of attorney, and each names an additional person to act as a successor agent if both are incapacitated or unable to act.

  4. Patient Advocate Designation and Living Will: Allows you to appoint someone to make medical decisions on your behalf if needed. As with the financial power of attorney, spouses often serve as each other’s patient advocate and name a successor in case both are unable to act. The living will also states your preferences regarding end-of-life care, alleviating uncertainty and emotional burden for your loved ones.

  5. HIPAA Medical Authorization: Gives healthcare providers permission to share medical information with the person you have designated to make medical decisions for you when you cannot.

Naming a Guardian and a Conservator in Your Will

One of the most important and difficult decisions you will make is choosing who would care for your child if neither parent could. There are two roles to consider:

  • Guardian: The person who has physical custody of your child and makes day-to-day parenting and care decisions.
  • Conservator: The person who manages money and property for your child until they are old enough to handle it independently.

Consider naming separate individuals for these roles. Doing so can take advantage of their respective strengths and create a system of checks and balances. It can also keep both sides of the family involved. For example, a caregiver might come from one parent’s family, and someone with strong financial skills might come from the other.

Choosing the Right People to Care for Your Child

When choosing a guardian and conservator, ask yourself:

  • Who shares your values and parenting style and has the emotional maturity to raise your child?
  • Who is healthy, financially stable, and likely to live until your child reaches adulthood?
  • Who has the lifestyle and capacity to care for your child?
  • How significant would a move or lifestyle change be for your child?
  • Who is financially responsible and capable of managing funds wisely?
  • Will your chosen guardian and conservator work well together?
  • Is there anyone you would not want to raise your child under any circumstances?

Keep in mind that your choice of guardian before your child’s birth may differ from your choice after. To avoid awkward conversations, you can name your preferred guardian in your will but wait to ask them to serve until after your child’s birth. If you change your mind or your first choice declines, you can easily amend your will.

Keeping Your Planning Documents Updated

Review and update your planning documents every three to five years, or after significant life changes for you or your named guardian or conservator. Revisit your guardian choice as your child grows.

Creating Your Estate Plan

For new parents, having a clear estate plan in place provides peace of mind and is one of the greatest gifts you can give your family. Contact your Varnum estate planning attorney or a member of our Estate Planning Practice Team to discuss your plans and put them into action. 

Student Loans and Educational Benefits: Here to Stay

Employer Student Loan Repayment and Education Benefits

Educational benefits are a cost-effective and tax-friendly way to attract, retain, and motivate employees. Recent legal changes have expanded employer-provided, tax-advantaged educational benefits to cover student loan repayment. These tax benefits are now permanent, increasing interest in the programs. 

Tax-Favored Student Loan Repayments

Employers can provide up to $5,250 per employee, tax-free, for repayment of eligible student loans. This amount will increase over time with annual cost-of-living adjustments. The benefit can be limited to employees who are actively making loan payments (effectively a “match”) and can be made subject to repayment if an employee leaves within a set period.

As a tax-advantaged benefit, student loan repayment assistance must be properly documented in a written plan and must be offered to a nondiscriminatory class of employees. Any amount over $5,250 will be subject to ordinary income taxes.

Other Student Loan Repayment Benefits

Employers may also provide taxable student loan repayment benefits, generally to a select group of employees as an executive benefit. Although less tax-efficient, this type of benefit can help attract and retain talent in high-demand positions and can be subject to repayment if the employee leaves.

These benefits are not tax-advantaged and are not subject to the legal restrictions that apply to tax-favored student loan repayments. While a written plan is not required, careful documentation can protect the company from claims and clarify expectations. Unlike the tax-favored benefits, this option can be extended to more senior employees who may have children with student loans. 

Educational Assistance Benefits

Employers may pay up to $5,250 per year, tax-free, for employees’ tuition, fees, school supplies, and similar payments. This is not a new benefit, but the rise of tax-favored student loan repayment has renewed interest.

These benefits must be offered on a nondiscriminatory basis to similarly situated employees, although employers can set reasonable educational standards, for example, accredited programs related to the employee’s job, and can require repayment if certain conditions are not met, such as leaving employment within a set period or not completing the course. These restrictions must be described in a written plan.

The $5,250 limit often means that the restrictions are not problematic in practice. Educational benefits can help retain highly motivated employees and those with leadership potential from leaving, support leadership development, and promote a positive workplace culture.

Retirement Plans

If your 401(k) plan provides matching contributions, you can allow certain student loan repayments to count as contributions for matching purposes. Once the plan is amended, employees can receive 401(k) matching contributions based on eligible student loan repayments, as if they had contributed those amounts to the plan as an elective deferral.

Employers who want to provide this option should work with legal counsel, their recordkeeper, and their payroll provider to ensure the benefit is properly implemented, communicated, and administered.

A fresh look at student loan and educational benefits is needed at many companies. If you have questions, need your documentation updated, or want more information, contact a member of our Employee Benefits Practice Team.

Earned Sick Time Act Compliance for Small Businesses

Earned Sick Time Act Compliance for Small Businesses

Michigan’s Earned Sick Time Act (ESTA) took effect for most employers on February 21, 2025. However, small businesses (10 or fewer employees) have until October 1, 2025, to comply. With that date approaching, small employers should act now to update policies and prepare for implementation.

Key Requirements for Small Businesses

  • Accrual: Employees earn 1 hour of sick time for every 30 hours worked.
  • Annual Use Cap: Employers must allow employees to use up to 40 hours of paid earned sick time each year.
  • Start Date: Employees begin accruing on October 1, 2025, or upon hire, whichever is later.
  • Waiting Period: Employers may impose up to a 120-day waiting period for new employees before sick time can be used.
  • Carryover: Employers using accrual must allow carryover of up to 40 hours into the next year. Employers who frontload are not required to allow carryover.

Permitted Uses

Employees may use earned sick time for:

  • Their own or a family member’s illness, medical care, or preventive treatment.
  • Needs related to domestic violence or sexual assault.
  • Child-related health or disability meetings at school or daycare.
  • Public health emergencies, including closures of schools or workplaces.

Compliance Checklist for Small Businesses

  • Review Policies: Ensure PTO or vacation policies meet or exceed ESTA requirements.
  • Choose a Method: Decide whether to use accrual or frontloading.
  • Update Employee Handbook: Add written policies that explain rights and procedures.
  • Provide Notice: Give employees a written notice of their rights and display the required state poster.
  • Recordkeeping: Track hours worked and sick time taken for at least three years.

Failure to comply may result in the filing of complaints with the Department of Labor and Economic Opportunity (there is no private cause of action), penalties up to $1,000 per violation, and possible civil damages. Retaliation against employees who exercise ESTA rights is prohibited.

Next Steps

Small businesses should update policies, train managers, and post required notices before October 1, 2025. Varnum’s labor and employment attorneys are available to help with compliance strategies and policy reviews.

Michigan House Passes 24% Wholesale Cannabis Excise Tax

Michigan House Passes 24% Wholesale Cannabis Excise Tax

On September 25, 2025, the Michigan House of Representatives passed the Comprehensive Road Funding Tax Act (HB 4951), imposing a new 24% excise tax at wholesale on adult-use cannabis transfers to retailers, including vertically integrated transfers valued at the “average wholesale price.” The tax would begin January 1, 2026, with revenues largely dedicated to local road funds. The bill is “tie-barred” to other measures and must also pass the Senate and secure the Governor’s signature to become law.

This alert explains the legislative path ahead and where cannabis businesses may want to advocate for changes, outlines potential avenues for legal challenges if enacted (state and federal), and provides policy arguments and state comparisons you may consider using in discussions with lawmakers and the Governor’s office. This alert also provides some insight into what licensees can expect as the cannabis business in Michigan shifts towards a revenue-generating endeavor for the State.

Legislative Status and Process

HB 4951 creates a 24% excise tax on the wholesale price of marijuana when a marijuana establishment sells or transfers to a retail licensee, retail licensee sells product it cultivated and processed for its own retail, or when a provisioning center sells or transfers to a retail licensee.

A tax is set on the “wholesale price,” which is further defined depending on how the transaction takes place. The Department of the Treasury (DOT) administers and may circulate rules regarding the excise tax, which, at a minimum, will require licensees to file additional periodic returns. After small allocations to a new Comprehensive Road Funding Fund, most revenue flows to the Neighborhood Road Fund for local roads and bridges.

The Senate is expected to vote on the bill on Tuesday, September 30, 2025. If the Senate amends or changes the bill in any way, it will be sent back to the House for concurrence. The Governor can sign or veto the bill; however, a veto is unlikely given the prior support for a 32% excise tax on cannabis, which is the amount of excise tax currently levied against wholesale tobacco products. The timing is tied to the broader budget framework, intended to avoid a shutdown, which increases pressure for quick passage. If passed into law, the excise tax would take effect on January 1, 2026, but the act “does not take effect unless” specified companion bills are also enacted – called the “tie-bar” rule.

Advocacy Opportunities and Leverage

The legislature has created pressure to pass this bill based on a looming shutdown, so the window for political action is very narrow. If you are interested in advocating for changes to the bill, the time to act is now: request hearings, offer data on price elasticity, diversion, employment, and tax-yield curves. Target senate members on tax/appropriations committees and leadership working on the budget. During these conversations, consider emphasizing the following amendments:

  • Reduce rate (e.g., to 10–15% excise tax), or phase-in (e.g., 8% in 2026, stepping up only if the illicit market shrinks).
  • Carve-outs or credits for small, social equity, and in-state cultivators; hardship relief tied to wholesale price indices.
  • Sunset clause (e.g., two-year automatic sunset unless Legislature reauthorizes based on market-health metrics).
  • Revenue allocation for enforcement against the illicit market, lab testing subsidies, and energy/water efficiency to reduce costs.
  • Safe-harbor valuation for vertical transactions to avoid punitive “average wholesale price” assessments when markets are depressed.
  • Offset mechanisms to prevent the new wholesale tax from stacking punitively with the 10% Michigan Regulation and Taxation of Marihuana Act (MRTMA) retail excise tax and the 6% sales tax.

One data point to provide reference is how other states handle this issue, acknowledging their own failures as well. Michigan stands to become a state with one of the effective tax rates on cannabis (24% excise tax at wholesale, 10% excise at retail, 6% sales tax). This will inevitably lead to increased black-market activity, which is already rampant in other states, such as California and Washington. The chart below summarizes other states’ cannabis tax rates:

A key point to emphasize is that “black market risk” directly impacts the health, safety, and welfare of all Michigan residents and was a primary reason for establishing a legal cannabis market under the Medical Marihuana Facilities Licensing Act (MMFLA) and MRTMA. Large tax hikes increase price differentials with illicit sellers, encouraging diversion and eroding product testing standards. California’s experience, with high combined regulatory burdens and excessive taxes, has arguably led to a persistent (and sometimes violent) illicit market – a cautionary tale.

What Can You Do Today?

  1. Activate your network. This will not only impact growers, but all licensees and those tied to the industry (i.e., landlords, suppliers, service providers, etc.) Encourage these individuals to contact their senators and the Governor’s office to express their discontent with the proposed excise tax. Emphasize job stability, small-business viability, black market competition, and the “revenue paradox” (i.e., over-taxation yields lower total collections).
  2. Engage your public coalition. Customers, local governments relying on stable legal markets, and advocacy groups.  If you are not a member of the Michigan Cannabis Industry Association (MICIA), it is encouraged to join immediately. To the extent you are part of other advocacy groups and can encourage other coalitions to contact the Senate and the Governor’s office, it would be prudent to do so. Your best chance for immediate relief is through a political solution, not a legal one.

Potential Legal Challenges if Enacted

The strongest near-term strategy is legislative. Some attorneys may encourage seeking immediate legal challenges, but those are likely to fail for two reasons:

  1. There has been no injury because the law has yet to go into effect; and
  2. There is no ‘irreparable harm’ present because the damage is overwhelmingly monetary in nature.

Rushing headlong into litigation without adequate due diligence may also lead to negative outcomes for future challenges. However, if the bill becomes law, several litigation theories may be considered, including:

Michigan Constitution — Uniformity Clause (Art. IX, § 3). This clause expressly governs ad valorem property taxation. Plaintiffs could analogize that a punitive, industry-specific excise tax with arbitrary intra-class valuation rules (e.g., “average wholesale price” for affiliates regardless of real prices) lacks a rational basis and functions as non-uniform taxation within a defined class. A Uniformity-based challenge is novel and uphill, but can be paired with equal protection/due process arguments, especially if evidence shows the rate is confiscatory or arbitrary in application.

Michigan’s constitutional and statutory process checks and balances. Depending on the outcome of the legislature, arguments regarding tie-bar compliance could be raised, i.e., if any tie-barred bills fail or are later invalidated, the act cannot take effect or could be vulnerable. Likewise, the bill could be challenged on the basis that it conflicts with the MRTMA; i.e., the MRTMA imposes a 10% retail excise tax, and HB 4951 adds a separate wholesale excise without directly amending the MRTMA. A challenge may also claim that the 24% wholesale tax frustrates MRTMA’s purposes (safe legal access, displacement of illicit market) and thus functions as an indirect amendment, which was never intended by the voters.

Challenging parties could also raise an equal protection and/or substantive due process arguments (under the U.S. and Michigan Constitutions) that the 24% rate and the “average wholesale price” rule for affiliates are arbitrary and punitive, not tied to regulatory costs or legitimate objectives, and will foreseeably extinguish many compliant operators, undermining the stated goals (roads) by shrinking the tax base. In effect, making arguments that this excise tax is unfair.

It is important to recognize that pursuing legal challenges to the proposed excise tax would be a significant undertaking. Litigation is often time-intensive, requiring substantial resources for legal fees, expert analysis, and the collection of evidence. The process would likely take years to reach a resolution, and outcomes are inherently uncertain, especially in areas where courts have historically given broad deference to legislative tax policy decisions. For most operators, legislative advocacy and coalition-building may offer a more practical and timely path to relief than relying solely on the courts.

Increased Regulatory, Law Enforcement Oversight, and Uncertainty

Before representing cannabis clients, Varnum worked significantly with clients falling under the Tobacco Products Tax Act (TPTA). The TPTA levies a 32% excise tax against wholesale tobacco and is primarily a tax enforcement statute, which includes felony punishment for individuals for minor violations. From our professional experience, this resulted in licensees – not just at the wholesale level, but also at the retail level – receiving significant scrutiny from the Michigan State Police and the Michigan DOT, with interactions that were much more adversarial and exclusively focused on tax compliance. This often resulted in significant audit pressure, search warrants, asset seizure and forfeiture, and criminal tax charges. See e.g., People v. Beydoun, 283 Mich. App. 314, 327 (2009) (“the TPTA is at its heart a revenue statute, designed to assure that tobacco taxes levied in support of Michigan schools are not evaded.”).

The TPTA is a significant departure from the MMFLA, MRTMA, and Rules, which primarily govern licensing, and rules aimed at cannabis integrity for human consumption. Likewise, enforcement in the cannabis industry is generally focused on the health, safety, and welfare aspects of the business and tracking in METRC, rather than revenue generation. Moreover, enforcement of the MMFLA and MRTMA is primarily carried out by regulatory agents of the Cannabis Regulatory Agency (CRA), who have specialized training on compliance. With the excise tax on cannabis closely aligning with the excise tax on tobacco, it is foreseeable that enforcement will shift toward law enforcement (i.e., the Michigan State Police) and away from regulatory enforcement. This will be challenging for cannabis companies and will open a new level of exposure to tax and criminal liability.

Conclusion

HB 4951 would alter Michigan cannabis economics by layering a 24% wholesale excise over existing taxes, with risk of accelerating illicit activity, destabilizing compliant operators, and potentially reducing net state revenues over time. If enacted, limited litigation avenues exist – particularly arguments grounded in uniformity principles, equal protection/due process, and statutory-process defects. The strongest path remains legislative modification: lower rates, phased adoption, targeted exemptions/credits, and reinvestment in enforcement and market health.

Varnum will be monitoring this issue closely and may provide additional updates on the state of the excise tax. Should you want to engage a Varnum lawyer for advice on this issue, please contact attorney William Thompson to discuss potential representation on this issue.

New Law Updates Tip and Overtime Deductions for Employees

New Law Updates Tip and Overtime Deductions for Employees

H.R. 1 (the Act), formally known as or nicknamed the “One Big Beautiful Bill Act”, was signed into law on July 4, 2025, and addresses the often-mischaracterized tax deduction for tips and overtime pay. Tips and overtime pay are not tax-exempt. Instead, the bill allows employees to claim deductions and creates new recordkeeping obligations for employers.

Tip Deduction

When does the tip tax deduction take effect, and for how long?

The deduction is available for tax years beginning on or after January 1, 2025, through December 31, 2028. 

Which workers qualify for the tip tax deduction?

Employees working in occupations where tipping is customary may qualify, including tips paid in cash, by card, or under a tip-sharing arrangement. To claim the deduction, workers must provide their Social Security number on their tax return. Married workers must file jointly if eligible.

The Treasury Department recently published a preliminary list of occupations that regularly and customarily receive tips. The final list will be included in forthcoming regulations.

What is deductible under the tip tax deduction provisions?

Qualifying workers may deduct up to a maximum of $25,000 in tips received from customers. The maximum tip deduction is reduced by $100 for every $1,000 over $150,000 that the employee earns in modified adjusted gross income (or for every $1,000 over $300,000 in income for joint filers).

Qualifying tips are those given voluntarily by the customer. Tips negotiated in advance do not qualify. Tips earned in certain specified services, trades or businesses are excluded. Additionally, under the proposed rule, automatic service charges may not qualify for the deduction. “For instance, in the case of a restaurant that imposes an automatic 18% service charge for large parties and distributes that amount to waiters, bussers, and kitchen staff; if the charge is added with no option for the customer to disregard or modify it, the amounts distributed to the workers from it are not qualified tips.” See IRS guidance. Businesses involved in investing, trading, or dealing in securities, partnership interests, or commodities are also excluded.

How does the tip tax deduction impact employers?

Employers must provide a separate accounting of workers’ tips from their regular wages. These records must be provided to the IRS and reflected on employees’ W-2s or contractors’ 1099s. For 2025 only, employers may approximate cash tip accounting using any reasonable method allowed by the Treasury Department.

In addition, deductible tips are excluded from qualified business income for reporting purposes. Beauty service employers, including hair, nail, barbering, spa, and esthetics businesses, may now take advantage of the FICA tax tip credit for their tipped employees. Previously, only food and beverage employers were eligible.

Overtime Deduction

When does the overtime deduction take effect, and for how long?

The deduction is available for tax years beginning on or after January 1, 2025, through December 31, 2028. 

Which workers qualify for the overtime tax deduction?

Non-exempt workers covered by the federal Fair Labor Standards Act (FLSA) who must receive overtime pay for all hours worked beyond 40 in a week may qualify. Overtime must be paid at one and a half times the regular rate of pay.

Exempt employees under the FLSA, such as executives, administrators, and professionals, are not eligible. To claim the deduction, workers must provide their Social Security number. Married workers must file jointly to qualify.

What is deductible under the overtime deduction provisions?

Up to $12,500 of qualified overtime compensation is tax-deductible, or up to $25,000 for joint filers. As with the tip deduction, the maximum overtime deduction is reduced by $100 for every $1,000 over $150,000 that the employee earns in modified adjusted gross income (or for every $1,000 over $300,000 in income for joint filers).

How does the overtime deduction impact employers?

Employers must file separate accounting for qualified overtime pay apart from regular wages. This must be reflected on employees’ W-2s. Many employers will need to adjust payroll and record-keeping systems.

Next Steps

The IRS is expected to issue regulations and further guidance, which may add exclusions or new requirements. The IRS has released a draft W-2 reflecting some of these changes.

If you have questions about how these changes may impact your business or need assistance navigating the new deductions or other changes under the Act, contact your Varnum attorney or a member of our Labor & Employment Practice or Employee Benefits Practice Teams.

M&A Letters of Intent: Top Tips for Successful Deals

M&A Letters of Intent: Top Tips for Successful Deals

Striking a deal to buy or sell a business is exciting, and a letter of intent (LOI) is an important early step. Get it right and you position yourself for a successful transaction. Get it wrong and you risk misunderstandings or worse. Here are some best practice tips to get your transaction off to a strong start:

1. Personalize for a Friendlier Approach

A letter of intent can come off as dry and formal. As a buyer, you can differentiate yourself by making it more personal. Lead with what you admire about the business, including recent growth, a strong team, or a compelling product or service. Use clear, straightforward language that businesspeople will understand, including your description of the deal structure and tax treatment. Avoid excessive use of defined capitalized terms. If you are buying Acme, Inc. you can just call it Acme, there is no need to define it as (“Acme”). Additionally, break up long, complex sentences for readability.

2. Seller’s Big Opportunity

As a seller, your leverage is at its peak just before signing the LOI. The final price almost never goes up and sometimes goes down. If a deal term is important to you, now is the time to include it in the LOI. For example, if you want tight limits on the buyer’s ability to make a claim against you after closing, you can specify that upfront. Work with your advisors to identify and prioritize key terms for your specific deal.

3. Clarity on Price and Deal Structure

Your LOI should answer the questions that matter most: 

  • What is being purchased? Is anything being excluded?
  • What is the price?
  • Does the cash stay with the business?
  • What happens to the debt and other liabilities?

Buyers often require that businesses have a normal level of working capital at closing (details to be worked out in the definitive agreement). If the deal contains any deferred purchase price or an earn-out, make those terms as clear as possible. 

4. Address Due Diligence

Your LOI can identify key focus areas for due diligence. Streamlining the diligence request list to focus on the target business can keep things moving. A concise, tailored list often works better than a 15-page, 200-item checklist that slows things down.

5. Exclusivity

As a buyer, once you invest time and resources in a deal, you will want exclusivity. This is an agreement that the seller won’t pursue other offers for a set period. Sellers on the other hand want flexibility if a deal stalls. Exclusivity periods typically range from 30 to 90 days, depending on the transaction.

6. Map Out Timelines

Sellers want to know how long it will take to reach closing. Buyers can differentiate themselves by moving things along with a brisk timeline. Including intermediate milestones such as due diligence delivery or completion of site visits can keep both sides aligned.

7. Non-Binding LOI and Avoiding the Accidental Deal

An LOI is a key step, but it is not the final binding deal. Both parties should state clearly that the LOI does not create a binding obligation to complete the deal. Courts have sometimes ruled that LOI’s, term sheets, or memorandum of understanding constituted binding agreements, especially when phrased as commitments. Avoid working with terms such as “shall purchase” or “will acquire,” which may imply obligation. Use softer terms like “propose” or “intent.”

Some terms should be binding on both parties, such as confidentiality, exclusivity, expense allocation, governing law, and the paragraph about it being nonbinding.  Your lawyer can provide language to make it clear what is non-binding. 

8. Terminating an LOI

A good LOI will state that either party can terminate negotiations at any time before signing a definitive agreement. It should clarify which provisions survive that termination, such as confidentiality.

With careful drafting, an LOI will do what it’s meant to do: lock down key terms and provide a clear roadmap to closing. Contact your Varnum attorney to prepare or review your LOI to ensure clarity and protection.