Federal Update - September 24

September 24, 2025

GOVERNMENT RELATIONS HIGHLIGHTS

Shutdown Looms Over Washington: Democrats demand spending concessions  

IRS Unveils Tip Deduction Form: No Tax on Tips schedule released 

Additional ED Rulemakings Possible: ED continues aggressive regulatory push 

Harvard Sanctioned: ED Places Institution on HCM1 Status 

CONGRESS BARRELS TOWARD SHUTDOWN

What You Need to Know 

A government shutdown is becoming increasingly likely next Wednesday. Republicans, backed by President Trump, are pushing for a short-term continuing resolution to extend current funding levels through November 21. Democrats, frustrated by the Administration’s refusal to implement current spending laws, are demanding that Republicans come to the table to negotiate.  

Why This Is Important 

Unlike OB3, which passed with only Republican support, Senate Republicans need at least seven Democratic votes to overcome a filibuster and advance any appropriations bill or continuing resolution. So far, Senate Democrats remain united. President Trump initially agreed to meet with House Minority Leader Hakeem Jeffries (D-NY) and Senate Minority Leader Chuck Schumer (D-NY) to negotiate a compromise – only to subsequently cancel the meeting—further escalating the likelihood of a shutdown. 

NO TAX ON TIPS GUIDANCE RELEASED

What You Need to Know 

On Monday, the Internal Revenue Service published a draft regulation of the new Schedule 1-A form in the Federal Register, which will be used by taxpayers to deduct tips. The “No Tax on Tips” provision, originally a campaign pledge by President Trump and enacted as part of OB3, will be in effect for tax years 2025 through 2028. It allows eligible employees and self-employed individuals to deduct up to $25,000 annually, regardless of whether they itemize deductions. The benefit phases out for high-income taxpayers. 

Why This Is Important 

Public comments on the draft Schedule 1-A will be accepted through October 23, 2025, with a public hearing scheduled for the same day. The proposed regulation outlines a broad range of professions eligible under the No Tax on Tips provision, including barbers, hairdressers, cosmetologists, manicurists, waxing technicians, makeup artists, skincare specialists, and massage therapists.

ED PUBLISHES REGULATORY UPDATES

What You Need to Know 

Earlier this month, ED made two updates to the Unified Agenda, the federal government’s report outlining planned regulatory actions. The first, titled Title IV Eligibility Issues, proposes changes to rules governing institutional ownership, aiming to eliminate requirements that disproportionately affect faith-based and for-profit institutions and hinder efficient mergers, sales, and transfers in higher education. The second update, Accreditation Issues, seeks to clarify the flexibility that institutions have to change accreditors without prior ED approval and to remove other regulatory barriers that limit the entry of new accrediting agencies.  

Why This Is Important 

The Unified Agenda does not always contain accurate information, with agencies often missing deadlines for publishing rules included on the list. For example, ED has not formally noticed either of these rulemakings, yet they are included on the Unified Agenda; conversely, ED has noticed the RISE and AHEAD negotiated rulemakings – the former starting next week – yet neither is included on the Unified Agenda. Accordingly, it will be important to wait for formal notice from the Department on the Title IV and accreditation rulemakings to understand the agency’s precise priorities. ED already has an incredibly active slate of regulations planned for finalization by November 1, 2026.  

ED PLACES HARVARD UNIVERSITY ON HCM1

What You Need to Know 

In yet another escalation of the battle between Harvard University and the Trump Administration, ED placed Harvard on heightened cash monitoring (HCM1) last week. Schools may be placed on HCM1 based on a variety of compliance issues, including concerns regarding a school’s administrative capability or financial responsibility, delinquent annual audits, and severe program review findings. According to an ED press release, ED placed Harvard on HCM1 due to financial responsibility issues, finding, among other things, that Harvard is “in violation of Title VI of the Civil Rights Act, which prohibits discrimination based on race, color, and national origin.” 

Why This Is Important 

Harvard must post a $36 million irrevocable letter of credit or provide other financial protection acceptable to ED. Harvard will also be required to cover all initial federal financial aid disbursements from its own coffers, which will later be reimbursed by ED, to “ensure Harvard is spending taxpayer funds responsibly.” In the press release, ED warns that Harvard has potential to lose access to Title IV funds entirely due to noncompliance with requests from ED’s Office of Civil Rights.