On June 16, the Senate Finance Committee released its version of the One Big Beautiful Bill. In many ways, the proposed text mirrors the bill that was passed by the House in May (highlighted in this previous article), but there are key differences that need to be reconciled in the weeks to come between that bill and any bill ultimately approved by the Senate.
A key focus Republicans are pushing for with this legislation is to prevent the automatic tax increases on individuals that would go into effect in 2026 following the sunsetting of provisions contained within the Tax Cuts and Jobs Act of 2017. Both the House and Senate versions generally accomplish this goal by extending existing provisions, including the reduction in tax rates and brackets and the increased standard deduction. The House version generally provides for temporary extensions of these provisions while the Senate version calls for making provisions permanent.
Fundamental differences between the two bills include, but are not limited to:
- Qualified business income deduction: The current 20% deduction, set to expire at the end of 2025, is made permanent (rather than temporarily extended as in the House version). The Senate version does not include the increase in the deduction to 23% as approved by the House.
- Certain key business tax incentives: Certain business tax deductions important to business leaders and Republicans include the restoration of 100% bonus depreciation, the expensing of U.S.-based research, and a business interest expense limitation using EBITDA rather than EBIT to calculate the limit on the deduction, particularly given the high interest rate environment. These provisions would be permanently restored under the Senate version, compared to a general five-year temporary restoration approved by the House.
- SALT Deduction: Though many expect this provision to be even further modified, the Senate bill would permanently extend the current SALT $10,000 limitation at the individual level rather than increase the deduction to $40,000. as called for under the House bill (subject to similar income phaseout limitations), while modifying the availability to use the passthrough entity tax workaround currently in place in several states.
- Senior Standard Deduction: The substitute amendment increases the new proposed standard deduction for seniors to $6,000, up from the $4,000 included in the House bill.
- Taxation of Tip and Overtime Compensation: The proposed Senate version would cut back on the amount of tip and overtime compensation earned by certain individuals that would be deducted from income by providing ceilings on the tips deduction at $25,000, and at $12,500 ($25,000 joint) on the overtime deduction with another ceiling on the amount of income before the deduction begins to phase out.
- Child Tax Credit: While both bills enhance the child tax credit, the Senate proposal increases the amount of the credit to $2,200, while the House version increases the credit to $2,500 with similar income phaseouts.
- Health Savings Accounts: The House bill would significantly expand health savings accounts (HSAs); the Senate bill does not provide any provisions for HSAs.
- Green Tax Credits: While both the House and Senate desire to reduce or eliminate many of these credits, a main difference between the versions is timing. The Senate generally calls for a slower phaseout, while the House calls for an immediate end to certain credits.
- Tax-Exempt Organization Changes: See a separate OTO for changes impacting tax exempt organizations.
Other distinctions between the House and Senate versions are differences in the debt ceiling increase needed to fund government and the level of spending and work requirements related to Medicaid.
The bill may be ready for consideration by the Senate next week, but it is still subject to additional Senate discussions and negotiations. The Republican Congressional goal of having a final bill ready to be signed by July 4 is possible, but the timing seems optimistic considering the differences between the two versions. Plus, any bill approved by the Senate needs to be voted on again by the House, and both House and Senate are scheduled to recess at the end of next week.
Please note: This article was written before the final version of the bill became law, so some information may no longer be current.
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