The Senate’s new Republican Tax and Expense Reduction Bill aims to make many key aspects of the 2017 tax cuts permanent, though it will scale back some of what the House had passed.
A central version of President Trump’s “big, beautiful bill” was unveiled by the Senate Finance Committee on Monday.
This Senate bill will adhere to current federal tax brackets, aiming to promote standard deductions while maintaining the end of individual exemptions.
In a notable difference from the House version, the bill increases child tax credits (CTCs) to $2,200 per child, a drop from the $2,500 proposed in the House.
It introduces new tax deductions for tips, overtime pay, and car loan interest, but these won’t be fully deductible.
For tips, deductions will be available from 2028 up to $25,000. Overtime pay can be deducted up to $12,500, or $25,000 for co-applicants, also until 2028. Car loan interest could be deducted up to $10,000 during the same period.
An important change is the reestablishment of a $10,000 cap on the state and local tax (salt) deduction. The House had proposed raising this cap to $40,000 after much discussion. This return might stir discontent among certain groups in the House who were expecting a more generous deal, as well as President Trump, who has also expressed a desire to “reclaim the salt.”
Senate Majority Leader John Tune (Rs.D.) commented that the salt cap is “negotiable,” but reverting to the old cap would undermine the agreement reached previously.
Additionally, the bill proposes a savings account for children, where parents and relatives can contribute $5,000 annually after taxes, adjusted for inflation. The government will also contribute $1,000 for every child born between 2024 and 2028.
Along with the modest increase in child tax credits, the bill sets limits on another tax credit designed for low-income workers.
Under the new credit certification program, taxpayers will need to submit information and documentation “as required by regulatory secretaries.”
Critics argue that this requirement could result in a significant rise in audits targeting low-income taxpayers.
Greg Leiserson, a senior fellow at the NYU Tax Law Center, noted that the EITC pre-certification could lead to an unprecedented number of audits, particularly affecting low- and moderate-income workers.
A study from Stanford University revealed that the IRS in 2023 would “disproportionately audit Black taxpayers” in part due to the management of earned income tax credits.
The new law will also increase the succession and gift tax exemption cap to $15 million in 2026, and to $30 million for married couples, adjusting for inflation.
The pass-through entity deduction, highly valued by many businesses, will remain at 20%, differing from the House version, which proposed an increase to 23%.
This pass-through deduction will expand to cover incomes up to $75,000 and $150,000 for joint filers. Changes will also be made to businesses labeled as “special services trade or business,” which impacts specific service industries.
Other business tax credits will be available as well, including those from three aspects of the 2017 changes that have expired, but were included in tax laws voted on last year.
Research and development expenses will soon be deductible and retroactive to 2024. Additionally, bonus depreciation, allowing businesses to deduct depreciation costs immediately, will be made permanent. The threshold for equipment purchases and use post-January 19, 2025, will be raised to 100%.
Business payment expenses will see an increase in deductions following EBITDA accounting standards, excluding depreciation and amortization costs. This particular tax credit is especially important for leveraged buyout companies that finance investments through borrowed funds.
