Tax Bill Passes out of the House, Now Heads to the Senate

The legislation now heads to the Senate, where there will be enormous pressure to deliver legislation to President Trump’s desk before the end of July. Nevertheless, several Republican Senators would like to put their stamp on the bill and are expecting to make substantive changes. Some Republicans, such as Senator Ron Johnson (R-WI), are seeking significantly higher spending cuts in the bill. Others, like Senator Josh Hawley (R-MO), have raised concerns about the deep Medicaid cuts. Senator Rand Paul (R-KY) said Thursday that while he supports Republicans’ tax agenda, he will not vote for the bill if it includes a debt ceiling hike. The exact process the Senate will follow to change the legislation remains unclear.

For a closer look at what is in the House-passed bill, below is an overview of some of the key provisions:

Debt Limit 

The measure would increase the debt limit by $4 trillion.

TCJA Tax Law Permanence 

The measure would permanently extend certain provisions of the TCJA. Several of these include:

• Marginal Tax Rates: The measure would permanently extend, beginning in 2026, the 2017 law’s lower rates for individuals.

• Standard Deduction: The measure would permanently extend the enhanced standard deduction, which is annually adjusted for inflation. Additionally, it would temporarily increase the standard deduction by an additional $1,000 for individual filers and $2,000 for joint filers for tax years 2025 through 2028.

• Paid Leave: TCJA’s paid family and medical leave tax credit for employers would be permanent. The credit allows employers to claim nonrefundable credits ranging from 12.5% to 25% of the wages paid to workers on paid leave.

• Mortgage Deduction: The law permanently makes the TCJA change, limiting the mortgage interest deduction to the first $750,000 of home mortgage debt.

• Child Tax Credit: The measure would increase the maximum child tax credit amount by an additional $500 for tax years 2025-2028. It would permanently revert to $2,000 afterward and would be adjusted annually for inflation. The measure also makes the additional child tax credit (ACTC) permanent, as well as the income thresholds permanent at $200,000 for single filers and $400,000 for joint filers.

• Alternative Minimum Tax: The measure would permanently extend the modification of the tax made in the 2017 tax law, which increases the exemption amount that reduces the income subject to the special AMT rules and raises the income thresholds at which the exemption starts to phase out.

• Estate & Gift Tax: The measure would permanently extend and increase the estate and gift tax exemption to $15 million, and up to $30 million for married couples.

• Pass-through Business Income: The measure would permanently extend and increase the deduction to 23% beginning in tax year 2026.

• The bill also permanently restricts noncorporate taxpayers from deducting “excess business losses” and permanently allows itemized deductions for disaster-related personal casualty losses

SALT Deduction 

Under the bill, the state and local tax (SALT) deduction cap is permanently extended and increased to $40,000 for the 2025 tax year for households under $500,000. In 2026, the limit on SALT deductions would be $40,400 for households with income under $505,000. The thresholds would then increase by 1% each year through tax year 2033 and remain at that amount. For income that exceeds the threshold, the deduction would phase down by 30% until it reaches $10,000.

The measure would define the taxes subject to the SALT cap and modify the accounting methods used by pass-through businesses—such as partnerships and S corporations—to claim the deduction.

New Tax Deductions 

Tip Deduction – The measure would create a deduction for qualified tips for tax years 2025-2028. Only employees with earned income under $160,000 and a work-eligible Social Security number are eligible for the deduction. Tipped income would include cash tips earned in an occupation where tipping is customary, paid voluntarily, and determined by the payer.

Overtime Deduction – The measure would establish a deduction for overtime compensation for tax years 2025-2028 structured similarly to the tipped deduction, but overtime pay would exclude qualified tips. Qualified overtime compensation is defined as overtime compensation paid to an individual required under the Fair Labor Standards Act of 1938 (FLSA) that is more than the regular rate at which such individual is employed. Highly compensated employees are ineligible to receive the deduction.

Enhanced Deductions for Seniors – From 2025 to 2028, Taxpayers ages 65 and older would be able to deduct an additional $4,000 from their taxable income. The credit would phase out at a 4% rate for individual filers whose income is more than $75,000 or joint filers whose income exceeds $150,000.

Auto Loan Interest Deduction – The measure would create a deduction of up to $10,000 for interest payments on auto loans for the tax year 2025-2028. The deduction can only be claimed if the vehicle’s assembly was finished in the U.S.

Business Provisions 

Research & Development – The measure would reverse the modification of the R&D tax credit made in the 2017 tax law and allow businesses to immediately deduct the cost of their domestic research expenses in the year paid or incurred for tax years 2025-2029. Deductions are allowed for software development expenses and prohibited for property acquisitions or oil and gas exploration.

Business Interest Expenses – The measure would allow businesses to calculate their adjusted taxable income without including deductions for depreciation and amortization for tax years 2025-2029.

Depreciation Deduction – The measure would restore the 100% bonus depreciation for specific property placed in service in 2025-2029. It would also allow taxpayers to immediately deduct 100% of the cost of qualified production property placed in service before 2033, which is an integral part of a production activity.

Opportunity Zones – The measure would create a new round of opportunity zones offering benefits from 2027 to 2033. To qualify, states would have to ensure that (1) at least 33% of the new opportunity zones are comprised entirely in a rural area, (2) the zones are census tracts with a poverty rate of at least 20% or a median family income that isn’t more than 70% of the area’s median income, (3) the zones are not census tracts with a median family income of at least 125% or greater than the metropolitan or statewide median family income, and (4) the zones are not contiguous. The measure would provide a 30% step-up based on rural opportunity zones.

Low-Income Housing Credit — The measure would restore the 12.5% increase to the 9% low-income housing tax credit’s ceiling on annual state allocations for 2026-2029. It would also lower the bond-financing threshold for the 4% LIHTC to 25% for projects financed by bonds issued before 2030.

Corporate Charitable Donations – Corporate taxpayers could deduct charitable contributions between 1% and 10% of taxable income. The measure would allow contributions beyond the cap to be carried forward for five tax years.

International Provisions 

Foreign Taxes – The measure would impose new taxes on certain incomes of foreign governments, entities, or individuals that the Treasury Department deems to have discriminatory tax policies against the U.S. The hikes would go into effect either 90 days after the measure’s enactment, 180 days after the passage of the foreign country’s “unfair tax”, or the first date that an unfair foreign tax goes into effect. The measure includes a safe harbor in which no penalties would be imposed for good-faith efforts to comply before 2027. The rates would increase for individuals and corporations by 5 to 20 percentage points each year until the unfair tax is removed.

‘De Minimis’ Exemption – The measure would repeal the de minimis privilege, which allows commercial merchandise entering the U.S. valued under $800 to be exempt from tariffs. The exemption would end worldwide effective July 1, 2027, and penalties would be imposed for violations.

Foreign Income – The measure would permanently reduce the deduction for foreign-derived intangible income (FDII) to 36.5%, from 37.5%, and the deduction for global-intangible low-taxed income (GILTI) to 49.2%, from 50%. The measure also would permanently increase the rate of the base erosion and anti-abuse tax (BEAT), aimed at limiting profit shifting by large multinational corporations, to 10.1%, from 10%.

Artificial Intelligence 

The bill would impose a 10-year moratorium on state and local laws and regulations restricting AI models, AI systems, and automated decision systems entered into interstate commerce.

The bill would also provide $500 million to the Commerce Department to modernize federal information technology systems using commercial automation and AI technologies.

Clean Energy Credits 

The measure would repeal or phase out key tax credits enacted in the 2022 climate law passed by Democrats. Those include:

EV Tax Credit – The measure would eliminate the maximum $7,500 tax credit for individuals to purchase specific new electric and hybrid vehicles starting in 2026, for most vehicles. The credit can be claimed in 2026 only if a manufacturer has sold fewer than 200,000 clean vehicles as of December 31, 2025. However, in 2027, the credit will be eliminated. The measure also eliminates the $4,500 tax credit for certain pre-owned electric and hybrid passenger vehicles and tax credits for electric and hybrid commercial vehicles starting in 2026.

Starting in 2026, the alternative fuel vehicle refueling property tax credit, clean hydrogen production credit, energy efficient home improvement credit, residential clean energy credit, and new energy efficient home credit will also be eliminated.

One credit in the climate law will be extended.

Clean Fuel Credit Extension — The measure would extend the clean fuel production credit for four years. It would limit the credit to fuel derived from feedstock production in the U.S., Mexico, or Canada and repeal transferability.

Defense

The Armed Services Committee was directed to increase spending by no more than $100 billion over a decade. Under the measure, $34 million was produced for the Navy’s shipbuilding program, the missile defense system was provided $25 billion, weapons will receive $21 billion, and the rest was distributed among border security, military readiness, and missions in the Indo-Pacific.

Education

School Endowment Tax – The measure would modify the existing 1.4% excise tax on annual net investment income of private college and university endowments. The measure would establish a tiered rate structure for institutions based on the student-adjusted endowment. The rates are:

• 21% for an institution with a student-adjusted endowment greater than $2 million

• 14% for an institution with a student-adjusted endowment greater than $1.25 million and up to $2 million

• 7% for an institution with a student-adjusted endowment greater than $750,000 and up to $1.25 million

• 1.4% for an institution with a student-adjusted endowment between $500,000 and $750,000

The measure would effectively exclude any foreign students who are in the U.S. solely to attend an educational institution and do not intend to remain in the U.S. Institutions affiliated with religious organizations and whose published institutional mission includes religious tenets or teachings would be exempt from the excise tax.  However, schools formed before July 4, 1776, would be excluded from that exemption.

Federal Student Aid Eligibility – The measure would limit the categories of noncitizens eligible for federal student aid to lawful permanent residents. It would also cap the total amount of federal aid a student can receive annually at the “median cost of college,” which would be defined as the median cost for a program of study across all higher education institutions offering the program in the previous award year.

Pell Grant Eligibility – The measure would restrict Pell Grant eligibility for students enrolled in a program of study less than half-time beginning July 1, 2026. Full-time enrollment would be considered at least 30 credit hours per semester.

Health Care 

Medicaid Work Requirements – The measure would require states to impose rules of engagement on Medicaid recipients ages 19 to 64 to receive Medicaid benefits which include demonstrating fulfillment of one of the following:

• Working at least 80 hours per month,

• Performing community service,

• Participating in a work program at least 80 hours per month,

• Attending an educational program at least half-time,

• Performing a combination of the above activities for at least 80 hours, or

• Earning a monthly income that meets minimum wage requirements multiplied by 80 hours.

CHOICE Arrangements – The measure would codify a 2019 Trump administration rule allowing employers to help workers pay for health insurance on the individual market. It will enable employers to contribute money to a tax-preferred individual coverage health reimbursement arrangement (HRA), which employees can use to pay for separate insurance premiums. The measure would also create a two-year tax credit for small businesses that offer CHOICE arrangements for the first time. Businesses with 50 or fewer employees would receive $100 per employee per month in the first year and $50 per employee per month in the second year.

Health Savings Accounts – The measure would modify tax-advantaged health savings account rules. Individuals making less than $75,000 annually and families making less than $150,000 could contribute up to double the HSA limit, which is $4,300 for individuals and $8,550 for families in 2025 and adjusted each year for inflation.

ACA Enrollment Eligibility – The measure would require individuals to verify their re-enrollment eligibility annually to an ACA exchange to claim advance payment of the premium assistance credit. An applicant would have to verify necessary information for eligibility, such as income, immigration status, health coverage status, residence, and family size.

Medicare Eligibility for Noncitizens – The measure would limit Medicare eligibility for noncitizens to lawful permanent residents.

Rural Hospitals – The measure would expand the facilities that qualify as Rural Emergency Hospitals, which receive larger Medicare payments, to prevent further closures of rural hospitals.

Border Security & Immigration 

Border Infrastructure and Security – The measure would provide $46.5 billion for Customs and Border Protection to construct physical barriers along the U.S. border and related infrastructure such as access roads, cameras, and lighting. The amended measure also would provide $12 billion for DHS to make grants to states for the costs of assisting federal border security missions since January 21, 2021.

Immigration Detention – The measure would provide $45 billion for ICE detention capacity, including single—and family-residential centers.

Removal Operations – ICE would receive $14.4 billion for transportation and removal activities, and ensure the departure of noncitizens ordered removed.

ICE Personnel – The measure would appropriate $8 billion for ICE to hire 10,000 additional immigration enforcement officers and support staff over five years.

Transportation 

Air Traffic Control – The bill would provide $12.5 billion for the Federal Aviation Administration to improve air traffic control technology.

Electric Vehicle Fees – The Federal Highway Administration would impose a new annual $250 fee on electric vehicles and a $100 fee on hybrid vehicles registered for operation by a state motor vehicle department.

Coast Guard – The measure would provide $21.2 billion for the Coast Guard.

Written for NAEA by:
Thad Inge, Vice President, Van Scoyoc Associates
Sam Ford, Manager of Government Relations, Van Scoyoc Associates