As tax policy discussions continue on Capitol Hill, the Senate Finance Committee recently released its version of the tax bill that would avoid the expiration of the Tax Cuts and Jobs Act (TCJA). Many of the core components are the same as the version recently passed by the House. Like the House version, the current Senate version would extend the existing tax brackets, rates and main provisions such as the standard deduction. Similarly, the proposal introduces new tax savings on areas such as workers’ tips and overtime.
However, there are some key differences that will have to be resolved before a final bill can emerge. Here are some of the ways the current Senate bill differs from the House bill:
- The cap on deducting state and local taxes (SALT) is extended and remains at $10,000. This is a stark contrast to the House version which increases the cap to $40,000. However, Senate Republicans have stated that this is a starting point for future negotiations toward a final resolution, and additional deliberations are expected. To secure the necessary votes to pass the House, it is likely the SALT cap will eventually be raised from its current $10,000 level. The future of the SALT deduction cap is one of the main barriers to finalizing a deal.
- A major theme of the Senate version makes tax incentives for businesses permanent versus the House bill, which sunsets these provisions after several years. For example, the House version allows 100% expensing of qualified capital purchases through the end of 2029, while the Senate version makes this provision (and others) permanent. Another change is the Senate version extends the deduction for qualified business income (QBI) at 20%, while the House version increases it to 23%. For more details on proposed tax changes impacting business owners see “What business owners need to know about the new tax bill.”
Additional key differences in the bills include:
Tax relief for seniors
The House version introduces a temporary, higher standard deduction for taxpayers who are 65 years or older of $4,000 annually; the Senate version increases that deduction to $6,000.
No taxes on tips and overtime
Unlike the House version, the Senate version limits the deduction for workers’ tips ($25,000) and overtime ($12,500 for single filers, $25,000 for married couples filing a joint tax return).
Changes to charitable deductions
The Senate version allows a permanent charitable deduction for non-itemizers ($1,000 for single filers, $2,000 for married couples filing). The House version allows a deduction of $150 ($300 for married couples) through the end of 2028. However, unlike the House, the Senate version also introduces an overall limit to itemized charitable deductions by imposing a 0.5% "floor.” This means that a taxpayer would not benefit tax-wise from a charitable contribution until the amount donated exceeds 0.5% of their adjusted gross income.
Health savings account (HSA) contributions
Unlike the House bill, the Senate version does not allow an increased HSA contribution for certain taxpayers.
Debate underway
The Senate debate is underway. Still, there is a long way to go before a final deal is reached. Once the Senate reaches an agreement on the bill, both versions will have to be reconciled to arrive at a final bill that can be sent to the president’s desk. Lawmakers are looking to wrap this up by sometime in July, since this comprehensive tax and spending bill also addresses the debt ceiling which, according to the Treasury Department, needs to be increased before August.
For more details on the version passed by the House, review our “Special Tax alert update.”
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