The Senate Finance Committee just dropped their version of the budget reconciliation bill, and it’s packed with tax changes that could seriously impact your wallet. While it’s similar to what the House passed earlier, there are some key differences you need to know about.
Let’s break down what’s actually in this 549-page beast and what it means for you.
What’s Actually in This Bill?
Here’s what the Senate is proposing to change:
- Tax rates and standard deduction – Making 2017 cuts permanent
- SALT cap – Keeping the $10,000 limit (for now)
- Family benefits – Higher child tax credits and senior deductions
- Tips and overtime – No taxes on up to $25,000 in tips, $12,500 in overtime
- Small business perks – Permanent QBI deduction and 100% bonus depreciation
- 529 education plans – Expanded uses for savings
- Charitable giving – Deductions even with standard deduction
- International business – Major changes to foreign tax rules
- Timeline – When these changes could actually happen
Now let’s dig into what each of these means for your wallet.
Making Tax Cuts Permanent (Finally!)
The big headline? The Senate wants to make those 2017 Tax Cuts and Jobs Act provisions permanent.
That means the tax rates you’ve been enjoying since Trump’s first term would stick around for good. No more worrying about them expiring.
The standard deduction would jump to $16,000 for single filers and $32,000 for married couples filing jointly starting in 2026. That’s a nice bump that puts more money back in your pocket before you even start itemizing.
The SALT Cap Drama Continues
Here’s where things get interesting. The House wanted to raise the state and local tax deduction cap from $10,000 to $40,000.
The Senate? They’re keeping it at $10,000 for now. But don’t panic – they’re still negotiating this one behind closed doors.
If you live in a high-tax state like New York or California, you’re probably watching this closely. The Senate bill also includes some anti-avoidance measures to stop clever taxpayers from getting around the cap.
Sweet Deals for Families
Parents, listen up. The child tax credit would increase to $2,200 per child starting in 2025. Plus, it gets adjusted for inflation going forward.
The child and dependent care credit would jump from 35% to 50% of qualifying expenses. That’s a substantial boost for working parents juggling childcare costs.
And here’s something cool – if you’re 65 or older, you’d get a $6,000 senior deduction. The House only offered $4,000, so the Senate is being more generous to older taxpayers.
No Tax on Tips and Overtime – It’s Real
Those campaign promises are making it into actual legislation. The Senate bill would let you deduct up to $25,000 in tips and $12,500 in overtime pay ($25,000 for married couples).
There are income limits though. The benefits start phasing out at $150,000 for single filers and $300,000 for married couples. And it’s only temporary – lasting from 2025 through 2028.
If you’re in the service industry or work lots of overtime, this could be huge for your tax bill.
Business Owners Get Some Love Too
Small business owners are getting some serious perks. The Section 199A deduction for qualified business income would become permanent.
They’re also bringing back 100% bonus depreciation, letting you write off the full cost of qualifying equipment immediately instead of spreading it over several years.
Research and development expenses? You can deduct them right away again instead of spreading them over five years. That’s especially big for tech companies and manufacturers.
What About Your 529 Plans?
Good news for parents saving for education. The Senate wants to expand what you can use 529 plan money for, including more elementary and secondary school expenses.
They’re also adding something called “qualified postsecondary credentialing expenses” – think professional certifications and trade school programs.
Charitable Giving Gets a Boost
Even if you take the standard deduction, you could still deduct up to $1,000 in charitable donations ($2,000 for married couples). That’s a win-win for nonprofits and taxpayers.
For itemizers, there’s a small catch – a 0.5% floor on charitable deductions. But for most people, the benefits outweigh this limitation.
International Business Changes
If you run a multinational business, there are significant changes to foreign tax credits and international income rules. The details are complex, but the general trend is toward simplification and preventing tax avoidance.
When Could This Actually Happen?
Here’s the reality check: This is still just a proposal. The Senate needs to pass their version, then work out differences with the House bill.
Since it’s a budget reconciliation bill, they only need a simple majority in the Senate – no filibuster worries. But getting all Republicans on board could still be tricky.
Some provisions would start in 2025, others in 2026. The temporary stuff (like the tip and overtime deductions) would expire in 2028.
Bottom Line for Your Planning
Start thinking about how these changes might affect your situation. If you’re in a high-tax state, keep watching the SALT cap negotiations.
Small business owners should consider timing equipment purchases if bonus depreciation passes. And service industry workers might want to track their tips more carefully.
The key is staying flexible. Tax laws change, and what looks certain today might shift as negotiations continue.
Keep an eye on the news, and consider talking to your tax pro about how to position yourself for whatever actually becomes law. The only guarantee in tax policy is that it’s always changing.