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The final version of the OBBA extends the expiring individual and corporate tax cuts from the 2017 Tax Cuts and Jobs Act (TCJA), provides new temporary tax provisions that Trump promised during the campaign, makes changes to business and international taxes, and reduces energy tax credits.

Key provisions in the OBBA include:

Individual Tax Provisions

• Makes TCJA rates permanent: The OBBA makes the TCJA rate and bracket changes permanent. The rate reductions were scheduled to expire at the end of 2025.

• Maintains limits on itemized deductions: The law maintains the limits on itemized deductions for high earners.

• Increases standard deduction: The law permanently increases the standard deduction by $750 to $15,750 for individuals, by $1,125 to $23,625 for heads of household, and by $1,500 to $31,500 for joint filers, all beginning in 2025. Amounts are then indexed for inflation.

• Eliminates personal exemption: The law makes permanent the personal exemption elimination enacted by the TCJA.

• Increases SALT deduction limit for five years: The law increases the limit on state and local tax deductions (SALT) from $10,000 to $40,000 for taxpayers earning up to $500,000. After five years, the limit returns to $10,000.

• Pass-Through Entity Tax (PTET) deduction: The OBBA did not include any changes to the PTET deduction.

• Increases and makes permanent the child tax credit: The law permanently increases the child tax credit by $200 to $2,200 per child, with the refundable portion remaining at $1,700.

• Temporarily makes overtime pay deductible: The law allows a deduction of up to $12,500 for overtime pay for taxpayers with incomes of less than $150,000 for tax years 2025 through 2028. Base pay would remain taxable.

• Temporarily makes tips deductible: The OBBA allows a deduction for tipped wages of up to $25,000 per taxpayer for tax years 2025 through 2028. An income phase out begins at $150,000. This applies to taxpayers in customarily tipped industries.

• Increases standard deduction for seniors: The law increases the standard deduction for seniors by $6,000 subject to an income limitation for tax years 2025 through 2028. An income phase out begins at $75,000.

• Temporarily makes auto loan interest deductible: The law makes the interest from auto loans fully deductible for tax years 2025 through 2028 for autos with final assembly in the United States. The deduction would be limited to $10,000 with an income phase out beginning at $75,000.

• Repeals individual energy credits: The law repeals energy tax credits for individuals, including the electric vehicle tax credit and the residential energy efficiency credits in the Inflation Reduction Act (IRA).

• Increases passthrough deduction: The law permanently extends the Section 199A passthrough deduction at 20%. It also increases the phase-in range for the limit to $75,000 for individuals and $150,000 for joint filers. There is a new $400 deduction for taxpayers with qualifying income of at least $1,000.

• Permanently extends alternative minimum tax thresholds: The law extends the TCJA exemption and phaseout threshold for the alternative minimum tax (AMT). The phaseout is set at $1 million in 2026 and adjusted for inflation thereafter with a phase out rate of 50%.

Estate Tax Provisions

• Increases estate tax exemption: The OBBA increases the estate tax exemption to $15 million beginning in 2026 and make it adjusted for inflation for subsequent years.

Business Tax Provisions

• Permanently allows immediate R&E expensing: The law permanently allows business taxpayers to fully expense Section 174 domestic research and experimental (R&E) expenditures in 2025 or later. This reverses the requirement to capitalize and amortize them over five years.

• Increases small business expensing: The law increases the Section 179 Small Business Expensing Cap from $1.25 million to $2.5 million per year. It also increases the phase-out threshold from $3.1 million to $4 million.

• Allows bonus depreciation permanently: The law permanently allows 100% bonus depreciation for short-lived investments in 2025 or later. Bonus depreciation has been subject to a phase-down since 2022.

• Reinstates EBITDA interest deduction limit: The bill would restore EBITDA-based limitation on business interest deductions under Section 163(j) for 2025 and later.

• Reduces corporate charitable deduction: The law allows deductions for corporate charitable contributions only to the extent that contributions exceed 1% of a corporation’s taxable income. This begins in 2026.

• Increases 1099-MISC reporting threshold for payments: The law increases the reporting threshold for Form 1099-MISC from $600 to $2,000 for payments in 2025 and after. The law also increases the threshold for Form 1099-K at $20,000 and 200 transactions.

• New Bonus Depreciation for Qualified Production Property: The law implements a new Section 168(n), which allows an elective 100% depreciation deduction for qualified production property (QPP) acquired between January 20, 2025 and the end of 2028 and placed in service by the end of 2030.

• Expands Qualified Small Business Stock (QSBS): The law expands Section 1202 QSBS stock acquired after July 4, 2025 through a tiered system of requirements to hold the stock.

Energy Tax Credits

• Phases out major clean energy tax credits: The law phases out clean energy tax credits.

International Tax Provisions

• Permanently increases GILTI deduction: The law increases the global intangible low taxed income (GILTI) deduction to 40%, replacing the scheduled post-2025 reduction to 37.5%. The law also modifies the GILTI calculation.

• Increases FDII deduction: The law increases the foreign-derived intangible income (FDII) deduction to 33.34%, replacing the scheduled post-2025 reduction to 21.875%. The bill would also rename the FDII “foreign-derived deduction eligible income” (FDDEI). The law also modifies the FDII calculation.

• Increases BEAT rate: The law also increases the base erosion and anti-abuse tax (BEAT) rate from the current 10% to 10.5%, avoiding the scheduled increase to 12.5% after 2025. It also makes permanent the treatment of research and other credits in calculating BEAT.

• New 1% tax on remittances: The law imposes a new 1% excise tax on certain remittance transfers, effective January 1, 2026.

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Like the House bill, the Senate version extends the expiring tax cuts from the 2017 Tax Cuts and Jobs Act (TCJA), makes changes to corporate and international taxes, and reduces energy tax credits. The Senate bill requires $4 billion in spending cuts with the goal of $2 trillion in cuts. The House bill, by contrast, requires spending cuts of more than $1 trillion with the goal of $2 trillion in cuts. The Senate bill raises the debt ceiling by $5 trillion, compared to $4 trillion under the House bill.

Notably, the Senate bill uses a “current policy baseline” approach for calculating the cost of the bill. The approach reduces the projected fiscal impact of the tax cuts by assuming no cost to continuing the current tax policy. The House uses a “current law baseline,” which assumes that the TCJA tax cuts will expire as scheduled in the law and that extension of the tax cuts has a fiscal impact. The Senate’s approach allows for the permanent extension of certain tax provisions, a key difference between the House and Senate bills.

Key provisions in the Senate bill include:

Individual Tax Provisions

• Make TCJA rates permanent: The bill would make the TCJA rate and bracket changes permanent, the same as with the House bill.

• Maintain limits on itemized deductions: The Senate bill follows the House bill in maintaining the limits on itemized deductions for high earners.

• Increase standard deduction: The bill would permanently increase the standard deduction by $1,000 to $16,000 for individuals, by $1,500 to $24,000 for head of household filers, and by $2,000 to $32,000 for joint filers. It would also index the deductions to inflation. The House bill increases the standard deductions through the end of 2028 only.

• Eliminate personal exemption: The Senate bill would follow the House bill and make permanent the personal exemption elimination enacted by the TCJA.

• Increase SALT deduction limit: The Senate bill would extend the limit on state and local tax deductions (SALT) at the current $10,000. This limit is viewed as a placeholder for negotiations. The House bill, by contrast, would increase the limit to $40,000 for incomes up to $500,000.

• Limit Pass-Through Entity Tax (PTET) deduction: The Senate bill would limit the PTET deduction for individual owners to the greater of $40,000 or 50% of their allocation of the PTET. The House bill proposed to eliminate the PTET deduction for Specified Service Trades or Businesses (SSTBs), which include such professions as law, accounting, and medicine. Under the House bill, qualified trades or businesses would still be allowed to use the PTET as a workaround of the federal SALT $10,000 cap.

• Increase and make permanent the child tax credit: The Senate would permanently increase the child tax credit by $200 to $2,200 per child. The House bill would increase the credit to $2,500, but only through 2028.

• Temporarily make overtime pay deductible: The bill would allow a deduction of up to $12,500 for overtime pay for taxpayers with incomes of less than $150,000 for tax years 2025 through 2028. Base pay would remain taxable. The House bill proposed a full deduction for overtime pay for taxpayers with incomes of less than $160,000 for tax years 2025 through 2028.

• Temporarily make tips deductible: The bill would allow a deduction for tipped wages of up to $25,000 per taxpayer with an income phase out at $150,000. This would apply to taxpayers in customarily tipped industries. Like the House bill, the Senate would make the deduction available through 2028 only.

• Increase standard deduction for seniors: The bill would increase the standard deduction for seniors by $6,000 subject to an income limitation. The House bill proposed a temporary $4,000 increase.

• Temporarily make auto loan interest deductible: The Senate bill follows the House in making the interest from auto loans fully deductible for tax years 2025 through 2028 for autos with final assembly in the United States. The deduction would be limited to $10,000 and would phase out according to income.

• Repeal individual energy credits: Like the House bill, the Senate bill would repeal energy tax credits for individuals, including the electric vehicle tax credit and the residential energy efficiency credits in the Inflation Reduction Act (IRA).

• Increase passthrough deduction: The Senate bill would permanently extend the Section 199A passthrough deduction at 20%. The bill would also increase the phase-in range for the limit. The House bill proposed to increase the deduction to 23%.

• Alternative minimum tax: The Senate bill follows the House bill in extending the TCJA exemptions for the alternative minimum tax (AMT), but it would revert the phase-out thresholds to 2018 levels, indexed to inflation.

Estate Tax Provisions

• Increase estate tax exemption: The Senate bill proposes to increase the estate tax exemption to $15 million beginning in 2026 and make it adjusted for inflation for subsequent years. This is the same as in the House bill.

Business Tax Provisions

• Permanently allow immediate R&D expensing: The Senate bill would permanently allow business taxpayers to fully expense Section 174 domestic research and development (R&D) costs in the year they occur. The change would be retroactive for certain small businesses. The House bill limited this through 2029.

• Increases small business expensing: The Senate bill follows the House bill in proposes to increase the Section 179 Small Business Expensing Cap from $1.25 million to $2.5 million per year. Also, following the House, the Senate bill would increase the phase-out threshold from $2.5 million to $4 million.

• Extend bonus depreciation permanently: The Senate bill would permanently allow 100% bonus depreciation for short-lived investments. The House bill proposed to extend bonus depreciation through 2029 only.

• Reinstate EBITDA interest deduction limit: The bill would restore EBITDA-based limitation on business interest deductions under Section 163(j) permanently. The House bill limited this through 2029.

• Temporarily allow 100% expensing of qualifying non-residential structures: The Senate bill follows the House bill and would allow 100% expensing of qualifying non-residential structures in manufacturing, extraction, and agriculture sectors, with certain begin construction and placed in service requirements. Like the House bill, this would apply from 2025 to 2028.

• Reduces corporate charitable deduction: The Senate bill follows the House to allow a corporate deduction for charitable contributions only to the extent that contributions exceed 1% of a corporation’s taxable income.

• Increase 1099-MISC reporting threshold for payments: The Senate bill follows the House in repealing the $600 reporting threshold for Form 1099-K, reverting to the previous threshold of $20,000 and 200 transactions. Like the House bill, it would also increase the 1099-MISC reporting threshold for payments to an independent contractor or subcontractor from $600 to $2,000.

Energy Tax Credits

• Repeal major clean energy tax credits: The Senate bill follows the House in phasing out clean energy tax credits but has a longer time frame.

International Tax Provisions

• Permanently increase GILTI deduction: The Senate bill would increase the global intangible low taxed income (GILTI) deduction to 40%, compared to the 49.2% proposed in the House. This replaces the scheduled post-2025 reduction to 37.5%. The bill would also rename GILTI “net CFC tested income” (NCTI).

• Increase FDII deduction: The Senate bill would increase the foreign-derived intangible income (FDII) deduction to 33.34%, compared to the 36.5% proposed by the House. This replaces the scheduled post-2025 reduction to 21.875%. The bill would also rename the FDII “foreign-derived deduction eligible income” (FDDEI).

• Increase BEAT rate: The Senate bill would also increase the base erosion and anti-abuse tax (BEAT) rate from the current 10% to 14%, avoiding the scheduled increase to 12.5% after 2025. The House bill proposed to reduce the BEAT rate to 10.1%.

• Implement Section 899 retaliation against “unfair taxes”: The Senate bill would implement the House’s proposed Section 899, which allows the government to impose retaliatory taxes against countries, individuals, and entities of countries that have enacted any “unfair foreign tax.” The Senate bill would limit the rate to 15%, rather than the 20% under the House bill, and delay implementation until 2027, rather than 2026 under the House bill.

The Senate bill is only a step in the reconciliation process. The Senate must pass its proposed bill and send it back to the House for consideration and further negotiations. Both the House and Senate must pass the same budget resolution.

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The House passed the bill by a vote of 215-214-1, with Republicans Thomas Massie of Kentucky and Warren Davidson of Ohio voting with Democrats against the bill. Andy Harris of Maryland, the leader of the House Freedom Caucus, voted present. Andrew Garbarino of New York and David Schweikert of Arizona missed the vote but support the bill. The bill now goes to the Senate, which is expected to make further changes. Key provisions in the House bill include:

Individual Tax Provisions

• Make TCJA rates permanent: The bill would make the TCJA rate and bracket changes permanent.

• Maintain limits on itemized deductions: The bill proposes to maintain the limits on itemized deductions for high earners.

• Increase standard deduction: The bill would increase the standard deduction by $1,000 to $16,000 for individuals, by $1,500 to $24,000 for head of household filers, and by $2,000 to $32,000 for joint filers through the end of 2028.

• Eliminate personal exemption: The bill would make permanent the personal exemption elimination enacted by the TCJA.

• Increase SALT deduction limit: The bill would increase the limit on state and local tax deductions (SALT) from the current $10,000 to $40,000 for incomes up to $500,000. The cap is reduced to $10,000 at a 30% rate for taxpayers with incomes of more than $500,000. The thresholds for the cap and income will increase 1% each year over 10 years.

• Revise Pass-Through Entity Tax (PTET) deduction: The bill would eliminate the PTET deduction for Specified Service Trades or Businesses (SSTBs), which include such professions as law, accounting, and medicine. Qualified trades or businesses would still be allowed to use the PTET as a workaround of the federal SALT $10,000 cap.

• Increase the child tax credit: The bill would increase the child tax credit by $500 to $2,500 per child for 2025 through 2028. The maximum credit would be inflation adjusted after 2028, making the credit permanent.

• Temporarily make overtime pay deductible: The bill would allow a full deduction for overtime pay for taxpayers with incomes of less than $160,000. Base pay would remain taxable. This would be available from 2025 through 2028 and exclude highly compensated employees and certain tips.

• Temporarily make tips deductible: The bill would allow a full deduction for tipped wages for incomes of less than $160,000 for tax years 2025 through 2028. This would apply to individuals in customarily tipped industries.

• Temporarily increase standard deduction for seniors: The bill would increase the standard deduction for seniors by $4,000 to $19,000 for tax years 2025 through 2028. The deduction would phase out according to income.

• Temporarily make auto loan interest deductible: The bill would make the interest from auto loans fully deductible for tax years 2025 through 2028 for autos with final assembly in the United States. The deduction would be limited to $10,000 and would phase out according to income.

• Repeal individual energy credits: The bill would repeal energy tax credits for individuals, including the electric vehicle tax credit and the residential energy efficiency credits in the Inflation Reduction Act (IRA).

• Alternative minimum tax: The bill would extend the TCJA exemptions for the alternative minimum tax (AMT).

• Increase passthrough deduction: The bill would increase the Section 199A passthrough deduction for qualified business income (QBI) from 20% to 23%.

Estate Tax Provisions

• Increase estate tax exemption: The bill would increase the estate tax exemption to $15 million beginning in 2026 and make it adjusted for inflation for subsequent years.

Business Tax Provisions

• Temporarily allow immediate R&D expensing: The bill would allow business taxpayers to fully expense Section 174 domestic research and development (R&D) costs in the year they occur for tax years 2025 through 2029.

• Increases small business expensing: The bill would increase the Section 179 Small Business Expensing Cap from $1.25 million to $2.5 million per year. The bill also increases the phase-out threshold from $2.5 million to $4 million.

• Temporarily allow bonus depreciation: The bill will allow 100% bonus depreciation for short-lived investments from 2025 through 2029.

• Temporarily reinstate EBITDA interest deduction limit: The bill would restore EBITDA-based limitation on business interest deductions under Section 163(j) from 2025 through 2029.

• Temporarily allow 100% expensing of qualifying non-residential structures: The bill would allow 100% expensing of qualifying non-residential structures in manufacturing, extraction, and agriculture sectors, with certain begin construction and placed in service requirements. This would apply from 2025 to 2028.

• Reduces corporate charitable deduction: The bill would allow a corporate deduction for charitable contributions only to the extent that contributions exceed 1% of a corporation’s taxable income.

• Increase 1099-MISC reporting threshold for payments: The House bill would repeal the $600 reporting threshold for Form 1099-K, reverting to the previous threshold of $20,000 and 200 transactions. The bill would also increase the 1099-MISC reporting threshold for payments to an independent contractor or subcontractor from $600 to $2,000.

Energy Tax Credits

• Repeal major clean energy tax credits: The bill repeals and phases out clean energy tax credits. This includes various production tax credits and investment tax credits for clean electricity, nuclear electricity, and hydrogen.

International Tax Provisions

• Permanently increase GILTI deduction: The bill would increase the global intangible low taxed income (GILTI) deduction to 49.2% after 2025. This replaces the scheduled post-2025 reduction to 37.5%.

• Increase FDII deduction: The bill would increase the foreign-derived intangible income (FDII) deduction to 36.5%. This replaces the scheduled post-2025 reduction to 21.875%.

• Decrease BEAT rate: It would also increase the base erosion and anti-abuse tax (BEAT) rate from the current 10% to 10.1%, avoiding the 12.5% scheduled to take effect in 2026.

• Implement retaliatory measures against “unfair taxes”: The bill would implement Section 899, which allows the government to impose retaliatory taxes up to 20% against countries, individuals, and entities of countries that have enacted any “unfair foreign tax.” This would be effective January 1, 2026.

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House passage of the Senate plan is a critical step in the reconciliation process, which requires both chambers to agree on a budget framework of revenue and spending targets before passing a detailed bill. The House and Senate each pursued their own bill, and the Senate budget plan resulted from a compromise between party leaders.

Republican House leaders had to overcome party divisions to gain support for the plan, as conservative Republicans had opposed the bill over concerns that it would increase the national debt. This faction largely supported the resolution, however, as Republican representatives Thomas Massie of Kentucky and Victoria Spartz of Indiana were the only Republicans who voted against it. All Democrats in voted against the resolution, arguing that it would result in cuts for such programs as Medicaid and other social services for low-income families.

Passing a budget framework is considered an easy part of the process, and passage of the actual legislation is likely to be much more difficult. The House Ways and Means Committee is expected to propose tax legislation in early May with Memorial Day as the target date for passing the reconciliation bill. The legislation will include extension of the tax cuts from the Tax Cuts and Jobs Act and Trump’s proposed tax cuts. This includes:

• Reducing the corporate tax rate from 21% to 20% and from 21% to 15% for companies that make their product in the United States;

• Excluding tips from taxation;

• Eliminating or raising the $10,000 limit on state and local tax deductions;

• Excluding overtime pay from taxation;

• Excluding social security benefits from taxation;

• Ending taxation of U.S. citizens living in abroad;

• Increasing child tax credit;

• Reducing taxes on capital gains and dividends.

Trump also reportedly told Republican senators that he is open to raising tax rates on some of the highest-earning taxpayers, according to Semafor.

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