Tax Alert: Senate Finance Committee Releases its Version of Reconciliation Bill
On June 16, 2025 the Senate Finance Committee released proposed legislation for a reconciliation bill that largely reflects the House bill passed in May but includes key changes.
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.