Breaking Down the Senate’s June 16 Tax Proposal: How It Compares to the House Bill

On Monday afternoon, June 16, the U.S. Senate Finance Committee released its version of the tax package to be included in the reconciliation bill working its way through the U.S. Congress. 

While we’re still reviewing the bill’s text to measure its full impact, here’s what we’ve learned so far, including how it differs from the House’s initial proposal: 

• The SALT deduction cap is still a question mark. The proposal permanently extends the existing $10,000 federal deduction cap, which is set to expire at the end of 2025. However, the committee said it’s “the subject of continuing negotiations.” The proposal also limits the pass-through entity owners’ deduction of pass-through entity taxes (PTET) to the unused portion of their SALT deduction plus the greater of $40,000 or 50% of their allocated PTET deduction; there is currently no limitation on PTET deductions. 
• 100% bonus depreciation would be permanent. The House package proposal would’ve instituted 100% first-year depreciation expensing only through 2029. The provision would apply to property placed in service on or after January 19, 2025, under both the House and Senate versions. 
• Excess business loss deduction limitations would be permanent. This mirrors the House’s proposal with an added change that would limit the utilization of these losses in future years. 
• The business interest deduction limitation would permanently return to an EBITDA baseline. The Senate proposal generally allows a deduction of business interest of up to 30% of a company’s EBITDA rather than EBIT, the current baseline. The House bill would make the same change, but only through 2029. 
• Full domestic R&D expensing would be permitted with retroactivity for small businesses. The Senate package permanently permits domestic R&D expenses to be deducted in the year incurred, starting in 2025. It’d also let small businesses apply the change retroactively to 2022, when capitalization and amortization requirements began. All other businesses could accelerate remaining R&D deductions over one or two years. The House package would’ve merely allowed full R&D expensing from 2025 through 2029 with no retroactivity or accelerated deductions of already-capitalized R&D expenditures. 
• Taxes on tips and overtime would be reduced. For 2025 through 2028, up to $25,000 in tips and up to $12,500 in overtime pay wouldn’t be taxable for those earning up to $150,000 per year. The House version of these provisions has no limitations on the deduction or income amounts. 
• The qualified business income (QBI) deduction would be permanent. The House tax package would also make the QBI deduction permanent, but it’d raise the percentage from 20% to 23% and further limit the benefit for high-income earners. The Senate’s proposal would keep the rate at 20% and may make existing phase-out limitations more favorable for high earners. 
• Unreimbursed teacher expenses would be deductible. The Senate tax package would let K-12 educators deduct unreimbursed employee expenses that exceed 2.5% of their adjusted gross income. 

These proposals are not yet law and may look quite different when enacted. While Congress aims to pass the reconciliation package by July 4, it’s unclear whether they’ll deliver on time. We’re continuing to monitor the legislative environment to measure the effects of tax reform on you and your business.