Senate Releases Updates on “The One, Big, Beautiful Bill”

Provision

House Bill

Senate Bill *NEW*

Extension of tax rates

The current income tax rates would continue for individuals, estates and trusts and be indexed for inflation. No change to the corporate tax rate.

Same

Pass-through businesses (partnerships and S corporations)

Makes the Qualified Business Income Deduction (IRC Section 199A) permanent and increases the deduction from 20% to 23% in 2026.

Makes the Qualified Business Income Deduction of 20% permanent AND increases the deduction limit phase-in range to $75,000 ($150,000 for joint filers).

State and Local Tax (SALT) deduction

Changes the SALT deduction to $40,000 but with phase-downs for high-income earners. Potential limitations on using the pass-through entity tax workaround for service businesses (i.e., medical practices, attorneys, accountants, architects and engineers and similar).

Permanent extension of the current SALT cap at $10,000 with no deduction for personal foreign real property taxes. In addition, there would be an individual-level limitation for a partnership or S corporation’s owner’s separately stated share of pass-through entity taxes (PTET). This limitation allows an individual to deduct any unused portion of their SALT cap plus the greater of $40,000 of their allocation of their PTET OR 50% of their allocation of PTET. Removes specific restriction on PTET for service businesses.

Gift and estate tax

Extension of increased estate and gift tax exemptions and permanent enhancement – gift and estate tax exemptions would be $15 million beginning in 2026.

Same

Bonus depreciation

Extension of bonus depreciation of 100% for property placed in service from January 19, 2025, through December 31, 2029.

Permanently extends and modifies bonus depreciation to 100% for property placed in service on or after January 19, 2025.

Research and development (R&D)

Restoration of full expensing for R&D costs in 2025 through 2029.

Same, but adds additional relief for amounts capitalized in 2022-2024. Small business taxpayer provisions allow retroactively applying full expensing to tax years beginning after December 31, 2021. In addition, all taxpayers that made domestic research or experimental expenditures after December 31, 2021, and before January 1, 2025, will be permitted to elect to accelerate the remaining deductions over one or two years.

Business interest deduction

Restoration of business interest deduction computation under IRC 163(j) to include an add-back for depreciation and amortization expense in 2025 through 2028.

Same, but it does so permanently.

Provision

House Bill

Senate Bill *NEW*

IRC Section 179 expense limit

Increases IRC Section 179 expense limit to $2,500,000 beginning in 2025.

Same

Small manufacturer accounting

Increases the gross receipts threshold to $80 million (from $25 million) for small manufacturers for simpler accounting methods.

No mention.

Paid family leave credit

Extension and enhancement of paid family leave tax credit.

Same

Employer-provided childcare credits

Increases from 25% to 40% to a maximum credit of $500,000 and 50% for small businesses up to a maximum of $600,000.

Same

Form 1099 threshold

Increases from $600 to $2,000 and annual increases are indexed for inflation.

Same

Provision

House Bill

Senate Bill *NEW*

Tip credit expansion

Extension of tip credits to beauty services businesses, including barbering and hair care, nail care, esthetics and body and spa treatment businesses.

No mention.

Opportunity zones (OZs)

Renewal and enhancement of OZs, including a new round of OZ designations.

Permanent OZ policy that builds off of current policy and creation of rolling 10-year OZ designations beginning January 1, 2027. Also preserves current OZ benefits and provides additional benefits.

Clean vehicle/energy credits

Termination of commercial clean vehicle tax credit and other energy tax credits.

Same, but most vehicle and energy credits terminate with property placed in service 180 days after the date of enactment of the tax legislation.

Employee Retention Credit (ERC) updates

Updates to the ERC, including an extension of time for the IRS to challenge a claim to six years from the date the claim is filed and a halt of ERC refund processing for claims filed after January 31, 2024.

Same, but also requires ERC promoters to comply with due diligence requirements for taxpayer eligibility and applies penalties for each failure to comply. Also extends the penalty for excessive refund claims to employment tax refund claims.

Provision

House Bill

Senate Bill *NEW*

Foreign-Derived Intangible Income (FDII) and Global Intangible Low-Taxed Income (GILTI) deduction

Extension (indefinitely) of deduction rate at current levels for FDII and GILTI (deduction rate currently set to decrease at the end of 2025), with a small adjustment.

Reduces the current Section 250 deduction from 37.5% to 33.34% for FDII and 50% to 40% for GILTI. These rates are intended to remain in place indefinitely.

Section 899

New Section 899 would increase the tax on U.S. income of foreign individuals and foreign-owned corporations if the parent country imposed unfair taxes on U.S. businesses (i.e., enacted Pillar 2 legislation). The 5% additional tax would be on the withholding tax provisions currently existing under U.S. tax law. 

Slightly modified who the new Section 899 applies to and adjusted the additional tax. The additional tax still starts at 5%, but the increase over time is capped at 15% (instead of 20% under the House Bill). It also would not apply to taxable years with a starting date in 2026. Also removes the threshold for application of the Base Erosion and Anti-Abuse Tax (BEAT) to certain foreign-owned entities.

BEAT

Modifies the BEAT by increasing the BEAT tax base from 10% of modified taxable income to 12.5%, among other alterations.

Modifies the BEAT by increasing the BEAT tax base from 10% of modified taxable income to 14% of modified taxable income. Also includes other minor modifications to Section 59A.

FDII rental and royalty income

N/A

Language that removes the FDII benefit for sales of property that gives rise to rents and royalties, as well as certain other types of income. These amendments apply to any income attributable to amounts received or accrued after June 16, 2025.

GILTI definition update

N/A

GILTI is amended by removing the benefit of the Qualified Business Asset Investment (return on tangible personal property) and replacing the reference to GILTI with Net CFC Tested Income throughout the Code.

Controlled foreign corporations (CFC) rules

N/A

Section 954(c)(6)(C) is amended to permanently extend the look-thru rules for controlled foreign corporations; rule preventing “downward attribution” for CFC status is reinstated.

Provision

House Bill

Senate Bill *NEW*

Section 1202

N/A

Expansion of Section 1202 Qualified Small Business Stock benefits – making more companies eligible, a higher exclusion (an increase to $15 million) and a phase-in of benefits for holding periods of less than 5 years

Tip income

No tax on tipped income. Tipped income would be separately shown on W-2s and allowed as a deduction on income tax returns beginning in 2025 through 2028. Language would limit this to industries where tips are currently customary.

No tax on tipped income capped at $25,000 for qualified tips and phases out when modified adjusted gross income exceeds $150,000 ($300,000 joint filers).

Overtime income

No tax on overtime wages. Overtime wages would be separately shown on W-2s and allowed as a deduction on income tax returns beginning in 2025 through 2028.

No tax on overtime wages capped at $12,500 ($25,000 joint filers) and phases out when modified adjusted gross income exceeds $150,000 ($300,000 joint filers) from 2025-2028.

Child tax credit

Temporary enhancement of the child tax credit to $2,500 for 2025-2028 and $2,000 thereafter.

Permanent child tax credit of $2,200 per child.

Standard deduction and exemptions

Increase and temporarily enhance standard deduction and permanently remove personal exemptions.

Same

Alternative Minimum Tax (AMT) exemption

Extension of Alternative Minimum Tax (AMT) exemption and phase-out thresholds.

Same

Mortgage and casualty deductions

Extension of limitation on deduction for qualified residential interest and casualty loss deductions.

Same

Miscellaneous deductions

Permanent termination of miscellaneous itemized deductions.

Same, but it also removes unreimbursed employee expenses for eligible educators from the list of miscellaneous itemized deductions, thus allowing these expenses.

High-income itemized limits

Limitations of tax benefits of itemized deductions for high-income earners.

Same

Scholarship credits

Limited to the greater of $5,000 or 10% of adjusted gross income.

Same

529 plans

Additional elementary, secondary and home school expenses are treated as eligible education expenses and the creation of a federal program like 529 state plans.

Same

Energy credits

Termination of clean vehicle tax credit and other energy tax credits.

Same, but most vehicle and energy credits terminate with property placed in service 180 days after the date of enactment of the tax legislation.