Don't Mess With Taxes

Update, Friday, July 4, 2025: Donald Trump signed the One Big Beautiful Bill Act into law at a White House ceremony on his preferred July 4 holiday date.

Update, Thursday, July 3, 2025: House Republican leaders overcame nominal defiance by some of the party's members and pushed the One Big Beautiful Bill Act through this afternoon, meeting the July 4 deadline set by the White House.

Will U.S. Representatives be able to celebrate July 4th at home? UPDATE, July 3, 2025: Yes.

It depends on how quickly they can resolve the differences between the One Big Beautiful Bill (OBBB) tax and budget bill they sent to the Senate and the version the upper chamber sent back to the House. UPDATE, July 3, 2025: It took a bit, but enough GOP members ultimately were convinced to vote yes on the Senate version.

There’s debate on how beautiful, or not, the bill is, but all agree the thing is big. That’s produces many potential changes that could affect millions of Americans.

Since this is a tax blog, and for simplicity’s sake, here are the key differences in the two big bill version in some tax areas of interest to individuals. UPDATE, July 3, 2025: The Senate provisions are what now will become law.

Tip income: Current law says gratuities are taxable income. During the presidential campaign, Donald Trump vowed to end that. The OBBB eases the tax bite on tips, but doesn’t eliminate them for all. During the discussion of this promise, lawmakers also included overtime pay in the mix.

The House’s version would eliminate federal income taxes on tips, but only if their annual income was $160,000 or less. That probably would cover most people who have jobs where they traditionally receive tips. But depending on the job, some folks still could find themselves owing tax on their tip income.

The Senate version would phase out benefits for individuals whose income exceeds $150,000 or couples whose income exceeds $300,000.

As for overtime, many employees who get added income for added hours on the job would be able to deduct the extra pay. Again, there’s an income limit, which is $160,000 in tax year 2025.

And the tax breaks are temporary under the House proposal. Both the tip and OT income deductions would be in effect only from 2025 through 2028.

The Senate’s proposal in these areas is similar, but it calls for caps on the tax breaks. Tipped employees could only deduct only up to $25,000 in gratuity income. The deduction for overtime pay would be limited to $12,500 for a single worker.

Social Security benefits’ taxation. Some senior citizens currently pay tax on 50 percent of their federal retirement benefits. Others with more retirement funds face a larger tax bill, owing Uncle Sam on 85 percent of their Social Security benefits.

As with tips, Trump vowed to end these taxes. But the reality of how much the taxes paid by retirees on their Social Security helps keep the program in the black prompted Congress to backtrack here.

Representatives instead opted to boost the standard deduction for senior citizens by $4,000 from 2025 through 2028. This amount would be in addition to the already allowed deduction amount — $2,000 for single filers or heads of household; $1,600 for each spouse filing jointly or separately in 2025 — available to taxpayers age 65 or older.

In the House OBBB version, the additional $4,000 standard deduction bump for seniors would start to phase out for single filers with incomes of more than $75,000; the phaseout income trigger is $150,000 for older married filing jointly couples.

The Senate’s increase also is just for tax years 2025 through 2028, but is larger. It would give older filers an added $6,000 to their standard deduction. The income thresholds would be the same, but the Senate version phases out the added amount more quickly.

Child Tax Credit. Tax policy has long been used to reward political positions, especially when it comes to families. One of the most popular across the political spectrum is the Child Tax Credit (CTC).

The House's bill would increase the CTC, which currently is $2,000, by $500 per qualifying child. The hike would be for tax years 2025 through 2028. The parents, in addition to the child, would have to have Social Security numbers to qualify.

The Senate's version calls for a slightly lower CTC, just $2,200. But this hike would be permanent. And where parents file a joint tax return, only one would have to have a Social Security number to claim the credit.

Clean energy tax credits. One of the main targets of the OBBB is the collection of environmentally friendly tax breaks in the Biden administration’s Inflation Reduction Act.

The House version would speed up the timelines for phasing out key clean energy tax credits to the end of 2028. This includes new, tighter requirements for energy companies building solar, wind, battery, or geothermal facilities to generate electricity; there is a nuclear energy exception. The House OBBB also would claw back unspent Inflation Reduction Act funds.

Industry executives had expected (hoped) the Senate would soften the House’s tough anti-clean energy stance. No such luck. The upper chamber actually speeds up some end dates for the individual environmentally friendly tax breaks.

The tax credit to encourage drivers to buy electric vehicles, for example, would end Sept. 30. Yes, this Sept. 30. The Senate version also more quickly phases out tax credits that homeowners can claim to defray the cost of energy efficient residential improvements.

SALT changes. The federal tax deduction limit of $10,000 for state and local taxes, known by its acronym SALT, has been a bitter tax change for many taxpayers since it was enacted as part of the Tax Cuts and Jobs Act (TCJA) of 2017.

Lawmakers in high-tax states, which tended to lean Democratic, raised their constituents’ concerns and complaints from the get-go, but the movement took on new urgency when some Republican members of Congress joined the SALT cap fight.

In the House, they were able to get the cap increased to $40,000 in the OBBB that was passed May 27. The increase would be gradual over time, lasting until 2034. The higher deduction amount also would be limited to those making $500,000 or less. For those with incomes greater than that, the deduction cap would be phased down, potentially back to the $10,000 level.

Senators originally wanted to stick with the TCJA’s $10,000 cap. Last minute maneuvering, however, ended up with an increase in the SALT cap to $40,000 in 2025 for filers making up to $500,000 through 2029. That cap will be adjusted annually for inflation, until 2030, when it would return to the $10,000 limit.

You also might find these items of interest:

• Senate unanimously passes No Tax on Tips bill
• Electric vehicle tax credit could end in just three months
• Senate sends tax bill back to House, with SALT seasoning

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