How Senate Tax Bill Differs From House Bill: What to Know

Senate lawmakers have released proposed tax changes to the One Big Beautiful Bill Act, making a number of changes to the budget plan approved by the House of Representatives in May.

Why It Matters

The bill is the cornerstone of President Donald Trump’s economic agenda for his second term in office. The Senate Committee on Finance argues its proposal of changes to the bill “prevents the largest tax hike in history” and provides tax relief for families and businesses. But its critics have said it will hand wealthy Americans unfair tax breaks.

Congress — Stock image: United States Capitol is seen, taken October 27, 2024 in Washington D.C.

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State and Local Tax (SALT)

The Senate’s proposed text released on Monday includes no change from the current $10,000 SALT (state and local tax) deduction cap, down from the $40,000 limit approved by House Republicans in May.

Since 2018, single and joint filers can only deduct up $10,000 in SALT payments, as part of Trump’s Tax Cuts and Jobs Act (TCJA). It is particularly pertinent for high-tax states such as New York, California, and New Jersey, where residents often pay significantly more in property, income, and sales taxes.

The unchanged cap has caused some concern among Republican lawmakers, and the Senate will likely continue to negotiate the cap point up until the self-imposed July 4 deadline.

“We understand that it’s a negotiation,” Senate Majority Leader John Thune said on Monday. “Obviously, there had to be some marker. We are prepared to have discussions with our colleagues here in the Senate and figure out a landing spot.”

Republicans on the other side of Congress have said that, despite the Senate committee’s changes, they remain committed to the raised cap.

“We have been crystal clear that the SALT deal we negotiated in good faith with the Speaker and the White House must remain in the final bill,” California’s Young Kim and New York’s Andrew Garbarino said in a joint statement. “Instead of undermining the deal already in place and putting the entire bill at risk, the Senate should work with us to keep our promise of historic tax relief and deliver on our Republican agenda.”

No Tax on Tips

The Senate Finance Committee’s proposal would limit tax breaks on tipped income and overtime pay—one of Trump’s major pledges during the 2024 election campaign. The House version allowed deductions on income up to $160,000 annually.

The Senate plan offers a $25,000 deduction, which begins to phase out for single filers earning over $150,000 and couples earning over $300,000. For overtime pay, Senate Republicans also propose a $25,000 deduction for joint filers.

Child Tax Credit

Under the Senate proposal, the Child Tax Credit would increase to just $2,200—$300 less than the $2,500 proposed by the House.

The CTC is currently $2,000, but faces a drop to the pre-TJCA amount, which is $1,000, at the end of this year if not extended.

Earned Income Tax Credit

The Senate proposal adds a new “certification program” to the Earned Income Tax Credit (EITC), which helps low-income workers, especially those with children. It reduces the amount of tax owed and may result in a refund. Eligibility and credit amount depend on income, filing status, and number of qualifying children.

The new certification program for the credit will require taxpayers to provide information and documentation to “establish a child’s status as a qualifying child of the taxpayer for a tax year.”

Critics have said the idea has already been tested and failed, and could lead some to lose the credit, which is worth up to $7,830 for families with three children.

“The Bush administration tried and abandoned this idea 20 years ago, and the current, depleted IRS is not equipped to administer such an expansive new requirement,” said the Center for Budget and Policy Priorities (CBPP), a left-leaning think tank.

Greg Leiserson, senior fellow at the New York University Tax Law Center, said it would “lead to an unprecedented number of audits, overwhelmingly focused on low- and moderate-income workers.”