This week, the Senate disclosed its amendments to a bill, previously hailed as the ‘One Big Beautiful Bill’ by former President Donald Trump. Some specialists express skepticism about whether these modifications serve the average American better than the initial version presented by the House. The adjusted legislation, although preserving advantageous provisions such as non-taxable overtime and tips along with other benefits, might not be as advantageous for individual taxpayers due to certain modifications.
The Senate’s updated legislation continues to uphold some of the main attractions from President Trump’s legislation, such as the absence of taxes on overtime hours and gratuities. This policy, widely celebrated during Trump’s campaign, has been maintained, but with some adjustments. The Senate presents a cap of $25,000 for deductions related to both overtime and tip income, a stark difference from the absence of a cap in the previous iteration.
However, the newly proposed cap isn’t the only alteration. For lone filers, these favored deductions begin to phase out when the modified adjusted gross income (MAGI) exceeds $150,000, and for couples, the cutoff is twice that amount. For every increment in income of $1,000 above these respective thresholds, the available deduction dips by $100.
The calculation of the MAGI commences with the summation of all income sources to form the adjusted gross income (AGI). From there, this AGI undergoes further adjustments leading to the final MAGI. For individual taxpayers, complete elimination of the deduction comes into effect when income is $250,000 over the specified MAGI threshold. Contrary to this new plan, the original legislation from the House contained no such caps or phase-out policies.
Another amendment offered by the Senate involves an extra $6,000 deduction for citizens aged 65 and over. However, this only applies up to an earning limit of $75,000 for single taxpayers and $150,000 for couples. This particular deduction is provisionally set for the period between 2025 and 2028.
It’s worth noting that this bonus deduction was provided as a substitute for the former president’s pledge pertaining to non-taxable Social Security. This alteration can be attributed to the budget reconciliation process, which prohibits stipulations concerning Social Security.
Substantial losses could be incurred by individual taxpayers under the Senate’s updated version of the SALT deduction, a provision that has sparked controversy since its inception. Prior to Trump’s significant 2017 tax bill, which placed a $10,000 cap on it, the SALT deduction was completely unlimited. This meant every state and local tax could be claimed as a deduction on federal returns.
The placement of the cap initially appeared to negatively impact Democratic states such as New York, which are known for their high state and local taxes. To mitigate these constraints, several states hatched a stratagem involving Pass-Through Entity (PTE) taxes, enabling entities to bear state income tax at the corporate level and receive the deduction on that basis.
However, it’s important to remember that the SALT cap only applies to individuals, not entities. Consequently, while it may appear that individuals bear the brunt, entities are immune. Raising this cap was a part of the House’s proposal, moving the limit to $40,000 specifically for those with a personal income of $500,000 and lower.
In a final twist, the Senate not only held onto the $10,000 cap for the SALT deduction, but also extended its limitation to pass-through entity (PTE) taxes. Betraying the hopes of many taxpayers who expected a loosening of limits, the Senate’s adjusted plans brought disappointment. As a result, the re-emergence of this issue under the latest Senate amendments reminds us of the bill’s continued contentiousness.
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