Senate Passes Big Beautiful Bill: Key Tax Updates [2025]

Senate Passes Significant Tax Legislation

The U.S. Senate recently passed the One Big Beautiful Bill Act, important tax legislation that could impact millions of Americans and businesses. The bill passed by a narrow 51-50 margin, with Vice President JD Vance casting the deciding vote.

The legislation extends many expiring provisions from the Tax Cuts and Jobs Act (TCJA), P.L. 115-97, while addressing other Trump administration tax priorities. It now returns to the House of Representatives. If approved without changes, it will become law. However, any House modifications would require another Senate vote.

For a detailed comparison of Major tax provisions between the Senate bill, the House bill, and current law, view the AICPA’s official summary charts.

Key Changes for Individual Taxpayers

Tax Rates and Standard Deduction

The bill makes the TCJA’s 2017 tax rates permanent, providing long-term certainty for taxpayers. Standard deduction amounts will also become permanent, with significant increases for all filing statuses.

For 2025, single filers will see a standard deduction of $15,750, heads of households $23,625, and married couples filing jointly $31,500. These amounts will adjust annually for inflation going forward.

The bill adds an additional year of inflation adjustment for determining rate brackets above 12% and 22%, according to Senate provisions.

State and Local Tax (SALT) Deduction

One of the most talked-about changes involves the SALT deduction cap. The current $10,000 limit will temporarily increase to $40,000 through 2029, according to the Senate bill provisions.

The increased deduction phases out for high-income earners with modified adjusted gross income over $500,000. The cap will adjust for inflation annually, reaching $40,400 in 2026 and increasing by 1% each year through 2029. After 2029, the limit returns to $10,000.

Notably, the Senate version doesn’t include House restrictions on passthrough entity tax (PTET) workarounds. As AICPA President and CEO Mark Koziel stated: “We are grateful to members of Congress who supported millions of businesses’ ability to retain this critical deduction.”

Family-Focused Benefits

The child’s tax credit increases to $2,200 per child, with inflation adjustments built in. Parents will also see expanded dependent care assistance, with the maximum exclusion rising from $5,000 to $7,500.

A new senior deduction of $6,000 will benefit taxpayers age 65 and older, though it phases out at higher income levels.

No Tax on Tips and Overtime

Workers in tip-based industries can deduct up to $25,000 in qualified tips from their taxable income. This applies to both employees and independent contractors receiving tips.

Similarly, qualifying overtime pay will be deductible up to $12,500 for individuals ($25,000 for married couples). Both provisions run through 2028 and phase out at higher income levels.

Other Individual Changes

The legislation eliminates taxes on qualified car loan interest for vehicles assembled in the United States. The deduction caps at $10,000 annually and phases out for higher earners.

Estate and gift tax exemptions will permanently increase to $15 million for individuals ($30 million for couples), providing substantial estate planning benefits.

Business Tax Provisions

Immediate Benefits for Companies

Businesses will see the return of 100% bonus depreciation under Section 168, allowing immediate write-offs for qualifying property acquired and placed in service on or after January 19, 2025. The Section 179 expensing limit increases to $2.5 million, reduced when qualifying property costs exceed $4 million.

Under Section 174, companies can immediately deduct domestic research and development expenses for tax years beginning after December 31, 2024. However, foreign research expenses must continue to be amortized over 15 years.

Small business taxpayers with average annual gross receipts of $31 million or less can apply this change retroactively to tax years beginning after December 31, 2021.

Small Business Advantages

The Section 199A qualified business income (QBI) deduction becomes permanent at 20% (compared to the House bill’s proposed 23% rate). The bill expands phase-in ranges for specified service trades or businesses, increasing thresholds from $50,000 to $75,000 for single filers and $100,000 to $150,000 for joint filers.

Small businesses with limited income will receive a new inflation-adjusted minimum deduction of $400 for taxpayers with at least $1,000 of QBI from active trades or businesses where they materially participate.

Under Section 1202, qualified small business stock gains will see enhanced exclusions – 75% for stock held four years and 100% for five-year holdings, representing a significant increase from the current 50% exclusion.

Manufacturing Incentives

Manufacturing companies benefit from 100% first-year depreciation on qualified production property. The advanced manufacturing investment credit increases from 25% to 35%.

New provisions also support spaceport development and increase employer-provided childcare credits significantly.

Clean Energy Changes

The legislation terminates numerous clean energy tax incentives with specific deadlines. Key eliminations include the Section 30D clean vehicle credit (terminated after September 30, 2025), Section 25C energy-efficient home improvement credit (terminated after December 31, 2025), and Section 25D residential clean energy credit (terminated for expenditures after December 31, 2025).

Commercial incentives also face termination, including the Section 179D energy-efficient commercial buildings deduction (terminated for construction beginning after June 30, 2026) and Section 45L new energy-efficient home credit (same deadline).

However, the Section 45Z clean fuel production credit extends through 2029 with new restrictions. The Section 45Y clean electricity production credit terminates for wind and solar facilities placed in service after December 31, 2027, with similar restrictions for foreign entity ownership.

International Tax Updates

Multinational corporations face mixed changes under the new provisions. The Section 960(d)(1) deemed paid credit for foreign taxes increases from 80% to 90%, providing some relief for Subpart F inclusions.

The legislation modifies Global Intangible Low-Taxed Income (GILTI) and Foreign-Derived Intangible Income (FDII) calculations. Section 250 deduction percentages decrease to 33.34% for FDII and 40% for GILTI, resulting in effective tax rates of 14% for both.

The base erosion anti-abuse tax (BEAT) rate under the bill increases from 10% to 10.5%. The Senate version eliminated more aggressive BEAT changes that were in the Finance Committee’s proposal.

Administrative Changes

The legislation includes several reporting threshold changes that reduce compliance burden. Third-party payment processors return to the previous $20,000 reporting threshold under Form 1099-K rules, reversing the planned reduction to $600.

General business payment reporting thresholds under Form 1099 increase from $600 to $2,000 for payments to persons engaged in trade or business, with annual inflation adjustments beginning in 2026.

The bill also includes Employee Retention Credit (ERC) enforcement provisions, requiring promoters to comply with due diligence requirements and imposing $1,000 penalties for each compliance failure. The IRS cannot issue additional unpaid ERC claims unless filed by January 31, 2024.

What This Means for You

These changes represent the most significant tax legislation in years. Individual taxpayers will generally see benefits through extended provisions and new deductions.

Businesses, particularly manufacturers and pass-through entities, gain substantial advantages through enhanced depreciation and permanent deductions.

However, the complexity of these changes makes professional tax guidance more important than ever. Different provisions have varying effective dates and phase-out rules.

Next Steps

At Virtue CPAs, we’re closely monitoring this legislation’s progress through Congress. Our team is preparing to help clients understand how these changes affect their specific situations, using resources like the AICPA’s comparison charts that detail differences between the Senate bill, House bill, and current law.

We recommend reviewing your tax strategy once the bill becomes final law. Many provisions offer planning opportunities that require timely action to maximize benefits, particularly given the various effective dates and phase-out rules.

Contact Virtue CPAs office to discuss how these potential changes might impact on your tax situation and financial planning strategies.