Federal

Significant Changes to Tax Bill Expected in Senate

The U.S. House of Representatives passed President Trump’s One Big Beautiful Bill Act, by a single vote last week, but major revisions may be necessary for it to pass the Senate. Most Republican senators agree with the broad outlines of the legislation (H.R. 1) that would make permanent the changes in the 2017 Tax Cuts and Jobs Act and make other significant changes to the tax code. However, some high-ranking Republican senators have gone on record as saying that there are a number of items in the legislation that probably won’t make it through the Senate unchanged.

The Senate is not expected to begin considering proposed changes to the House-passed legislation until after its week-long Memorial Day recess. Republicans control the Senate and can pass the bill by a simple majority vote under special rules that bypass the typical 60-vote threshold required to pass most legislation. If the Senate makes any changes to the House bill, the two chambers must negotiate a resolution that must be approved by the House. We continue to monitor the tax legislation as it moves through Congress and will provide updates on changes that could impact your tax practice.

Senate Passes the “No Tax on Tips Act”

On May 20, the U.S. Senate passed legislation (S. 129) to create a deduction for cash tips. The same legislation has been introduced into the U.S. House of Representatives (H.R. 482), which may pass separately. The two bills were introduced prior to the drafting of the tax package currently being considered by the Senate, which includes provisions temporarily eliminating taxes on tips. However, if the No Tax on Tips Act remains as a standalone legislation, the changes would be permanent.

The primary elements of standalone versions of the legislation include:

• 100% federal tax deduction on up to $25,000 of cash tips that taxpayers report to their employers for payroll and withholding purposes
• Limited to taxpayers who earn $160,000 or less in 2024 (adjusted annually for inflation)

If the standalone legislation is enacted, taxpayers could deduct their cash tips for tax year 2025, but those cash tips are still subject to Social Security and Medicaid taxes. Other noncash tips, like those from credit or debit cards, would still be taxed and subject to federal income tax as well.