WASHINGTON (AP) – House and Senate Republicans are adopting slightly different strategies regarding the tax cuts that lawmakers aim to incorporate into their extensive Taxes and expenditures reduce your invoice.
There is disagreement among Republicans within both chambers about the scopes of state and local tax deductions. Additionally, they are at odds over whether owners of electric and hybrid vehicles should pay annual fees, as well as the proposal to allow individuals to use their health savings accounts for gym memberships.
The House approved its version shortly before the anniversary, and the Senate is currently working to pass that same version.
While both bills share similarities in their key tax provisions, the way they address their differences in the upcoming weeks will influence how quickly they reach a final agreement. President Donald Trump is advocating for the legislation to be on his desk by July 4th.
Here are some crucial differences between the two bills.
Tax Reductions for Families
The child tax credit is presently $2,000 for each child.
The House bill proposes a temporary increase in the child tax credit to $2,500 for the 2025-2028 tax years, coinciding with the duration of President Donald Trump’s second term. It also intends to adjust the credit for inflation starting in 2027.
Conversely, the Senate bill suggests a less significant initial increase to $2,200, but this boost would be permanent, with credit amounts indexed for inflation beginning next year.
Trump Campaign Promise
Trump promised during his campaign to eliminate the inspiration, overtime, and income tax on Social Security benefits. He also proposes a new tax deduction for car buyers, allowing them to deduct the interest on their car loans.
Both the House and Senate bills include a temporary deduction from the 2025-2028 tax years, though there are variations.
The House bill establishes tip deductions for employees in traditionally tipped jobs and provides overtime deductions similar to the amount accrued by workers.
The Senate bill, however, imposes stricter limits: tip deductions are capped at $25,000 per taxpayer, and overtime deductions are restricted to $12,500 per taxpayer.
Both bills offer a deduction of up to $10,000 for interest paid on loans for vehicles manufactured in the United States.
Regarding Social Security, the bills do not make direct changes to the program. Instead, they offer larger tax credits for Americans over the age of 65, with the House setting the credit at $4,000 and the Senate at $6,000.
Both chambers incorporate income restrictions that will gradually phase out the new deductions.
More SALT
The current cap for state and local tax deductions, commonly referred to as the SALT cap, is $10,000.
The House bill proposes to raise this cap to $40,000 for households earning under $500,000, in an effort to appeal to Republicans from New York, California, and New Jersey. Meanwhile, households earning above $500,000 will see a phase-out of the credit.
The Senate bill intends to retain the cap at $10,000. While this is not favorable for the House, Republicans across both chambers seek to negotiate a consensus figure in the weeks ahead.
Medicaid Providers
The House bills prohibit states from implementing new Provider Tax or raising existing ones. These taxes assist Medicaid providers, such as hospitals, in contributing to their share of Medicaid expenses. Moreover, these taxes enable states to secure a boost in federal matching funds, effectively protecting providers through greater reimbursements that offset their taxes.
These taxes are currently capped at 6%. The Senate is contemplating gradually reducing this cap for states that expanded their Medicaid populations under the Affordable Care Act, or “Obamacare,” down to 3.5% by 2031.
Industry groups have raised alarms that restricting states’ ability to tax providers could lead to significant cuts in Medicaid programs as states compensate for the loss in revenue elsewhere. Medicaid regulations could emerge as a contentious point in the forthcoming negotiations between the House and Senate. R-Mo. Senator Josh Hawley expressed strong opposition to the proposed Senate changes, stating, “This requires a lot of work. It’s really concerning and I’m quite surprised by it. Country hospitals will be in a dire situation.”
Tax Reductions for Businesses
The House bill permits businesses to fully deduct expenses for equipment purchases and domestic R&D for a period of five years. In contrast, the Senate bill does not include a sunset clause, making these tax credits permanent—a key priority for influential trade organizations such as the U.S. Chamber of Commerce.
Clean Energy Tax Credit
Republicans in both chambers are addressing the Clean Energy Tax Credit enacted through then-President Joe Biden’s Climate Law, aimed at facilitating the transition from greenhouse gas emissions to renewable energy sources like wind and solar.
According to the Senate bill, tax credits for clean energy and home energy efficiency will still be phased out, but not as rapidly as in the House bill. Advocacy groups remain concerned that this final step could jeopardize hundreds of thousands of jobs and increase energy expenses for families.
Odds and Ends
The House bill would allow millions of Americans to use their health savings accounts for gym memberships, with a $500 cap for single taxpayers and a $1,000 cap for joint filers. The Senate bill does not encompass such provisions.
The House also aims to reinstate a previously unapproved charity deduction of $150 per taxpayer, whereas the Senate bill proposes an increase in donation deductions to $1,000 per taxpayer.
Additionally, the House bill introduces a new annual fee of $250 for electric vehicle owners and $100 for hybrid vehicle owners, to be collected by the state’s automotive division. In contrast, the Senate bill omits these proposed fees.
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Source: apnews.com