What the Senate Republican tax and spending bill means for your money

CNBC

01-07-2025

Senate Republicans on Tuesday approved their version of President Donald Trump's multi-trillion-dollar tax and spending package, which could broadly impact millions of Americans' wallets.
Similar to the House's One Big Beautiful Bill Act advanced in May, the Senate legislation aims to make permanent Trump's 2017 tax cuts, while adding new tax breaks for tip income, overtime pay and auto loans, among other provisions.
If enacted, the bill could also slash spending on social safety net programs such as Medicaid and SNAP, axe tax credits tied to clean energy and overhaul student loans.
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The spending package could still see changes as it returns to the lower chamber for approval. But a House floor vote could come as this week to meet Trump's July 4 deadline.
Here are some of the key provisions to watch — and how those measures could impact household finances.
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Since 2018, the $10,000 cap on the state and local tax deduction, known as 'SALT,' has been a critical issue for certain lawmakers in high-tax states like New York, New Jersey and California.
The SALT deduction — including state and local income and property taxes — was unlimited for filers who itemized deductions before 2018. But the alternative minimum tax reduced the benefit for some wealthier Americans.
A sticking point for some House lawmakers, the lower chamber approved a $40,000 SALT limit starting in 2025. The higher tax break would begin in 2025 and phase out over $500,000.
The Senate version of the bill would also lift the cap to $40,000 starting in 2025, with the phaseout starting above $500,000 of income. Both figures would increase by 1% yearly through 2029 and the $40,000 limit would revert to $10,000 in 2030.
"If you raise the cap, the people who benefit the most are going to be upper middle-income," since lower earners typically don't itemize tax deductions, Howard Gleckman, senior fellow at the Urban-Brookings Tax Policy Center, previously told CNBC.
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Trump's 2017 tax cuts temporarily boosted the maximum child tax credit to $2,000 from $1,000, an increase that will sunset after 2025 without an extension from Congress.
If enacted, the Senate bill would permanently bump the biggest credit to $2,200 starting in 2025 and index this figure for inflation starting in 2026.
Meanwhile, the House version of the bill lifts the top child tax credit to $2,500 from 2025 through 2028. After 2028, the credit's highest value would revert to $2,000 and be indexed for inflation.
However, the proposed bills wouldn't help 17 million children from low-income families who don't earn enough to claim the full credit, according to Elaine Maag, senior fellow in the Urban-Brookings Tax Policy Center.
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Both the House and Senate called for a temporary enhanced deduction for Americans ages 65 and over, dubbed a "bonus," in their respective versions of the "big beautiful" bill.
The Senate proposed raising the deduction to $6,000 per qualifying individual, up from $4,000 proposed by the House.
The full deduction would be available to individuals with up to $75,000 in modified adjusted gross income, and $150,000 if married and filing jointly. Notably, the Senate version would phase out at a faster rate for taxpayers who are above those thresholds.
Ultimately, middle-income taxpayers may benefit most from the enhanced deduction, Howard Gleckman, senior fellow at the Urban-Brookings Tax Policy Center, recently told CNBC.
The senior bonus is in lieu of eliminating taxes on Social Security benefits, which had been touted by the Trump administration, since changes to Social Security are generally prohibited in reconciliation legislation. As Republicans seek to slash federal spending, Medicaid, which provides health coverage for more than 71 million people, has been a target for those cuts in both House and Senate versions of the bill.
The Senate version of the bill would cut more than $1 trillion from Medicaid, compared to more than $800 billion in cuts in the House version, according to Congressional Budget Office estimates.
New federal work requirements would require beneficiaries ages 19 to 64 who apply for coverage or who are enrolled through an Affordable Care Act expansion group to work at least 80 hours per month. Adults may be exempt if they have dependent children or other qualifying circumstances such as a medical condition. Notably, the Senate version of the bill proposed stricter limits on exemptions for parents, limiting it to those with dependent children ages 14 and under.
The proposed Medicaid changes would also make it so states would have to conduct eligibility redeterminations for coverage every six months, rather than every 12 months based on current policy.
About 7.8 million people could become uninsured by 2034 due to Medicaid cuts, CBO has projected based on the House bill.Both Senate and House versions of the "big beautiful" bill propose cuts to food assistance through the Supplemental Nutrition Assistance Program, or SNAP, formerly known as food stamps.
The cuts in the Senate bill may ultimately affect more than 40 million people, according to the Center on Budget and Policy Priorities. That includes about 16 million children, 8 million seniors and 4 million non-elderly adults with disabilities, among others, according to CBPP, a nonpartisan research and policy institute.
Many states would be required to pay a percentage for food benefits to make up for the federal funding cuts. If they cannot make up for the funding losses, that could result in cuts to SNAP benefits or states opting out of the program altogether, according to CBPP.
The Senate proposal also seeks to expand existing work requirements to include adults ages 55 to 64 and parents with children 14 and over. Based on current rules, most individuals cannot receive benefits for more than three months out of every three years unless they work at least 20 hours per week or qualify for an exemption.
For about 600,000 low-income households, food benefits could be cut by an average of $100 per month, according to CBPP.The Senate's version of Trump's budget bill also included a new savings account for children with a one-time deposit of $1,000 from the federal government for those born in 2024 through 2028.
Starting in 2026, so-called "Trump accounts," a type of tax-advantaged saving account, would be available to all children under the age of eight years old who are U.S. citizens, largely in line with the House plan advanced in May.
To be eligible to receive the initial seed money, both parents must have Social Security numbers. Parents would then be able to contribute up to $5,000 a year and the balance will be invested in a diversified fund that tracks a U.S. stock index. Earnings grow tax-deferred, and qualified withdrawals are taxed as long-term capital gains.
Republican lawmakers have said these accounts will introduce more Americans to wealth-building opportunities and the benefits of compound growth. But some experts say a 529 college savings plan is a better alternative because of the higher contribution limits and tax advantages.Key changes are in store for student loan borrowers. For starters, Republicans would limit how much money people can borrow from the federal government to pay for their education.
Among other measures, the Senate plan would:
Going forward, there would be just two repayment plan choices for new borrowers: Student loan borrowers could either enroll in a standard repayment plan with fixed payments, or an income-based repayment plan known as the "Repayment Assistance Plan," or RAP.
The bill would also nix the unemployment deferment and economic hardship deferment, both of which student loan borrowers use to pause their payments during periods of financial difficulty.The Senate bill creates a tax deduction for households on car loan interest, similar to a provision in the House bill.
Certain households would be able to deduct up to $10,000 of annual interest on new auto loans from their taxable income. The tax break would be temporary, lasting from 2025 through 2028.
There are some eligibility restrictions. For example, the deduction's value would start to fall once an individual's annual income exceeds $100,000; the threshold is $200,000 for married couples filing a joint tax return. Cars must also be U.S.-assembled.
In practice, the tax benefit is likely to be relatively small, experts said.
"The math basically says you're talking about [financial] benefit of $500 or less in year one," based on the average new loan, Jonathan Smoke, chief economist at Cox Automotive, an auto market research firm, recently told CNBC.The Senate passed the No Tax on Tips Act in late May, a standalone legislation that would create a federal income tax deduction of up to $25,000 per year, with some limitations.
The tax break would apply to workers who typically receive cash tips reported to their employer for payroll tax withholdings, according to the summary of the bill.
The Senate version of the OBBBA Act includes a similar provision: If enacted, qualifying individuals can claim a deduction of up to $25,000 for qualified tips.
However, the Senate version would not apply to taxpayers whose income exceeds $150,000, or $300,000 for joint filers.
Should the bill go in effect as drafted, the Secretary of the Treasury will publish a list of occupations that typically received tips on or before December 31, 2024.
The provision would apply to taxable years between December 31, 2024 and December 31, 2028.
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Another campaign promise from Trump, the House and Senate bills would also provide a temporary tax break for overtime pay.
The House-approved bill would create a deduction for "qualified overtime compensation" of $160,000 or less from 2025 to 2028. The deduction is "above-the-line," meaning the tax break is available regardless of whether you itemize deductions.
By contrast, the Senate bill offers a maximum $12,500 above-the-line deduction ($25,000 for married couples filing jointly) for overtime pay from 2025 to 2028. The tax break begins to phase out once earnings exceed $150,000 ($300,000 for joint filers).
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The Senate bill, like its House counterpart, would axe consumer tax credits tied to clean energy.
It would end a $7,500 tax credit for households that buy or lease a new electric vehicle, and a $4,000 tax credit for buyers of used EVs. These tax credits would disappear after Sept. 30, 2025.
Additionally, it would scrap tax breaks for consumers who make their homes more energy-efficient, perhaps by installing rooftop solar, electric heat pumps, or efficient windows and doors. These credits would end after Dec. 31, 2025.
Many tax breaks on the chopping block were created, extended or enhanced by the Inflation Reduction Act, a 2022 law signed by former President Joe Biden that provided a historic U.S. investment to fight climate change.
The tax breaks are currently slated to be in effect for another seven or so years, through at least 2032. Another key provision in the House and Senate bills could offer a bigger deduction for so-called pass-through businesses, which includes contractors, freelancers and gig economy workers.
Enacted via Trump's 2017 tax cuts, the Section 199A deduction for qualified business income, or QBI, is currently worth up to 20% of eligible revenue, with some limitations. This will expire after 2025 without action from Congress.
The House-approved bill would make the provision permanent and expand the maximum tax break to 23% starting in 2026. Meanwhile, the Senate measure would make the deduction permanent but keep it at 20%.
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