Latest news with #SALTdeduction
Yahoo
16 hours ago
- Business
- Yahoo
Senate's ‘big beautiful' bill trims popular tax breaks — 4 ways it could impact your taxes
The Senate's version of the massive tax bill squeaked through on a 51-50 vote on Tuesday and, while it largely matches the tax bill that passed the House in May, there are some key differences that could pose problems for House Republicans, who must now either vote on the Senate's version 'as is' or face drawn-out negotiations that would put their hoped-for July 4 deadline for passage out of reach. The Senate version of the bill adds much deeper cuts to Medicaid than the House version does. And, while the Senate did bow to House Republican pressure and raised its annual cap on the state and local taxes deduction to $40,000 from $10,000, the Senate extended that cap for just five years, until 2030. (The so-called SALT deduction is a key tax provision for many taxpayers who itemize their deductions in high-tax states such as California, New York and New Jersey.) 'Some members of the Senate GOP want to restrain components of the tax breaks approved by the House, and a moving target appears to be the so-called SALT deduction,' says Mark Hamrick, senior economic analyst at Bankrate. Here are some of the key tax provisions in the Senate-approved bill — and how it could affect your bottom line if the bill becomes law. Keep in mind that both proposed bills would maintain the lower income tax rates and higher standard deduction initially set by the Tax Cuts and Jobs Act of 2017 — provisions that are set to expire at the end of 2025 unless Congress acts. The state and local tax (SALT) deduction has long been a sticking point in the GOP's tax bill. Some House Republicans from high-tax states initially stalled the bill from advancing unless the current $10,000 SALT cap was increased. The House bill would allow taxpayers to claim up to $40,000 annually in SALT deductions ($20,000 if married filing separately), with the tax break phasing out for taxpayers with income of $500,000 or more ($250,000 or more if married filing separately). That compromise was enough to win over Republican holdouts. The Senate's version of the bill takes a different stance: It would hike the SALT cap to $40,000 but only for five years, at which point the cap would drop back to $10,000. It remains to be seen whether House Republicans will accept the temporary status of the $40,000 cap. The $10,000 SALT cap was originally enacted under the 2017 Tax Cuts and Jobs Act (TCJA) and expires at the end of 2025 unless Congress acts. Under the current law, the cap applies to most taxpayers, while those who file as married filing separately are limited to a $5,000 cap, regardless of income. Prior to the TCJA, there was no cap on claiming state and local taxes as an itemized deduction. Get matched: Find a financial advisor who can help you maximize your investments As part of the tax bill, the House proposed an increase to the child tax credit — from the current $2,000 to $2,500 per child under the age of 17. But the Senate's version scales back the increase, raising the credit to only $2,200 per child starting this year. Under the Senate's bill, the child tax credit would increase starting in 2025 and continue through 2028. The plan would also make the current income thresholds permanent, allowing families to qualify if their modified adjusted gross income (MAGI) doesn't exceed $400,000 for married couples filing jointly and $200,000 for single filers. The Senate's version of the bill would adjust the amount of the credit for inflation annually. If Congress doesn't act, the value of the child tax credit will revert back to $1,000 per child and lower income thresholds would apply — $110,000 for married couples and $75,000 for all other filers. Trump campaigned on the promise that he would eliminate taxes on tips and overtime pay. Both the House and Senate versions of the bill carry out his promise, but in different ways. The House version of the bill includes a provision to exclude qualified tips from income taxes, with a phaseout starting at $160,000 of modified adjusted gross income (MAGI) for all taxpayers. A similar measure applies to overtime pay. However, the Senate's version provides a much different picture. It would allow a deduction worth up to $25,000 for qualified tips and $12,500 for qualified overtime pay, creating two new deductions, which would be available from 2025 through 2028. These provisions would gradually phase out for taxpayers with MAGI exceeding $150,000 for single filers and $300,000 for joint filers. Some experts argue that while both proposals could offer some tax relief to millions of Americans, few would see a significant benefit. Fully 40 percent of U.S. households that report tip income would not see any tax break from the proposal, according to a report by the Tax Policy Center, a nonpartisan research organization. Of those households making less than $33,000 a year, just 1.4 percent of households would benefit from no tax on tips, and for those households, their average tax cut would be $450 a year. Learn more: No tax on tips or overtime: What workers should know Along with the previously mentioned tax provisions, the Senate takes a different stance on several key tax-related measures. The Senate's version of the bill modifies the House-approved version as follows: Car loan interest deduction: The House bill includes a tax deduction for interest paid up to $10,000 for interest paid on both new and used vehicles. The Senate version narrows the benefit, allowing the deduction for new vehicles only. Standard deduction for seniors: The Senate increases the additional standard deduction for seniors to $6,000, compared with $4,000 in the House bill. Read more: New bonus tax deduction worth up to $6,000 may come soon for older Americans. Qualified business income (QBI) deduction: While the House proposal boosts the QBI deduction from 20 percent to 23 percent, the Senate bill keeps it at 20 percent. 'The differences in the House and Senate where the GOP prevails may translate to potentially protracted negotiations,' Hamrick says. 'It appears Congress and the president are content with further fueling the federal debt and deficits, even though it is generally understood the situation is not sustainable in the long-term.' Learn more: The average tax refund each year, and how tax refunds work Error in retrieving data Sign in to access your portfolio Error in retrieving data Error in retrieving data Error in retrieving data Error in retrieving data
Forbes
a day ago
- Business
- Forbes
The Senate's $40,000 SALT Deduction Signals Tax Relief For Homeowners
Hands count dollars to buy a new house The Senate has narrowly passed the One Big Beautiful Bill Act by a 50-50 vote, with Vice President Vance breaking the tie. The bill now moves to the Joint Conference Committee for reconciliation of differences. However, one expected difference between the House and Senate versions of the bill —the State and Local Tax (SALT) deduction — appears to have already been rectified. While the SALT deduction can be used for any state and local income taxes paid, the taxes paid on a home tend to be among the largest for taxpayers, suggesting this higher cap will be a welcome relief for home owners. This article discusses the SALT deduction and what this reconciliation means, assuming the One Big Beautiful Bill Act is ultimately signed into law. SALT Deductions Before The Tax Cuts And Jobs Act of 2017 Before the Tax Cuts and Jobs Act of 2017, the SALT deduction allowed taxpayers to claim unlimited itemized deductions for taxes paid to state and local governments. For instance, if the taxpayer paid $20,000 in taxes on their home during the year, they could then deduct the $20,000 from their income, thereby lowering their tax liability. Many taxpayers were limited on how much they could actually deduct due to complex alternative minimum tax rules that existed before 2017, as outlined by the Tax Foundation. However, the benefits were still very much present. SALT Deductions After The Tax Cuts And Jobs Act of 2017 The Tax Cuts and Jobs Act of 2017 modified Section 164 of the Internal Revenue Code in two key ways, limiting the financial benefit of the SALT deduction. First, it capped the deduction at $10,000. This limit means that whether the taxpayer paid $10,000 or $100,000 in SALT, the deduction the taxpayer could take would only be $10,000. Second, the Tax Cuts and Jobs Act increased the standard deduction from $13,000 in 2016 for married taxpayers to $24,000 in 2017. The combination of taxpayers having lower SALT deductions and a higher standard deduction resulted in far fewer taxpayers itemizing their taxes and utilizing the SALT deduction to their advantage. To illustrate the impacts, consider two different married taxpayers. The first has $15,000 in SALT paid and no other itemized deductions. For this taxpayer, the onset of the Tax Cuts and Jobs Act represented a significant win, as they went from having $15,000 in itemized deductions to a $24,000 standard deduction. Assuming the taxpayer was at the 32% tax bracket, the extra $9,000 in deductions increased their after-tax income by $2,880. Now consider the second taxpayer, who has $50,000 in SALT deductions before 2017. If these deductions were now capped at $10,000 and they had no other itemized deductions, they would go from $50,000 in deductions to a $24,000 standard deduction. Assuming the same 32% tax bracket, the $26,000 in lost deductions increased their tax liability by $8,320. The One Big Beautiful Bill Act And A Larger SALT Tax Deduction A key issue with the $10,000 SALT deduction cap was that it asymmetrically impacted taxpayers in higher-cost-of-living locations versus others. For instance, consider a taxpayer in New York City, which has some of the most expensive real estate in the world. That taxpayer is paying more in taxes on their home than a taxpayer in other major cities (such as Chicago, Houston, and Philadelphia), medium-sized cities (like Charlotte, Kansas City, and Denver), or even more rural areas for a similarly sized home. However, they all have the same cap on their SALT deductions. This notion has led many members of Congress to request that the SALT deduction cap be increased in the One Big Beautiful Bill Act. As I previously reported in Forbes, the House included a $40,000 deduction cap in its version of the bill, and this cap would increase annually to help offset the rising costs. However, the Senate introduced a version of the bill that would maintain a cap of $10,000. As I reported in a separate Forbesarticle, this was going to be a big sticking point during the Joint Conference Committee as the two sides appeared to be at odds with one another. However, in a surprising turn, the difference is no longer present. In the Senate's passage of the bill, they have agreed to raise the SALT deduction cap to $40,000, as reported by CNBC. Their version of the bill also allows for an annual increase in the deduction. Both versions also agree that the cap would begin to phase out among taxpayers who earn over $500,000 in income, meaning that ultrahigh earners would still be able to deduct only $10,000. In considering the two taxpayers from earlier, the first (which had $50,000 in SALT paid) would now be able to itemize their taxes again, utilizing the higher SALT deduction limit. The second (which had $15,000 in SALT paid) would continue benefiting from the higher standard deduction. Two Key Differences On The SALT Deduction To Be Resolved While it appears as though the two versions have converged, there are two key differences: (1) Expiration Date The Senate's version increases the SALT deduction cap for the years 2025 through 2028. In 2029 it will revert back to $10,000, at which time, Congress will need to decide to reenact the higher tax deduction. The House's version would extend several additional years through 2033. (2) Alternative Minimum Tax Rules The House's version of the bill includes provisions to limit tax deductions for ultrahigh earners, often referred to as the alternative minimum tax. The Senate version has a more taxpayer-friendly alternative minimum tax. The Committee for a Responsible Federal Budget estimates that this difference makes the Senate version of the bill 67% more taxpayer-friendly than the House version, as the Senate version will result in $325 billion in additional tax outflows for the Federal government. In contrast, the House version will only result in $200 billion in additional tax outflows. While these differences can and will be addressed in the Joint Conference Committee, it is essential to note that the primary details appear to have been resolved. As the US taxpayers look forward to the prospects of the One Big Beautiful Bill Act being signed into law on the 4th of July, the most recent revelation and agreement between the two chambers of Congress should be a welcome sign for homeowners seeking to make better use of their SALT deductions this coming tax season.
Forbes
2 days ago
- Business
- Forbes
The Senate Budget Bill Is Growing More Regressive
WASHINGTON, DC - JUNE 23: Senate Majority Leader John Thune (R-SD) speaks to reporters after leaving ... More the Senate Chambers. (Photo by) The tax provisions of the budget bill being debated on the Senate floor would be even more regressive than the version drafted by the Senate Finance Committee, according to a new Tax Policy Center analysis. On average, the Senate measure released on June 28 would cut 2026 taxes by about $2,900, up about $250 from the Finance Committee's version. But the current Senate version of the One Big Beautiful Bill Act (OBBBA ) would distribute most of those additional tax cuts to the highest-income households. The main reason: the way it treats the state and local tax (SALT) deduction. Comparing The Plans The Senate bill would cut taxes by an average of $12,500, or 3.4 percent of after-tax income, for those making $217,000 or more, the highest-income 20 percent of households. That's about $1,500, or 0.4 percent of after-tax income, more than they'd get under the Finance panel's plan. Those making between $460,000 and $1.1 million (the 95th-99th income percentile) would get an average tax cut of $21,000, raising their after-tax incomes by 4.4 percent. That would be roughly identical to the House version but nearly $3,000, or 0.6 percent of after-tax income, more generous than the Finance measure. Similarly, the bill on the Senate floor would cut taxes by an additional $8,000 on average for those who make $1.1 million or more, the top 1 percent of households—and an extra $40,000 for those who make $5 million or more, the top 0.1 percent—compared to the Finance bill. Even with those added tax cuts, the current Senate bill remains slightly less generous than the House measure for the highest-income households. While those high-earners get much more than in the Finance panel's measure, the same can't be said for low- and middle-income households. For example, the lowest-income households, those making about $35,000 or less, would get an average tax cut of $150 under either the Finance Committee's or the Senate's bill and $160 under the House bill, less than 1 percent of their after-tax income. Middle-income households would get an average tax cut of roughly $1,800 under all three measures: a bit more in the House bill and slightly less in the two Senate three versions of the big budget bill Differing Details The House and Senate bills are broadly similar. Both would extend the individual provisions of the 2017 Tax Cut and Jobs Act (TCJA); continue and enhance some corporate tax provisions; and adopt scaled-back versions of President Trump's tax-related campaign promises, such as tax-free tips and overtime. But they differ in scores of details, some minor and some significant. And the tax cuts in the Senate bill are substantially more expensive. The congressional Joint Committee on Taxation estimates the pending Senate bill would slash federal revenues by more than $4.4 trillion over the next decade. The House-passed OBBBA would reduce federal revenue by $3.9 trillion, according to JCT. Both bills would allow costly provisions to expire on paper within the 10-year budget window. But because future Congresses are likely to extend those provisions once again, the true cost is likely to be substantially more. To satisfy many factions of Republicans, Senate GOP leaders made several revisions to the Finance draft. They made even deeper cuts to Medicaid and the Affordable Care Act and, at the same time, proposed even more generous tax cuts for high-income households. Including spending reductions and other offsets, the Senate bill would increase the federal debt by $3.3 trillion over the next decade, according to CBO. Additional interest would boost the debt by an additional $700 billion, according to the Committee for a Responsible Federal Budget. All About SALT Why are the tax cuts in the latest Senate bill so much more generous than the Finance panel's plan? The primary reason is the state and local tax deduction, including the way it treats owners of pass-through businesses such as partnerships and sole proprietorships. The Finance panel did not address the controversial SALT issue. The Senate bill adopts the House plan to boost the maximum SALT deduction from $10,000 to $40,000, though only through 2029. Crucially, it also allows owners of pass-through businesses to avoid the SALT deduction cap entirely by continuing to take advantage of state-enacted loopholes. That workaround allows these business owners to fully deduct their state and local taxes by paying the levies through their firms. About 36 states allow this. The House and Finance panel bills would have somewhat limited that exemption. But the pending Senate bill keeps the door wide open, effectively freeing very wealthy business owners from any cap on their SALT deductions. Both the House and Senate bills would phase out the more generous deduction for many households starting at $500,000. But since wealthy business owners could continue to fully deduct their state and local taxes if the state workarounds are allowed, the income limit on the cap is meaningless to them. The Finance panel plan faced substantial criticism for its regressivity and cost. But GOP leaders have nonetheless doubled down and written a Senate bill that benefits top earners even more.
Yahoo
3 days ago
- Business
- Yahoo
Meet the 'Moderates' Trying to Make Trump's Tax Bill More Regressive
In the distant past, Republican moderates were people like Senators Pete Domenici of New Mexico and Bob Packwood of Oregon who preached fiscal responsibility and were reasonably tolerant of the welfare state. Today, Republican moderates are people like Senator Ron Johnson of Wisconsin and Representative Mike Lawler of New York who will gladly accept a $4.2 trillion tax cut, most of which benefits households earning $217,000 or more (according to the nonprofit Tax Policy Center), plus Medicaid cuts projected, conservatively, to kill 51,000 people (according to the Yale School of Public Health). All Johnson, Lawler, and other Republican moderates ask in return is to expand the budget deficit (which is already more than doubled under the bill) by another half-trillion or so in order to kill off the only progressive component to Trump's 2017 tax law. With moderates like these, who needs extremists? What Republican moderates seek to reinstate, as much as they possibly can, is the deduction on federal tax returns for state and local tax payments, also known as SALT. Before 2018, these tax payments were fully deductible. The 2017 tax law capped the deductible amount at $10,000. This change was progressive because most of the people who paid $10,000 or more in state and local taxes were in the top 1 percent of the nation's income distribution, and nearly all of them were in the top 5 percent. For the vast majority of Americans below the 95th income percentile, state and local taxes remained fully deductible. Full SALT deductibility was ended to partially offset the cost of the 2017 tax bill's giveaways to corporations and wealthy individuals. In effect, the law traded in one regressive tax break (SALT) in exchange for several other much costlier regressive tax breaks (top corporate tax rate lowered from 35 percent to 21 percent; top marginal income tax rate lowered from 39.6 percent to 37 percent; and a 20 percent 'pass through' deduction for business owners). The politics of the SALT deduction are a little wacky. Its traditional constituency is liberal. That's because the deduction's benefits, though regressive, flow mostly to the much-despised coastal elites who live in high-tax blue states. Liberals argued (some still do) that limiting the SALT deduction put downward pressure on spending at the state and local level, which is true. Conservatives answered that taxpayers shouldn't have to subsidize city and state governments in wealthier locales where they don't live, which is also true. Some of the most cogent critiques of the SALT deduction's regressive effects come from conservative commentators like Charles Lane of the Free Press and Ken Girardin of the Manhattan Institute. For the record, I've opposed the SALT deduction since the 1980s, when its elimination was briefly considered for what eventually became the 1986 tax reform law. To my way of thinking, a progressive tax system should tax rich liberals as well as rich conservatives. Republicans removed the SALT cap in 2017 mainly because that penalized non-Republican states. They then exerted considerable effort not to notice the resulting evidence that you could raise taxes for wealthy people by hundreds of billions of dollars and the earth wouldn't spin off its axis and fly into the sun. (The very wealthiest did not pay additional tax because they tended to pay the Alternative Minimum Tax instead, and the AMT already disallowed any SALT deduction.) Joe Biden pledged during the 2020 campaign to eliminate Trump's SALT cap; later dropped the idea; still later raised the deduction cap from $10,000 to a preposterously high $80,000 in his House-passed Build Back Better bill, which died in the Senate; and eventually included no SALT change in his successor bill, the Inflation Reduction Act. In the 2024 election, Kamala Harris took no position on SALT. That about sums up the Democrats' ambivalence today. Eliminating the SALT cap became a Republican cause in the 2024 election when, on the eve of an appearance in Long Island, Trump pledged to 'get SALT back'—even though he was the guy who took it away. The House version of Trump's 'big, beautiful' budget reconciliation bill raises the SALT threshold to $40,000, at a cost to the Treasury of perhaps $320 billion. The Senate version leaves the cap at $10,000, but as I write, blue-state Senate Republicans are negotiating with Treasury Secretary Scott Bessent for SALT relief. It's expected that either the threshold will rise or that eligibility for the deduction will be limited to people below a certain income level (or perhaps some combination of both). If no bargain—or a bargain that's perceived to be weak—results from these negotiations, then blue-state Republicans risk being voted out of office. Consequently, even those Democrats who favor eliminating the SALT cap are either keeping their mouths shut (the best option) or, in the case of Senator Chuck Schumer of New York, trying to score points by taunting Republicans for not reinstating enough of this regressive deduction. Schumer is of course also Senate minority leader, in which capacity he's committing political malpractice by bragging that Democrats would give the haute bourgeoisie even deeper tax cuts. The Democrats, Mr. Minority Leader, are the party of the working class. If you can't understand that, then perhaps it's time you stepped aside for someone who can.
Fox News
4 days ago
- Business
- Fox News
Key blue state Republican says Senate's local tax write-off offer is a 'good deal'
A key New York Republican said he's pleased with a tax provision in the Senate's version of President Donald Trump's "big, beautiful bill" after weeks of tense back-and-forth over the matter. "I think it's a very good deal. We were able to keep the House language intact," Rep. Mike Lawler, R-N.Y., told Fox News Digital, adding that he was pleased "we were able to solve" differences on tax deductions for certain pass-through businesses, which are companies smaller than corporations whose taxes are "passed through" the business owner's personal returns. "I think at the end of the day, it's a [four-times] increase on [state and local tax (SALT) deduction caps]. And despite the Senate's best efforts to whittle down the language, we were able to keep it." Lawler is one of several blue state Republicans who threatened to sink the bill if it did not sufficiently raise SALT deduction caps. SALT deductions are aimed at providing relief for people living in high-cost-of-living areas, primarily in big cities and their suburbs. There was no limit on SALT deductions until Trump's 2017 Tax Cuts and Jobs Act (TCJA), which capped that federal tax benefit at $10,000 for both single filers and married couples. The House's bill raised that cap to $40,000 for 10 years, with households making up to $500,000 eligible for the full deduction. Senate Republicans, who released their text of the bill just before midnight on Friday night, reduced the benefit window to five years instead of 10. After that, the maximum deduction would revert to $10,000 for the next five years. "Yes, the time was shortened, but at the end of the day, people are going to immediately be able to deduct them to $40,000, which is a massive win," Lawler told Fox News Digital. "Democrats promised to fix this when they had complete control in '21 and '22 and failed to deliver. We're delivering on it. So you know to me this is a big win for New York. It's a big win for taxpayers all across the country." Blue state Republicans, primarily those in New York and California, have pushed hard in favor of lifting that cap. They've painted it as an existential political issue in their districts, where Republican victories were critical to the GOP winning and keeping its House majority. They've also argued that their states sending more money back to the federal government effectively subsidizes lower-tax states that do not bring in as much revenue. But Republicans in more GOP-leaning states have dismissed SALT deductions as a reward for high-tax Democratic states to continue their own policies. "SALT deductions allow blue states to export their political mistakes (electing high-tax, crazy socialists), Americans shouldn't subsidize," Rep. Chip Roy, R-Texas, wrote on X. Lawler would not say if his support for the deal meant he would vote for the final bill – noting there were other provisions he had to read through in the 940-page legislation. But he said he believed most of his Republican colleagues in the SALT Caucus would be supportive of the compromise. "I think there's broad consensus among most of us about how important this is, and what a significant win it is," Lawler said. Rep. Nicole Malliotakis, R-N.Y., the only member of the SALT Caucus who sits on the tax-writing House Ways & Means Committee, told Fox News Digital of the deal on Friday, "I can live with this but, quite frankly, the $30,000 over 10 years that I negotiated out of Ways & Means would've protected my constituents for a longer period of time." "But alas, this is a group exercise and there are a lot of cooks in the kitchen," she said. Not everyone is on board, however. Rep. Nick LaLota, R-N.Y., signaled to Fox News Digital that he is rejecting the deal. "While I support the president's broader agenda, it would be hypocritical for me to back the same unfair $10k SALT cap I've spent years criticizing. A permanent $40k deduction cap with income thresholds of $225k for single filers and $450k for joint filers would earn my vote," he said in a written statement. Rep. Young Kim, R-Calif., did not comment on the SALT deal itself but more broadly said her support for the bill is contingent on how decisions on SALT deduction caps, Medicaid measures, and small business taxes play out. A source familiar with her thinking told Fox News Digital she would vote against the bill back in the House if the Senate's more severe Medicaid cuts remained in place. The Senate is aiming to begin considering the legislation on the floor late afternoon on Saturday, though the final vote could come in the early hours of Sunday, if not later. The bill could also change between now and then, with various Republican lawmakers still expressing their concern. Fox News Digital reached out to SALT Caucus co-chair Andrew Garbarino, R-N.Y., and Rep. Tom Kean, R-N.J. for comment.
