The House Ways and Means Committee advanced the Republican sweeping tax reform and spending cuts package by a party-line 26-to-19 vote on May 14. The House’s chief tax-writing committee began its nearly 17 hour-long markup of the measure on May 13 after unveiling 389 pages of legislative text by way of a “Chairman’s amendment” on May 12, following a since revised 28-page preview released on May 9. Republican leadership is aiming to have the measure reach the House floor for a full chamber vote next week.
Note. The tax package is traveling by way of the budget reconciliation process, as discussed in our May 2025 Policy Pulse. It’s critical to note that the legislative language we are reviewing is still a proposal with a perhaps long and likely bumpy road ahead. The House-proposed tax policy provisions do, however, provide a solid foundation for our understanding of what tax reform in 2025 may look like, and staying informed along the way allows for proactive tax planning.
Tax provisions
The information below provides a high-level overview of key tax provisions in the House proposal as currently drafted:
Business-related provisions
Business interest expense limitation: For tax years 2025 through 2029, the limitation on the business interest expense deduction under section 163(j) would be taxpayer-favorably modified to compute adjusted taxable income without considering deductions for depreciation, amortization or depletion, corresponding with the financial accounting concept earnings before interest, taxes, depreciation and amortization (EBITDA).
Bonus depreciation: 100% bonus depreciation on qualified property under section 168(k) would be restored and extended from Jan. 20, 2025, through 2029, generally, or Jan. 1, 2031, for longer production period property and certain aircraft. Additionally, the proposal would create a new section 168(n) provision to establish an elective 100% depreciation allowance for certain nonresidential real property deemed as qualified production property (QPP).
R&E expenditures: Suspends the requirement under section 174 to capitalize and amortize domestic research and experimental expenditures for amounts paid or incurred in tax years 2025 through 2029, allowing for full deductibility of such domestic outlays.
Excess business losses: The limitation on excess business losses incurred by noncorporate taxpayers would become permanent. Additionally, previously disallowed losses arising in tax years beginning after Dec. 31, 2024, would be taken into account in determining excess business losses in subsequent years.
Employee Retention Credit (ERC): ERC claims submitted after Jan. 31, 2024, would be retroactively invalidated, with increased penalties for unlawful transactions.
Qualified Business Income (QBI) pass-through deduction: The QBI deduction under section 199A would be permanently extended and increased to 23% with new phase-out rules on the wage and investment and specified service trade or business (SSTB) limitations to become effective after Dec. 31, 2025.
Opportunity Zones (OZ): Creates a second round of OZs with certain adjustments to begin on Jan. 1, 2027, and end on Dec. 31, 2033.
Executive compensation: The limit on deductible compensation ($1 million) for publicly held corporations under section 162(m) is expanded to require compensation to be aggregated across all members of a controlled group, while specified covered employees would apply at the group level.
Individual provisions
Individual tax rates: Current law tax rates would be made permanent with an additional year of inflation adjustment to all brackets except for 37%. The proposal does not include a revitalized 39.6% bracket for high earners previously contemplated by the administration.
Standard deduction: Current law standard deduction would be made permanent with a temporary increase of $1,000 for single filers and $2,000 for joint filers effective for tax years 2025 through 2028.
Enhanced deduction for seniors: Provides a $4,000 deduction for seniors (age 65 or older) correlating with certain income requirements for tax years 2025 through 2028. This provision essentially functions as the President Trump’s campaign promise to exempt Social Security income from income tax, which cannot be achieved due to budget reconciliation rules, as previously discussed in this space.
Child Tax Credit (CTC): The $2,000 CTC under current law would be made permanent but with a temporary increase to $2,500 for tax years 2025 through 2028.
No tax on tips or overtime: Temporarily creates above-the-line deductions for qualifying tips and overtime pay for tax years 2025 through 2028.
State and local tax (SALT) cap: The cap on state and local tax deductions would generally be increased to $30,000, subject to certain income requirements that would trigger a phase-down to the current $10,000. It is important to note this provision is still being negotiated as the SALT caucus has indicated a $30,000 limit tied to taxpayer incomes is insufficient to meet their demands for relief from the cap, as discussed further below.
Pass-through entity taxes (PTET): Pass-through entities would be required to separately state specified taxes (abrogates Notice 2020-75).
Estate and gift tax: Would make permanent the current estate tax and gift tax exemption amounts, with an increase in the unified estate and gift tax exemption to an inflation-adjusted $15 million ($30 million for married couples filing joint), beginning in 2026.
Alternative minimum tax: Makes permanent the increased individual alternative minimum tax exemption amounts and exemption phase-out thresholds.
International provisions
GILTI/FDII/BEAT: Permanently extends the current law preferential rates on Global Intangible Low-Taxed Income (GILTI) and Foreign-Derived Intangible Income (FDII). The deduction for corporations for tax years beginning after Dec. 31, 2025, would remain at 50% of their GILTI and 37.5% of their FDII. The current law Base Erosion and Anti-Abuse Tax (BEAT) rate of 10% on modified taxable income would also be made permanent.
Retaliatory remedies: Would provide for increased tax rates on foreign residents and governments implementing “unfair” tax on U.S. taxpayers.
IRA-related provisions
House Republicans seek to raise revenue by curtailing or eliminating several Biden-era Inflation Reduction Act (IRA) green energy credits. Note, however, that Senate Republicans in the advent of the bill text’s release have indicated that these changes will not pass muster in the upper chamber. As has been widely publicized, several Republican lawmakers have advocated for the preservation of these provisions due to the positive impact they have had on their respective jurisdictions. For a more in-depth breakdown of applicable credits, see Baker Tilly’s May 13 article.
X-date
Treasury Secretary Scott Bessent has informed Congress that the so-called X-date for when the U.S. is expected to breach the debt limit will occur in August. Congressional Republicans are attempting to raise the debt ceiling to about $41 trillion as part of the tax and spending cut package. Bessent encouraged lawmakers to increase or suspend the debt limit by mid-July before Congress breaks for its August recess.
What’s next
The tax reform package now heads to the House Budget Committee, which is slated on May 16 to combine all elements of President Trump’s agenda ahead of a House floor vote next week. But the tax package is far from final.
The most recent Joint Committee on Taxation estimate has its price tag sitting at $3.8 trillion. Notably, this figure gives Republican leadership and top tax-writers some wiggle room as negotiations continue, coming in just under their current goal of syncing $4 trillion in tax cuts with $1.5 trillion in spending cuts.
The biggest issue holding up House Republicans’ rallying in support around the measure continues to be the Tax Cuts and Jobs Act's (TCJA's) controversial $10,000 SALT cap scheduled to expire at the end of the year. SALT caucus members from high-tax states have been vocal in their dissatisfaction with the revised cap in the committee-approved legislation and have threatened to tank the bill with Republicans’ razor-thin majority if the cap isn’t significantly increased. Speaker Mike Johnson (R-LA) has said he expects discussions on this front to continue into the weekend.
Meanwhile, several Republican senators are voicing their criticisms of the House tax package, from concern with its scaling back of IRA credits to inadequately reducing the federal deficit. No matter what tax provisions get delivered to the Senate, this appears certain: the upper chamber will weigh in and change the bill, which means it must go back to the House or be resolved via conference committee before heading to President Trump’s desk. It is expected by some on Capitol Hill that this process could drag on much longer than the original goalpost of a July 4 enactment. “Early vocal no’s never help get 50 votes,” a senior Senate Republican aide told Baker Tilly on May 14.
We will continue to be your source in Washington, D.C. as important tax policy developments unfold. Stay tuned for additional tax alerts in the coming weeks and a deeper dive if and when tax reform of 2025 makes it over the finish line.
If you have questions on how this may impact your tax situation, please reach out to your Baker Tilly tax advisor.
The information provided here is of a general nature and is not intended to address the specific circumstances of any individual or entity. In specific circumstances, the services of a professional should be sought. Tax information, if any, contained in this communication was not intended or written to be used by any person for the purpose of avoiding penalties, nor should such information be construed as an opinion upon which any person may rely. The intended recipients of this communication and any attachments are not subject to any limitation on the disclosure of the tax treatment or tax structure of any transaction or matter that is the subject of this communication and any attachments.
