Ways and Means releases proposed TCJA extensions and tax changes

The House Ways and Means Committee on Monday released expanded legislative language for its recommendations of tax provisions to be included in the budget reconciliation bill that Congress is putting together.

The language in the 389-page proposed bill extends many provisions that were enacted in 2017 in the Tax Cuts and Jobs Act (TCJA), P.L. 115-97, and that are set to expire in the near future. Other tax priorities of the Trump administration, including eliminating income taxes on certain tips and overtime pay are also addressed in the proposed bill.

The committee began marking up the proposed legislation on Tuesday and was still working past 8 p.m. The staff of the Joint Committee on Taxation’s (JCT’s) estimated fiscal impact of the legislation for the years 2025–2034 is $3.819 trillion.

The tax legislation will become part of a larger bill that is being put together under the budget reconciliation process, which is being used to avoid the Senate’s filibuster rules, which require 60 votes to pass legislation. Under the reconciliation rules (also known as the Byrd rule), bills can pass in the Senate with a majority vote. This was also the process used to pass the TCJA.

However, under the Byrd rule, “extraneous items” are prohibited, and only provisions that are directly related to achieving the budget goals in the accompanying budget resolution (H. Con. Res. 14) are allowed. “Extraneous” items are provisions that do not change outlays or revenues or that produce a budgetary effect that is merely incidental to a nonbudgetary policy change. Under the rule, provisions must not increase deficits beyond a 10-year window (2 U.S.C. §644).

In addition to tax provisions, the budget reconciliation bill is expected to include an increase to the debt ceiling and spending cuts.

Here is a look at many of the tax provisions in the proposed bill.

TCJA extensions

Tax rates: The bill would make the TCJA tax rates permanent. It would also modify the inflation adjustment mechanism for the various brackets.

The staff of the JCT projects that, for 2026, under the proposal the income tax brackets for single individuals would be:

Source: Joint Committee on Taxation, Description of the Tax Provisions of the Chairman’s Amendment (JCX-21-25) (May 12, 2025), p. 6.

Standard deduction: The bill would make the TCJA’s increased standard deduction amounts permanent. For tax years 2025 through 2028, the JCT says the intent of the bill is to increase the standard deduction for married taxpayers filing jointly and surviving spouses by $2,000. For heads of household, the standard deduction amount would increase by $1,500, and the amount for all others would increase by $1,000.

Personal exemptions: The bill would permanently set the deduction for personal exemptions at zero.

Child tax credit: The bill would make permanent the TCJA’s increased and enhanced Sec. 24 child tax credit. For 2025 through 2028, the child tax credit would increase to $2,500 and thereafter be set at $2,000. The amount of the credit would be subject to an inflation adjustment after 2028.

The bill also would make permanent the $1,400 maximum amount of the additional child tax credit (adjusted for inflation).

The child tax credit changes would be effective for years after 2024.

Qualified business income deduction: The Sec. 199A qualified business income deduction would be made permanent, and the deductible amount for each qualified business would be increased to 23% from 20%. The phase-in of the limit under Sec. 199A(b)(3) would change to 75% of the excess of the taxpayer’s taxable income over the threshold amount.

The bill also creates a new type of income that would qualify for the deduction: qualified business development company (BDC) interest dividends. A qualified BDC is a business development company that has made an election under Sec. 851 to be treated as a regulated investment company.

The Sec. 199A threshold amounts would be indexed for inflation after 2025.

Estate and gift tax exemption: The basic estate and gift tax exemption amount and the generation-skipping transfer tax exemption would be permanently increased to $15 million. The TCJA had temporarily increased it to $10 million (adjusted for inflation), but that increase was scheduled to expire. The $15 million exemption amount would be indexed for inflation after 2025.

Alternative minimum tax: The proposed bill would make the TCJA’s increased alternative minimum tax (AMT) exemption amount and phaseout threshold permanent.

Mortgage insurance premiums: The bill would make permanent the $750,000 Sec. 163(h)(3) limit on the treatment of mortgage insurance premiums as qualified residence interest. The exclusion of home-equity indebtedness from the definition of qualified residence interest would also become permanent.

Casualty loss deduction: The Sec. 165(h)(5) limitation on casualty loss deduction, under which a casualty loss is deductible only to the extent it is attributable to a federally declared disaster, would be made permanent. The bill would also broaden the definition of “qualified disaster area.”

Miscellaneous itemized deductions: The bill would permanently eliminate the Sec. 67(g) deduction for miscellaneous itemized deductions.

Itemized deductions limitation: The bill would permanently remove the Sec. 68 overall limitation on itemized deductions (known as the Pease limitation). In its place, the amount of an individual’s itemized deductions otherwise allowable for a tax year would be reduced by 2/37 of the lesser of the amount of itemized deductions otherwise allowable for the year or so much of the taxable income of the taxpayer for the year (determined without regard to the proposal and increased by the amount of otherwise allowable itemized deductions) as exceeds that dollar amount at which the 37% tax rate bracket begins for that taxpayer.

SALT cap: The proposed bill would remove the temporary $10,000 limitation, enacted by the TCJA, on individual state and local and foreign tax deductions taken under Sec. 164 (known as the SALT cap). Instead, the bill would modify Sec. 275, which denies deductions for certain taxes, to permanently deny individuals a deduction for certain state and local and foreign taxes and limit the deduction for the taxpayer’s aggregate of certain “specified taxes” as defined in the bill.

Specified taxes include “substitute payments,” which are payments made to state or local jurisdictions that entitle the payer to specified tax benefits. They also include taxes paid or accrued by a partnership or S corporation in carrying on a qualified trade or business, curtailing the use of passthrough entity taxes (PTETs) to avoid the SALT cap.

An AICPA statement from CEO Mark Koziel, CPA, CGMA, called the PTET changes “unfair” to affected businesses.

“While the AICPA remains grateful for the diligent work of the Ways and Means Committee to provide taxpayers and practitioners with commonsense tax policies that will have a continued benefit to the country and on the tax administration process, we remain deeply troubled by the proposed changes to the PTET deduction,” the statement said. “The changes to this vital deduction are unfair to businesses that are the backbone of the American economy, which include accounting firms, medical offices, and Main Street businesses, of which the majority are structured as passthroughs.”

“It is integral that we have parity amongst all types of entities; the AICPA is committed to ensuring that the guiding principles of good tax policy and the interests of taxpayers and tax practitioners are taken into account during the reconciliation process, as these policies will have a significant impact on both. We will continue advocating for policies that exemplify the guiding principles that drive success throughout the profession. Treating any service business more harshly does not seem to follow the principles of good tax policy, such as neutrality, simplicity, fairness, certainty and transparency,” Koziel continued.

The aggregate deduction for specified taxes would be $30,000 and would be reduced for taxpayers with modified adjusted gross income over $400,000, but it would not be reduced below $10,000.

The proposal would be effective for tax years beginning after Dec. 31, 2025.

Bicycle commuting reimbursements: The bill would permanently exclude qualified bicycle commuting reimbursements from the list of qualified transportation fringe and other commuting benefits, making them taxable to employees (Sec. 132(f)(8)).

Moving expense deduction: The bill would permanently eliminate the Sec. 217 deduction for moving expenses, except for members of the armed forces.

Wagering loss deduction: The Sec. 165(d) provision under which wagering loss deductions include “any deduction otherwise allowable under this chapter incurred in carrying on any wagering transaction” would become permanent.

Student loan debt discharge: The bill would make permanent and make some adjustments to the Sec. 108(f)(5) provision excluding from gross income student loans that are discharged on account of death or disability. One change is that the proposal would repeal a provision that was enacted as part of the American Rescue Plan Act of 2021, P.L. 117-2, which expanded the TCJA provision to include discharges of certain student loans (in whole or in part) after Dec. 31, 2020, and before Jan. 1, 2026.

New provisions for individuals

No tax on tips: The proposed bill would create a new Sec. 224 that would allow a deduction equal to the amount of qualified tips a taxpayer receives and that are included on a Form W-2, Wage and Tax Statement; Form 1099-K, Payment Card and Third Party Network Transactions; Form 1099-NEC, Nonemployee Compensation; or Form 4137, Social Security and Medicare Tax on Unreported Tip Income. The deduction would be an above-the-line deduction and thus available to taxpayers who claim the standard deduction.

Qualified tips would be any cash tip received by an individual in an occupation that customarily received tips before Dec. 31, 2024. Treasury is directed to publish a list of such occupations within 90 days of enactment. The amount must be paid voluntarily, without any consequence for nonpayment; the business must not be a specified trade or business under Sec. 199A(d)(2) for purposes of the qualified business income deduction; the individual must not be a highly compensated employee under Sec. 414(q)(1). Treasury may also establish other requirements in regulations.

The deduction would be effective for tax years after 2024 but is only effective until the end of 2028. New withholding tables will need to be produced by the IRS to account for the tip deduction.

No tax on overtime: Under the proposed bill, under a new Sec. 225, an individual would be allowed to claim an income tax deduction equal to the amount of qualified overtime compensation the individual receives during the tax year. Qualified tips (as defined in new Sec. 224, the “no tax on tips” provision) would not be eligible for the deduction. Highly compensated employees under Sec. 414(q)(1) would not be eligible to claim the deduction.

“Qualified overtime compensation” would be defined as overtime compensation required to be paid to an individual under the Fair Labor Standards Act, Section 7, that is in excess of the regular rate (as used in that section) at which the individual is paid.

This deduction would be an above-the-line deduction and could be claimed by taxpayers who claim the standard deduction. It would only be available to an individual if the total amount of qualified overtime compensation is reported to them on their Form W-2.

Senior bonus deduction: The bill would also temporarily provide a “senior bonus” deduction for individuals age 65 and older (and for spouses who meet certain criteria in the case of a joint return). The full amount of the senior bonus would be $4,000, but it would phase out for taxpayers who have adjusted gross income over $75,000 ($150,000 for married taxpayers filing jointly).

Eligible taxpayers would be able to claim the senior bonus amount whether they claim the standard deduction or itemize. The deduction would be available for tax years after 2024 and before 2029.

Car loan interest: For the years 2025 through 2028, the bill would exclude qualified passenger vehicle loan interest from the personal interest disallowance in Sec. 163(h). Qualified passenger vehicle loan interest is defined as interest paid or accrued during the tax year on indebtedness incurred by the taxpayer after Dec. 31, 2024, for the purchase of, and that is secured by a first lien on, an applicable passenger vehicle for personal use. Among other restrictions, the final assembly of applicable passenger vehicles must occur in the United States.

The exclusion is capped at $10,000 per year and will phase out for taxpayers with modified adjusted gross income in excess of $100,000 ($200,000 for married taxpayers filing jointly).

Employer-provided child care credit: The bill would increase the Sec. 45F employer-provided child care credit from the current 25% to 40% of qualified child care expenditures (50% for eligible small businesses) in addition to 10% of qualified referral expenses allowed under present law. The credit limit would increase to $500,000 ($600,000 for small businesses) and be adjusted for inflation.

Paid family and medical leave credit: Under the bill, Sec. 45S would be amended to make the employer credit for paid family and medical leave permanent (it currently will expire after this year).

Adoption credit: The bill would make a portion (up to $5,000) of the Sec. 23 adoption credit refundable.

Elementary, secondary, and homeschool expenses: Under the bill, certain expenses in connection with enrollment or attendance at a public, private, or religious elementary or secondary school, or in connection with homeschooling, would be considered qualified higher education expenses for all purposes of Sec. 529, including the prohibition on excess contributions. The bill would also treat certain postsecondary credentialing expenses as qualified higher education expenses for all purposes of Sec. 529. These changes would apply to distributions made after the date of enactment.

Partial charitable contribution deduction for nonitemizers: The bill would reinstate the Sec. 170(p) deduction that was originally available in 2021. Sec. 170(p) allowed an individual who does not itemize deductions to claim a deduction for certain charitable contributions made during a tax year. Under the proposal the maximum deduction allowed would be $150 ($300 for joint returns) for the years 2025 through 2028.

Exclusion for certain employer payments of student loans: The bill would make permanent the Sec. 127 exclusion from income of educational assistance provided by an employer to an employee. The maximum exclusion (currently $5,250) would be adjusted for inflation after 2026.

Money accounts for growth and advancement: The bill would create a new Sec. 530A, which would establish a new type of tax-preferred account, the money account for growth and advancement (MAGA). These accounts would be set up for the exclusive benefit of an individual and designated at the time of establishment as such (under rules Treasury will promulgate). The accounts would be exempt from tax.

Eligible beneficiaries would be children under the age of 8 when the account is established. Contributions could be made until the beneficiary reaches age 18. Contributions would be limited to $5,000 per year (adjusted for inflation). There would be exceptions for certain rollover contributions.

There would also be an exception to the $5,000 limit for contributions from tax-exempt organizations through a special program that Treasury is directed to create. Under the program, Sec. 501(c) tax-exempt organizations could make contributions to a large group of account beneficiaries. The accounts that would receive the contributions would have to be selected on the basis of the location of the residence of the account beneficiaries, the school district in which the beneficiaries attend school, or another basis that Treasury deems appropriate. In addition, all account beneficiaries would have to receive an equal portion of the contribution. Contributions under this program would be both exempt from the $5,000 limit and not included in the account beneficiary’s investment in the contract.

Distributions from MAGA accounts would not be permitted until the beneficiary reaches age 18. From age 18 to 25, aggregate distributions could be more than half the value of the account as of the date the beneficiary turned 18.

Distributions used for qualified expenses would be subject to capital gains tax. Other distributions would be subject to income tax and to an additional 10% tax if the beneficiary has not reached age 30. Qualified expenses would include qualified higher education expenses; qualified postsecondary credentialing expenses; amounts paid or incurred with respect to any small business that the beneficiary has obtained through a small business loan, small farm loan, or similar loan; and an amount used for the purchase of a principal residence of an account beneficiary who is a first-time homebuyer.

When the beneficiary reaches age 31, the account would cease to be a MAGA account and be treated as distributed to the account beneficiary.

The bill also directs Treasury to create a pilot program, under which Treasury would pay a one-time credit of $1,000 into MAGA accounts of eligible individuals. Eligible individuals are every child born after Dec. 31, 2024, and before Jan. 1, 2029, who is a United States citizen at birth.

Treasury would also be directed, if it determines that a MAGA account has not been established for an eligible individual by the qualifying date, to establish an account for that eligible individual and to notify the individual with respect to whom the eligible individual is a qualifying child. Treasury would then have to provide that individual with the opportunity to elect to decline Treasury’s establishment of the account. The qualifying date would be the first date on which a return is filed by an individual with respect to whom an eligible individual is a qualifying child with respect to the tax year to which the return relates.

Business provisions

Bonus depreciation: The bill would extend and modify the Sec. 168 additional first-year (bonus) depreciation deduction through 2029 (through 2030 for longer-production-period property and certain aircraft). Bonus depreciation had been in the process of being phased out under the TCJA. Instead, the bill would make it 100% for property acquired and placed in service after Jan. 19, 2025, and before Jan. 1, 2030 (Jan. 1, 2031, for longer-production-period property and certain aircraft), as well as for specified plants planted or grafted after Jan. 19, 2025, and before Jan. 1, 2030.

Increased Sec. 179 expensing limitation: The proposal increases the maximum amount a taxpayer may expense under Sec. 179 to $2.5 million and increases the phaseout threshold amount to $4 million.

R&D expenditures: The TCJA introduced a requirement that specified research-and-development (R&D) expenditures be capitalized and amortized ratably over a five-year period for tax years after 2021. The proposed bill would suspend that requirement for domestic research or experimental expenditures paid or incurred in tax years beginning after Dec. 31, 2024, and before Jan. 1, 2030.

Sec. 163(j) interest limitation: The bill would reinstate the EBITDA limitation under Sec. 163(j) for tax years beginning after Dec. 31, 2024, and before Jan. 1, 2030. Therefore, for purposes of the Sec. 163(j) interest deduction limitation for these years, adjusted taxable income would be computed without regard to the deduction for depreciation, amortization, or depletion.

Third-party network transaction reporting threshold: The bill would revert to the prior rule for Form 1099-K, Payment Card and Third Party Network Transactions, reporting, under which a third-party settlement organization would not be required to report unless the aggregate value of third-party network transactions with respect to a participating payee for the year exceeds $20,000 and the aggregate number of such transactions with respect to a participating payee exceeds 200. The threshold has been phasing down and is scheduled to be $600 starting next year.

Form 1099 reporting threshold: The bill would increase the information reporting threshold for certain payments to persons engaged in a trade or business and payments of remuneration for services to $2,000 in a calendar year (from $600), with the threshold amount to be indexed annually for inflation in calendar years after 2026.

FDII and GILTI: Under the TCJA, after 2025, the foreign-derived intangible income (FDII) deduction was scheduled to be reduced from 37.5% of FDII to 21.875%, and the global intangible low-taxed income (GILTI) inclusion deduction amount was scheduled to be reduced from 50% to 37.5% under Sec. 259(a)(3). The bill would repeal those reductions.

BEAT tax: Under Sec. 59A, the base-erosion and anti-abuse (BEAT) tax is scheduled to increase from 10% to 12.5% after 2025, and regular tax liability will be reduced (and the BEAT minimum tax amount therefore increased) by the sum of all the taxpayer’s income tax credits for the tax year. The bill would eliminate that increase and the provision reducing regular tax liability by the sum of the taxpayer’s tax credits.

Special depreciation allowance: The bill would introduce an elective 100% depreciation allowance for qualified production property.

Clean-energy provisions

The bill would repeal or phase out a large number of clean-energy provisions, including:

• Termination of the Sec. 25E previously owned clean vehicle credit for any vehicle acquired after 2025 (instead of 2032);
• Termination of the Sec. 30D clean vehicle credit for any vehicle acquired after 2026 (instead of 2032);
• Termination of the Sec. 45W qualified commercial clean vehicles credit for any vehicle acquired after 2025 (instead of 2032) (except for those placed in service before 2033 under a written binding contract entered into before May 12, 2025);
• Termination of the Sec. 30C alternative fuel vehicle refueling property credit for property placed in service after 2025 (instead of 2032);
• Termination of the Sec. 25C energy-efficient home improvement credit for property placed in service after 2025;
• Termination of the Sec. 25D residential clean-energy credit for property placed in service after 2025 (instead of 2034);
• Termination of the Sec. 45L new energy-efficient home credit for any qualified new energy-efficient home acquired after 2025;
• Phaseout and restrictions on the Sec. 45Y clean electricity production credit for tax years beginning after the date of enactment;
• Phaseout and restrictions on the Sec. 48E clean electricity investment credit;
• Repeal of the transferability of the clean fuel production credit;
• Restrictions on the Sec. 45Q carbon oxide sequestration credit;
• Phaseout and restrictions on the Sec. 45U zero-emission nuclear power production credit;
• Termination of the clean hydrogen production credit under Sec. 45V;
• Phaseout and restrictions on the Sec. 45X advanced manufacturing production credit; and
• Phaseout of the credit for certain energy property under Sec. 48.

Health care provisions

Individual coverage HRAs: The bill would codify, with some changes, the final regulations permitting employers to offer individual coverage health reimbursement arrangements (HRAs) — which the bill would rename as Custom Health Option and Individual Care Expense (CHOICE) arrangements — without violating the group health plan requirements of the Public Health Service Act, P.L. 78-410.

Health savings accounts: The bill would make several changes affecting the rules for health savings accounts (HSAs). These would include allowing individuals who qualify for Medicare by reason of age, but who are only enrolled in Medicare Part A, to still be eligible to contribute to HSAs.

— Alistair M. Nevius, J.D., is a freelance writer in North Carolina. To comment on this article or to suggest an idea for another article, contact Neil Amato at Neil.Amato@aicpa-cima.com.

Updates on individual tax and business tax are among the many topics on the agenda at the AICPA & CIMA National Tax Conference. Nov. 17-18 in Washington, D.C., and online.