From tax on tips to SALT deductions: Senate tweaks bring change to Trump's big tax bill

USA Today

3 hours ago

The Senate released its revisions to the legislation dubbed the "One Big Beautiful Bill" by President Donald Trump this week, but whether it's better for average Americans than the House bill might be questionable, some experts say.
The Senate's version of the mega tax bill keeps popular benefits like no taxes on overtime and tips, an additional tax deduction for those 65 years and older, and a deduction for state and local taxes (SALT).
However, the Senate's tweaks, if passed, may make those tax benefits less beneficial for individual taxpayers, some accountants said.
No tax on tips and overtime pay
Eliminating taxes on tips and overtime pay is one of President Donald Trump's most popular campaign promises, and the Senate kept it – but with a cap.
For tips, the Senate offers a maximum $25,000 deduction for both overtime pay and tips, but it would begin to phase out for single filers earning, with a modified adjusted gross income (MAGI), $150,000, and couples over $300,000. It would reduce the deduction by $100 for every $1,000 of income over those thresholds.
MAGI begins with the adjusted gross income, whch is basically the sum of all income, which commonly can include items like dividends, interest, capital gains, rental income, self-employment income, taxable alimony, Social Security, pensions, annuity income, and a few more things. The AGI is then adjusted or 'modified' further to get to the MAGI.
For a single filer, the deduction is completely phased out if income is $250,000 over the MAGI threshold.
The House version didn't have a cap or a phase out. Instead, it excluded highly compensated employees who make at least $160,000 in 2025.
'For both no tax on tips and no tax on overtime, the House version is more beneficial to the average taxpayer as there are no caps on the deduction,' said Richard Pon, a certified public accountant in San Francisco.
Senior deduction
The Senate proposed a $6,000 'bonus deduction' for those aged 65 and older, but eligibility is capped at $75,000 in income for single filers and $150,000 for couples.
The deduction would be available from 2025 through 2028, and would supplement, but not replace, the existing extra standard deduction already available to older adults. For 2025, a single filer age 65 or older can claim an extra $2,000, while married couples filing jointly can add $1,600 for each spouse over 65 in addition to the standard deduction available to all taxpayers.
The Senate's bonus deduction would be on top of those.
The House agreed on a $4,000 bonus deduction with similar eligibility parameters and duration.
Bonus deductions are meant as a substitute for Trump's promise of no tax on Social Security because the budget reconciliation process doesn't allow provisions related to Social Security, according to the Bipartisan Policy Center
Since tax deductions only reduce taxable income, not tax owed directly, those who pay little to no federal income tax may benefit very little if at all from the bonus deduction, analysts said.
SALT deduction
Individual taxpayers could lose big under the Senate's version of the controversial SALT, or state and local tax, deduction.
In 2017, Trump's first major tax bill capped SALT at $10,000. Before that, it was uncapped, meaning individuals could deduct all their state and local taxes on their federal tax returns. The cap was seen as mostly hurting many big Democratic states like New York with high state and local taxes.
As a workaround, many states adopted Pass-Through Entity (PTE) taxes, which allow the entity to pay state income tax at the entity level and take the tax deduction. Only individuals, not entities, are subject to the SALT cap.
The House plan raises the cap to $40,000 for individuals earning $500,000 or less.
The Senate kept the current $10,000 cap and said passthrough entity taxes (PTE) would now be subject to the $10,000 limit, Pon said.
'I think the cap may be raised slightly -- most likely by doubling the cap to $20,000 for married taxpayers,' Pon said. But 'the proposal to stop the PTE workaround, I think, will pass as it raises revenue which is needed to get the deficit under control.'
Medora Lee is a money, markets, and personal finance reporter at USA TODAY. You can reach her at [e-mail] and subscribe to our free Daily Money newsletter for personal finance tips and business news every Monday through Friday.