'Most taxpayers will see a cut': Senate's tax plan for Trump's spending package would permanently extend TCJA cuts
This week, the Senate Finance Committee released details on its version of President Donald Trump's "big, beautiful" budget bill.
The committee's text reveals some departures from the version of the legislation that passed the House last month, including differences in Medicaid rules, state and local tax deduction limits and clean energy tax credits.
The differences could set up the two chambers to duke it out over the details as they approach a self-imposed July 4 deadline to get the legislation on Trump's desk.
If you're wondering if your taxes are likely to go down next year, the answer is almost certainly, "yes."
That's because both versions of the bill permanently extend the tax cuts introduced in the 2017 Tax Cuts and Jobs Act, while also introducing a new slate of breaks for filers.
"It's a continuation of tax policy in place right now, plus additional tax cuts on top of that," says Erica York, vice president of federal tax policy at the Tax Foundation. "On net, most taxpayers will see a tax cut, and on average, all income groups would see a tax cut."
The 2017 bill brought about sweeping, albeit temporary, changes to the tax code. Provisions which nearly doubled the standard deduction, upped the monetary thresholds for tax brackets, lowered the top tax rate and bumped up the child tax credit are set to expire at the end of 2025.
If Congress lets that happen, 62% of taxpayers will see an increase in what they pay Uncle Sam, according to Tax Foundation estimates.
"Lawmakers across the board, and I would say even across the aisle, agree that they don't want to see those tax increases happen for the vast majority of Americans," says York.
Whether the final version of the budget bill looks more like the House or Senate version, Americans are getting continuity: the same tax rates, the same brackets and a standard deduction that's high enough to keep taxes simple for the vast majority of Americans; just 9% of taxpayers itemized in 2022, compared with 31% in 2017, according to data released by Congress. Both versions of the bill call for an increase in the standard deduction beginning after tax year 2025.
However, some tax breaks look different in the Senate and House versions of the legislation.
The Senate bill, for instance, raises the nonrefundable Child Tax Credit to $2,200 starting in 2025, $300 lower than what the House proposed. Both versions make good on Trump's campaign promise to do away with taxes on tipped income, but the Senate legislation caps the deduction at $25,000 a year, with different rules about who can claim the break based on income.
Regardless of what the bill looks like in its final form, it's worth keeping track of exactly how it affects what you owe come tax time, says York.
To figure out what kind of tax break you got, focus on what you pay next year versus what you paid this year, she says — not the difference in any refund you might receive.
"Your refund doesn't really reflect how much you actually pay. It just reflects whether your withholding matched up with what your tax liability was supposed to be," she says. "Whether or not you get a refund [is] not related to what Congress is doing with tax law."
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