On May 13, 2025, the House Committee on Ways and Means, the primary tax-writing body in the U.S. House of Representatives, introduced a significant tax reform bill as part of the fiscal year 2025 budget reconciliation process. The proposal aims to extend and enhance the provisions of the 2017 Tax Cuts and Jobs Act (TCJA) while introducing additional tax relief measures.
Following an overnight markup, the committee approved the bill on May 14, advancing it to the House Budget Committee for further review. A markup is scheduled for May 16 to integrate the proposal with other committee contributions. The final package will ultimately be shaped through House-Senate negotiations.
As the bill moves through the legislative pipeline, here are key provisions and practical considerations for business leaders and decision-makers to know:
Scope and Overview of the Proposal
The legislation was introduced in two stages on May 13:
- Initial Package: Focuses on extending key TCJA provisions set to expire in 2025, including the Qualified Business Income (QBI) deduction and bonus depreciation
- Amendment in the Nature of a Substitute: Introduces additional tax relief measures, such as exemptions for tip income and overtime pay
The Joint Committee on Taxation estimates the package’s cost at $3.8 trillion over 10 years. To meet budget reconciliation requirements, lawmakers may include revenue offsets, such as additional tariffs or spending cuts.
Potential Provisions and Their Implications
The bill includes several proposed provisions that could impact business leaders and decision-makers. To clarify their relevance, we’ve categorized them into four areas.
Note: The following provisions reflect current legislative proposals, which are not yet law and remain subject to change.
Business Tax Implications
- Section 179 Expense Limit Expansion: The proposal would increase the Section 179 expense limit to $2.5 million, with a phase-out starting at $4 million, for tax years beginning after December 31, 2024.
- Interest Expense Limitation Adjustment: For calendar tax years 2025 through 2029 (or fiscal years beginning within that window), the bill would temporarily modify the business expense limitation to a calculation based on EBITDA, rather than EBIT. This adjustment could allow the use of previously disallowed interest expense carryforwards beginning in 2025. Taxpayers, whose fiscal years begin in 2024 and end in 2025, should pay close attention to how these timing changes could impact eligibility and deductions.
- Full Expensing for Research & Development (R&D): The proposal would suspend the requirement to capitalize domestic R&D costs, allowing immediate expensing for tax years 2025 through 2029.
- Extended and Expanded Bonus Depreciation: The bill extends 100% bonus depreciation for qualified property placed in service from January 20, 2025, through 2029, and allows elective full expensing for certain nonresidential real estate used in manufacturing.
- Full Expensing for U.S.-Based Production Facilities: The proposal would allow 100% first-year expensing for the cost of constructing or acquiring new production facilities in the United States, allowing businesses to fully deduct qualifying expenditures in the year the facility is placed in service.
- Permanent and Enhanced Qualified Business Income (QBI) Deduction: The bill proposes making the TCJA’s 20% deduction for QBI permanent, increasing it to 23% for tax years and adjusting phaseout thresholds to expand eligibility. This could reduce taxable income for pass-through entities such as LLCs, S corporations, and sole proprietorships.
- Elimination of SALT Deductions at the Entity Level for Pass-Through Entities: This provision would prevent Pass-Through Entities (PTEs) from deducting specified state and local taxes at the entity level. Instead, those taxes would need to be separately stated and passed through to individual partners or shareholders, subject to each taxpayer’s individual SALT deduction cap. Some payments made by PTEs at the entity level may still bypass the cap if they meet specific criteria.
- Permanent Excess Business Loss (EBL) Limitation: This provision would make permanent the TCJA rule that limits non-corporate taxpayers’ ability to offset business losses against non-business income.
- Retroactive Disallowance of Certain ERC Claims: The proposed legislation would retroactively invalidate Employee Retention Credit (ERC) claims submitted after January 31, 2024. Businesses that filed claims after this date would no longer be eligible for the credit. Additionally, the bill extends the IRS’s authority to audit such claims, increasing the statute of limitations from three to six years.
Workforce and Payroll Implications
- Tax Exemption for Tips and Overtime Pay: From 2025 through 2028, federal income tax would no longer apply to tip income and overtime pay for non-exempt employees under the Fair Labor Standards Act earning less than $160,000 (indexed for inflation).
- Lowered Reporting Threshold for Contractor Payments: The bill would replace the current $10,000 credit card reporting threshold with a $2,500 threshold (adjusted for inflation) for payments to independent contractors.
Individual Taxpayer Implications
- State and Local Tax (SALT) Deduction Cap: The cap would rise to $30,000 for joint filers and $15,000 for single filers or those married filing separately, for taxpayers with incomes up to $400,000 for joint filers or $200,000 for single or separate filers. A gradual phaseout would apply to higher earners. This builds on the existing $10,000 cap established under the TCJA.
- Increased Estate and Gift Tax Exemption: Beginning in 2026, the estate and gift tax exemption amount would increase to $15 million per individual, adjusted annually for inflation.
Investment Implications
- New Opportunity Zones (2027–2033): The bill introduces new Opportunity Zones to encourage investment in specific areas, effective from 2027 to 2033, potentially offering tax deferral benefits for real estate and business investments.
Practical Considerations for Businesses
As the bill progresses, businesses should focus on understanding its potential implications and staying prepared for various outcomes. Below are concise considerations in the meantime:
- Stay Aware of Updates: Follow legislative developments as negotiations shape the final package.
- Consider Tax Implications: Reflect on how proposed tax changes might affect your financial strategy in the future.
- Think About Operations: Evaluate potential impacts on workforce or compliance processes, especially in payroll or contractor management.
- Explore Investment Ideas: Consider whether future incentives, like Opportunity Zones, could align with your goals.
- Assess Broader Impacts: Consider how revenue offsets, like tariffs, might influence costs.
- Engage with Advisors: Stay connected with an expert advisor to prepare for possibilities as they evolve.
Stay Ahead and Position Your Business for Success
These provisions are not yet law and may change significantly through congressional negotiations. Final legislation could alter the scope, timing, and eligibility at the federal and state levels. Grassi will continue to provide timely guidance as more details emerge.
To explore how these proposals may affect your business, reach out to a Grassi Advisor today, or contact Jeff Cohen, Partner and Tax Services Leader, or TJ Beary, Partner and SALT and Tax Controversy Practices Leader at Grassi.
