Ask the Editor, May 30: Questions on the One Big Beautiful Bill

Each week, in our Ask the Editor series, Joy Taylor, The Kiplinger Tax Letter Editor, answers questions on topics submitted by readers. This week, she’s looking at questions related to the House-passed “One Big Beautiful Bill.” (Get a free issue of The Kiplinger Tax Letter or subscribe.)

1. Legislative forecast

Question: Now that the House passed the One Big Beautiful Bill, when will the Senate pass it?

Joy Taylor: In the wee hours of May 22, the House passed its One Big Beautiful Bill on a 215-214 vote. The proposal would extend many of the expiring tax provisions in the 2017 Tax Cuts and Jobs Act and enhance them in several instances, provide brand new tax breaks, repeal clean-energy credits for individuals and businesses, and make Medicaid cuts to offset some of the bill’s cost.

It’s now time for the Senate’s turn. And the process to passage in the upper chamber won’t be easy. Republicans senators are already saying they will make changes to the package. For example, some don’t like the extent of the Medicaid cost reductions, others want certain business tax changes to be made permanent, some oppose big cuts to clean-energy credits, and the list goes on. There is also the impact on the federal deficit. The bill is estimated to hike the deficit by $2.8 trillion over 10 years. After the Senate makes its changes, the House would then have to approve them.

Republicans are pushing to get a finished bill to President Trump by July 4, but this compressed time frame seems unlikely. A more likely scenario is for a final Senate vote by late July.

2. Impact on Muni bonds

Question: Does the House-passed tax bill make interest on state and local bonds (Munis) taxable?

Joy Taylor: No. The tax break is safe for now. Interest earned on Munis is tax-free for federal income tax purposes. Some Republicans floated the idea of repealing the interest exemption as an option for raising revenues to help offset the cost of other proposed tax relief in the bill. But a lobbying push by affected groups and industries helped to save the break. Also, states and local governments rely on Munis to fund all sorts of infrastructure projects.

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3. Impact on Social Security benefits

Question: I receive Social Security benefits, and I have to pay federal income tax on a portion of the benefits. Does the House-passed bill make Social Security benefits tax-free?

Joy Taylor: Many Social Security recipients pay federal income tax on up to 85% of their benefits, depending on their provisional income. President Trump vowed to end the tax. But the process that Republican lawmakers are using to pass their bill by circumventing the 60-vote filibuster rule in the Senate won’t allow this income tax change to Social Security benefits. So the answer to your specific question is that your Social Security benefits will be taxed as usual for federal income tax purposes.

However, congressional Republicans found an alternative means of providing tax relief for seniors. The House-passed bill would give a $4,000 bonus deduction to filers who are age 65 and up. Individuals 65 and older who take the standard deduction would add the extra $4,000 to their standard deduction amounts. Married couples with both spouses who are 65 or older would be able to deduct $8,000. Filers who are 65 or older and itemize on Schedule A would also get the deduction. The proposal would first take effect on 2025 returns filed next year and end after 2028.

But not every senior would qualify for this bonus deduction. There is an income limit. The deduction would begin to phase out for taxpayers with modified adjusted gross incomes over $150,000 on joint returns and $75,000 on single and head-of-household returns.

4. Who can claim the $4,000 bonus deduction?

Question: My wife are I are both retired federal employees. We receive a Civil Service Retirement System (CSRS) pension, but we do not receive Social Security benefits. Will we be able to claim the proposed $4,000 bonus deduction that is included in the House-passed bill even though we do not receive Social Security benefits?

Joy Taylor: Yes, if the One Big Beautiful Bill is eventually enacted, and you are age 65 or older, you would be able to claim the bonus $4,000 deduction (per spouse), subject to the income phaseouts discussed above. You do not have to receive Social Security benefits to take the deduction.

About Ask the Editor, Tax Edition

Subscribers of The Kiplinger Tax Letter and The Kiplinger Letter can ask Joy questions about tax topics. You'll find full details of how to submit questions in The Kiplinger Tax Letter and The Kiplinger Letter. (Subscribe to The Kiplinger Tax Letter or The Kiplinger Letter.)

We have already received many questions from readers on topics related to tax basis in a home, IRA contributions and distributions, and more. We’ll answer some of these in a future Ask the Editor round-up. So keep those questions coming!

More Reader Questions Answered

• Ask the Editor: Questions on capital gains
• Ask the Editor: Questions on tax deductions and losses
• Ask the Editor: Questions on 529 plans
• Ask the Editor: Questions on amended returns
• Ask the Editor: Questions on IRAs, RMDs and PTPs