Federal Tax Bill Passes in House: 6 Changes in the Works

The House has passed federal legislation, the “big, beautiful bill,” aimed at providing tax cuts that will have an immediate impact.

In the early-morning hours of May 22, 2025, the tax and spending legislation cleared the House with a 215-214 vote. Now the bill heads to the Senate.

HR 1 — officially referred to as the One Big Beautiful Bill Act — would extend and/or modify some provisions of the Tax Cuts and Jobs Act (TCJA) of 2017. The clock is ticking, as many TCJA provisions are set to expire at the end of 2025.

The House bill also goes beyond the TCJA, introducing additional tax-related measures.

With so many new developments on the horizon, employers should be ready for updates to their payroll software and other key systems.

Although the provisions in the 1,000-page budget reconciliation bill are far from finalized, here are six changes that employers should keep an eye on.

Tax Cuts to Watch

#1. Health Savings Accounts (HSAs). HR 1 would increase the annual HSA contribution limit, doubling the current amount. The limit would be phased out based on earnings. Also included in the bill, both spouses would be able to make catch-up contributions to the same HSA. Another new feature: Memberships at fitness facilities, for example, would be considered “medical care.”

#2. Personal Income Tax Rates. Under the legislation, the TCJA’s modified income tax rates for individuals would be extended. Those current rates are 10%, 12%, 22%, 24%, 32%, 35% and 37%.

#3. Standard Deduction. The bill provides for the continuation of the higher standard deduction and tacks on a temporary boost through 2028.

#4. Deduction for Certain Earnings. In President Trump’s address to Congress in March 2025, he called for no federal income tax on tips, overtime or Social Security. HR 1 would allow individuals to deduct tip income and overtime income when they file their personal returns. Also, in lieu of no tax on Social Security retirement benefits, the bill would put in place a $4,000 increase in the deduction that seniors can take when they file their annual individual returns. Both of these provisions would run from 2025 to 2028.

#5. State and Local Tax (SALT) Deduction. The TCJA had imposed a cap on the federal deduction for SALT. Under HR 1, the cap would stay in place but, starting in 2025, would increase from $10,000 to $40,000 per household. Note: That amount would be limited based on earnings. For married individuals filing separately, the cap would be less, going from $5,000 to $20,000 per household. Increases of 1% per year are built into the House bill for the SALT deduction from 2026 to 2033.

#6. Child Tax Credit. Another soon-to-expire provision of the TCJA involves the child tax credit. That 2017 law had increased the credit from $1,000 to $2,000, setting an end date of December 31, 2025. Now, the credit would increase from $1,000 to $2,500 through 2028 — then lock back in at $2,000 per year, with an adjustment for inflation.