The House May 22 approved H.R. 1, the Republican-only budget reconciliation bill to extend Tax Cuts & Jobs Act (TCJA) provisions expiring at the end of 2025, provide border security funding, and cut mandatory spending, including through Medicaid changes. The vote was 215-214 with two Republicans voting against the bill and one voting “present.”

Republican leaders were able to secure the near-unanimous support of their members despite persistent concerns until the bill was brought to the floor, requiring a balancing act between factions of members who felt the approach to deficit reduction taken in the House bill as originally written was not sufficient and others who viewed the proposals and attempts to deepen them as too severe. Members from high-tax states were also satisfied with the increase in the state and local tax (SALT) deduction cap to $40,000, after seeking relief from the TCJA-enacted cap during the months of development of the bill and for years prior. President Trump also intervened to convince members to vote for the “One big, beautiful bill.”

A manager’s amendment unveiled late May 21 made changes to Inflation Reduction Act (IRA) energy tax credit rollbacks and Medicaid provisions to address concerns of conservatives, as well as to other tax areas like international tax rates. The IRA and Medicaid changes are among those seen most likely to be changed by the Senate, and the small adjustments to international rates could be an attempt to smooth passage of the bill given the Senate’s strict reconciliation rules governing revenue considerations.

Some preliminary observations about the late changes follow below.

International tax changes include:

• Global intangible low-taxed income (GILTI) deduction reduced from 50% (10.5% rate) to 49.2% (10.668% rate)
• Foreign-derived intangible income (FDII) deduction reduced from 37.5% (13.125% rate) to 36.5% (13.335% rate)
• Base erosion and anti-abuse tax (BEAT) rate increased from 10% to 10.1%

Individual tax changes include:

• Increases the state and local tax deduction (SALT) cap to $40,000 per household for incomes under $500,000, with the cap and income threshold set to grow 1% each year
• Changes to the limitation on the tax benefit of itemized deductions of 35%
• Changes to IRC Section 707 regarding treatment of payments from partnerships to partners for property or services
• MAGA accounts for children renamed Trump accounts
• 5% excise tax generally imposed on any remittance transfer reduced to 3.5%

Energy tax changes include:

IRC Sections 45Y and 48E:

• Eliminates the phase-out and placed-in-service rules and replaces with a termination of the credit for facilities that have not begun construction 60 days after DOE and have not been PIS by 12/31/2028
• Advanced nuclear facilities in 45J may begin construction by 12/31/2028
• Accelerates the FEOC ‘material assistance’ restriction from one year after DOE to facilities that begin construction after 12/31/2025
• Prevents these credits from being used through leasing arrangements to provide residential solar and wind
• Restores transferability

IRC Section 45U:

• Repeals phase-out
• Changes expiration from 12/31/2032 to 12/31/2031
• Restores transferability

Other tax provisions

Some of the broad categories in the underlying tax portion of the bill are:

• TCJA extensions including an IRC Section 199A deduction of 23%
• Extension of TCJA pre-cliffs on bonus depreciation, IRC Section 163(j) interest deductibility, and IRC Section 174 R&D expensing, which are generally extended 2025-29
• Provisions reflecting President Trump’s proposals on no tax on tips, no tax on overtime, no tax on car loan interest, a special higher deduction for seniors, and accelerated depreciation for factories
• Revenue offsets addressing issues including sports team amortization, higher education endowment taxes, private foundation taxes, unrelated business income, an executive compensation aggregation rule, fraud, waste, and abuse provisions for health care and COVID programs, earned income tax credit reforms, etc.
• A new IRC Section 899 retaliatory tax plan, combining and modifying two prior Ways and Means bills on global tax retaliation
• Changes to family-based tax credits and savings accounts for education and health care

Health

The bill includes several changes to the House Energy and Commerce Committee’s Medicaid provisions, including:

• Accelerating the implementation date for Medicaid work requirements to December 31, 2026, up from January 1, 2029, with instructions for HHS to issue guidance for states to adopt work requirements as soon as December 31, 2025.
• Moving the implementation date for states to conduct biannual redeterminations of coverage for adults covered by Medicaid expansion to December 31, 2026.
• Moving the implementation date for limiting retroactive coverage in Medicaid to December 31, 2026
• Increasing the caps on state-directed payments (SDPs) for non-Medicaid expansion states to 110% of the Medicare rate for a given health care service, grandfathering in any existing SDPs above that rate in such states. 
• Adding a new section allowing cost-sharing reduction payments for ACA plans, with an exception for payments to plans that provide coverage for abortion care with certain exceptions, including to save a woman’s life.

The manager’s amendment, underlying bill, and other materials are available here.