The United States Senate Finance Committee has presented its tax proposals this week, which could mean a crucial change for the country's tax legislation. Lawmakers are considering these changes within the budget reconciliation bill that is currently being discussed in Congress. The House of Representatives approved its new version of the bill, known as HR 1, but the Senate is working on its own version that still needs to be reconciled.
One of the main points of discussion between both chambers is the standard deduction and how it will be applied in the future. The Senate has proposed a significant increase in the standard deduction starting in the 2026 fiscal year, which could benefit millions of taxpayers at SSA. This proposal also includes a tax exemption for older individuals, which could have a major impact on the population aged 65 years or older.
The future of tax deductions, hanging in the air
The Senate has proposed a new structure for the standard deduction that would considerably increase the benefits for certain groups of taxpayers. Starting in 2026, the standard deduction would be set at $16,000 for single filers, $24,000 for heads of household, and $32,000 for married couples filing jointly. This proposal would be permanent, with adjustments for inflation in the following years.
One of the most notable new features is the inclusion of a temporary tax deduction for Americans over 65 years old. While the House of Representatives had proposed a $4,000 bonus, the Senate raises this figure to $6,000. However, this deduction for older individuals would begin to phase out starting at certain income limits, which marks a major difference from the House's proposal.
Possible challenges and pending negotiations
Despite these optimistic proposals, experts such as Ted Sarenski warn that, when the deduction for older individuals begins to disappear in 2028, tensions and protests could arise. Concerns increase when analyzing the impact of the state and local tax (SALT) deduction limit, which is currently set at $10,000. The Senate suggests keeping this limit, while the House of Representatives advocates for an increase up to $40,000 per household, which could generate additional conflicts.
Sarenski also points out that this disagreement over SALT could be decisive for the bill's success. Residents of states with high taxes, such as California and New York, could be greatly affected by the lack of an agreement on this point. This way, although the Senate has proposed a firm position, negotiations are expected to continue and for both chambers to eventually reach a compromise.