Congress broke for the holiday recess on December 18 after failing to reach an agreement on extending the enhanced Affordable Care Act (ACA) premium tax credits or addressing other unfinished tax priorities.
Both chambers plan to return on January 6, 2026, and will have a short window to negotiate a healthcare compromise and extend government funding. The ACA tax credits expire on December 31, 2025, and government funding is set to expire on January 30, 2026.
Lawmakers held a series of messaging votes on healthcare just before recessing but were unable to broker a compromise on the ACA credits. The Senate held dueling healthcare votes on December 11. Four Republicans joined Democrats in the failed 51-48 vote to extend the ACA credits for three years (60 votes were needed). The Senate Republican bill to provide funding for health savings accounts (HSAs) also failed in a 51-48 vote. The House voted 216-211 to approve a Republican bill that carried a handful of policies aimed at pharmacy benefit managers, association health plans, ACA cost sharing subsidies, and choice accounts.
Some lawmakers expressed hope that with messaging votes out of the way, there may still be an opportunity for a bipartisan agreement early in 2026.
“When we get through this exercise this week the question is: Are there enough Democrats who want to fix the problem?” Senator Majority Leader John Thune, R-S.D., said before the Senate votes. “I think there’s a path forward,” he said in a separate interview. “Obviously we don’t have a lot of time to do this, but I think there are ways in which you could, where there’s a will.”
“After we fail, I like to think we succeed,” said Sen. Lisa Murkowski, R-Alaska, who added that an agreement realistically would need to be done by January 15.
There are several potential bipartisan paths forward. Four moderate House Republicans signed a discharge petition on a “clean” three-year extension of the ACA credits, which will force a vote on the measure when the House returns in January. The Senate has already rejected a three-year extension, but members have been discussing other options. A bipartisan group of up to 20 senators has met periodically to negotiate, though talks have yet to lead to a breakthrough. Two separate groups of moderate Republicans have released similar bills that would temporarily extend ACA credits with income limits. Both measures now have enough Republican support for a discharge petition if all House Democrats were to sign on.
President Donald Trump could potentially help drive a deal, and he has expressed some openness to working with Democrats.
“I think we’re going to start working together on healthcare,” he said at the White House Congressional Ball. “I really predict that.”
Republicans could also pivot to reconciliation, though President Trump has been cool to the idea of a second reconciliation bill.
“We don’t need it because we got everything in [the OBBBA],” he said recently.
Other Tax and Spending Priorities
With no deal on the ACA credits and government funding extended into 2026, there was no year-end legislative vehicle to carry other tax “extender” provisions. Several tax benefits will expire at the end of 2025, including the work opportunity tax credit, the seven-year recovery period for motorsports complexes, and expensing for film, television, and theatrical productions. Tax writers are also looking for a vehicle to move bipartisan tax provisions that would confer tax treaty-like benefits on Taiwan, remove a limitation on the gambling deduction, and address tax administration issues.
An ACA deal or an extension of government funding early in 2026 could carry other tax priorities. Congress will also need to address IRS funding. House appropriators have proposed only $9.5 billion for the IRS in fiscal year 2026, down significantly from the $12.3 billion the agency received in 2025. Republicans on the Senate Appropriations Committee proposed a larger $11.8 billion budget. Any Senate Appropriations bill would need support from Democrats, which could drive the funding proposal even higher. A year-long continuing resolution at current funding levels is possible.
Bipartisan work on digital asset reform is also expected to resume in 2026. A Senate Finance Committee hearing in early October showed some bipartisan agreement on core tax issues, including applying the wash sale rule to digital asses, allowing mark-to-market elections, creating a safe harbor for foreign persons, and clarifying guidance on staking, mining, lending, charitable contributions, and income recognition. The creation of a de minimis threshold for certain low-value transactions remains a sticking point.
BDO Takeaway
The tax legislative agenda for 2026 appears modest for now, but economic challenges, tariff developments, or negotiations over Pillar Two could all change the outlook. Regulatory action could also have a significant impact on tax planning in 2026, particularly guidance implementing the One Big Beautiful Bill Act (OBBBA). Taxpayers should continue to monitor legislative activity and IRS developments.
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