House Speaker Mike Johnson, R-La., said in an interview this week that Republicans have already begun initial work on a second tax package that he hopes to move through the reconciliation process “in the late fall.”
The effort faces significant challenges, and so far Republican senators appear more focused on appropriations and a potential bipartisan year-end extenders package. Both of those priorities also face major hurdles.
Johnson said the reconciliation package could focus on redrafting provisions cut from the One Big Beautiful Bill Act (OBBBA) because of issues with the parliamentarian. With more time, Johnson said some provisions could be altered to comply with rules.
Johnson aide Curtis Beaulieu said recently that members are also interested in making retirement tax changes, increasing the Section 199A deduction to 23%, and potentially resurrecting Section 899. President Donal Trump this week floated the idea of eliminating capital gains tax on the sale of homes. Taxpayers are currently eligible to exclude up to $250,000 (single filers) or $500,000 (joint filers) gain from the sale of a primary residence.
The idea of a second reconciliation bill is not yet picking up traction in the Senate. Senate Majority Leader John Thune, R-S.D., warned in an interview last week that it would be “a big undertaking.”
“I don’t know,” Thune said. “We’ll see. I mean, I’m not, certainly not ruling it out.”
Senate Finance Committee Chair Mike Crapo, R-Idaho, told reporters recently he’s more focused on bipartisan tax and health care priorities. House Ways and Means Chair Jason Smith, R-Mo., has also discussed a potential bipartisan extenders bill.
There are only a handful of potential bipartisan tax priorities that would be included on a typical year-end tax extenders package. For example, the work opportunity tax credit is scheduled to expire at the end of 2025. In addition, there is bipartisan interest in legislation that would confer treaty-like tax benefits to Taiwan, extend disaster relief, and make technical corrections to retirement legislation referred to as SECURE 2.0.
The list of tax extenders is small enough that it will be difficult to build momentum for a package. Republicans added several last-minute extenders to the One Big Beautiful Bill Act (OBBB), including the New Markets Tax Credit and the CFC look-through rule, potentially revealing a lack of confidence in a year-end extenders package. Democrats may be reluctant to pursue an extenders package after being shut out of the reconciliation process that Republicans used to pass the OBBB. The contentious spending fight will only make any bipartisan action even more difficult.
BDO Takeaway
Hospitality businesses should not wait for additional guidance to begin preparing to implement this provision. It will be important to determine whether the business is a specified trade or business under Section 199A, which would preclude employees from claiming a deduction. Tip policies will also be important. Any mandatory gratuities could also preclude a deduction for employees. IRS guidance on qualifying occupations should be forthcoming. Employers with employees who receive tips or overtime compensation can also consider communicating with employees on withholding considerations.
Please visit BDO’s Tax Policy page for more information on how BDO can help.