Senate Finance Committee Unveils Key Changes in Medicaid and Tax Provisions of the 'Big Beautiful Bill'

Disclaimer: The content in this blog was written prior to the passage of the “One Big Beautiful Bill” and may not reflect the most current tax laws or regulatory updates. For the latest guidance and implications of the new legislation, please consult with your McGuire Sponsel advisor or refer to our updated resources.

On Monday, June 16th, the Senate Finance Committee released its draft of the Medicaid and tax changes to be included in the Senate’s version of the “Big Beautiful Bill.” While there are still significant questions about whether the Senate can finalize this bill by the July 4th deadline, the draft provides insight into how changes to Section 174, Bonus, and other provisions may take shape.

As opposed to the House version of the bill, the Senate version includes permanent extensions for many business provisions. Additionally, while the Senate version maintains no tax on tips and overtime, it caps deductions at $25,000 and $12,500, respectively. Key negotiation points for the Senate version include changes to Medicaid provider taxes, reducing the rate from 6% in the House bill to 3.5% in the Senate bill, as well as the overall cost of the legislation.

Notable positive business provisions in the Senate draft include a permanent extension of 100% bonus depreciation, an increase to Section 179, a restatement of Section 163(j) to use EBITDA, and a permanent fix for Section 174. However, negative provisions include the removal of Sections 179D and 45L, as well as many energy provisions from the Inflation Reduction Act. While the rollbacks from the IRA are not as rapid as they are in the House bill, the exclusion of Section 179D will impact many more businesses.

For many taxpayers, the changes to Section 174 are among the most critical aspects of this legislation. The bill introduces a permanent fix for Section 174 for tax years beginning after December 31, 2024. Additionally, it allows small taxpayers, as defined under Section 448(c), to opt out of Section 174 requirements for tax years 2022, 2023, and 2024. This election can be made on an amended return, enabling small taxpayers who complied with the Section 174 requirements to amend prior returns accordingly. Large taxpayers, as well as small taxpayers who choose not to make the election for preceding years, can file Form 3115 to deduct remaining unamortized costs over one or two years.

This raises an important question: What should taxpayers do now? Although the differences between the House and Senate versions of the bill are significant, some aspects are clear. Both bills propose a fix for Section 174 starting in 2025. If the House bill is enacted, taxpayers that did not comply with 174 amortization requirements beginning in 2022 will need to address Section 174 for prior years through a Form 3115, whether or not they are claiming the R&D credit for 2025 and forward. Conversely, if the Senate bill passes, taxpayers will have more flexibility around 174, with small taxpayers being able to opt out of the requirements. For most taxpayers, this means they should begin reassessing their R&D tax credits not only for 2025 but also for 2022-2024. Regardless of whether the Senate or House bill is approved, the R&D credits will prove valuable for tax planning. Given the complexity of these bills, understanding the available tax credits for both 2025 and prior years will be crucial.

McGuire Sponsel will continue to monitor the “Big Beautiful Bill,” and the associated tax changes. If you have any questions or need guidance on how these developments might affect your clients, don’t hesitate to reach out.