R-La. House Speaker Mike Johnson speaks to the media after narrowly passing the agenda of Congressman Donald Trump on May 22, 2025.
Kevin Dietsch | Getty Images
As Senate Republicans debate billions of tax credits by the House, some employers could be blocked from some of the proposed wind drops, policy experts say.
If enacted exactly as written, House GOP’s “One Big Beautiful Bill Act” increases the federal deduction limit for state and local taxes known as salt to $40,000. Once your income exceeds $500,000, it becomes staged.
The bill also increases tax cuts for pass-through businesses, known as eligible business revenue (QBI, deductions), by 23%. However, the measure ends the popular state-level salt cap workaround for certain pass-through business owners.
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Here’s what you need to know about the proposed changes and who might be affected:
Salt deduction cap “Workaround”
As it is enacted via the 2017 Tax Cuts and Employment Act (TCJA), there is currently a $10,000 limit on filer salt deductions that itemize tax credits. The cap will expire after 2025 without any changes from Congress. Salt deductions were unlimited prior to the TCJA, but the so-called alternative minimum tax reduced the profits of some high-income earners.
Caps have become a problem with high-tax states such as New York, New Jersey and California. This is because residents cannot deduct more than $10,000 on salt, including income, property and sales tax.
However, most states now have a “workaround” to bypass the federal salt deduction limit for pass-through business owners, explained Garrett Watson, director of policy analysis at the tax foundation.
As of May 9, New York City, about 36 states and one region, has enacted pass-through entities, or PTE, PTE and level taxes since the 2017 TCJA limit.
Although each state has different rules, the strategy generally involves avoiding the $10,000 cap to pay individual state and local taxes through a pass-through business, Watson said. Owners can deduct the share of salt they paid.
How salt workarounds change
Certain white-collar experts (such as doctors, lawyers, accountants, financial advisors, etc.) are known as “specific trade or business” or SSTBs, so if income exceeds a certain limit, they cannot claim a qualified business income deduction.
As advanced, the House bill would block SSTBS from using salt deduction workarounds.
Meanwhile, some non-SSTB pass-through businesses have two advantages under the House-approved bill. Depending on their income, they can qualify for a 23% QBI deduction. They can also still claim unlimited salt deductions via PTE workarounds, experts say.
The revised provisions face some pushbacks among certain organizations.
“This loophole is likely to be expensive, and lawmakers and the public should request clear accounting of fiscal costs to congratulate this preferred group on the workaround,” Mike Caker, deputy director of the New York University Center for Tax Law, said in a statement after texts for the revised House bill were released in late May.
Some industry groups, such as the AICPA, are urging the Senate to maintain a salt deduction workaround for SSTBS.
If the House bill is enacted as written, the SSTB is “unfairly economically disadvantaged” by being present as a certain type of business, the AICPA wrote in a letter to the Senate on May 29.
As many SSTBs cannot be organized as C, “there is no option to escape the harsh consequences of SSTB distinction,” writes AICPA.
