The U.S. Chamber urges Congress to enact the “Main Street Tax Certainty Act,” which would make the 20% pass-through deduction permanent.
In 2017, Congress passed a permanent reduction to the corporate income tax rate from 35% to 21% as part of the Tax Cuts and Jobs Act. To ensure that pass-through businesses like sole proprietorships, partnerships, and S corporations (i.e., the overwhelming majority of small businesses) weren’t put at a tax disadvantage relative to C corporations, Congress created a new 20% deduction for qualified business income. This deduction is codified at section 199A of the Internal Revenue Code. Unlike the permanent reduction for C corporations, however, the 20% deduction for pass-through businesses is scheduled to expire at the end of 2025.
How the Deduction Ties to Employee Wages
This 20% deduction effectively operates as a rate reduction for pass-through businesses, with some limitations. If a business owner’s income exceeds a certain threshold ($383,900 for joint filers and $191,950 for other filers in 2024), the benefit of the 20% deduction may be limited based on the amount of wages paid to non-owner employees (W-2 wages). Generally speaking, the more W-2 wages a business pays, the greater the deduction that business’s owner(s) can claim.
The Local Impact
The U.S. Chamber urges Congress to enact the “Main Street Tax Certainty Act,” which would make the 20% pass-through deduction permanent.
For details on the impact on your local economy, click on your state and district below.
Pass-through businesses are critical for Florida
- 48.47%: Florida’s percentage of employment at pass-through businesses
- 30.8%: Florida’s percentage of employment at large pass-through businesses (over 100 employees)
- $14,719,544,000: The collective tax benefit of this deduction in Florida
Pass-through businesses are critical for New York
- 51.37%: New York’s percentage of employment at pass-through businesses
- 39.7%: New York’s percentage of employment at large pass-through businesses (over 100 employees)
- $8,476,088,000: The collective tax benefit of this deduction in New York
Limiting the pass-through deduction to business owners with less than $500,000 in total income would result in a tax increase on one of the major sources of jobs in our nation, directly hurting workers and the economy.