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1 1 (January 22, 2024)

handle is hein.crs/goveobm0001 and id is 1 raw text is: x i Congressional SaResearch Service The Debate over Extending the Section 199A Deduction for Qualified Business Income Updated January 22, 2024 The 2017 tax law (P.L. 115-97, commonly known as the Tax Cuts and Jobs Act or TCJA) made significant changes to the taxation of business income. For C corporations, the act permanently reduced the corporate tax rate from a top graduated rate of 35% for tax years beginning before 2018 to a single rate of 21%. For pass-through firms (i.e., sole proprietors, S corporations, partnerships, and limited liability companies), whose profits are taxed at the individual income tax rate of owners, the law temporarily reduced marginal individual income tax rates and established a temporary deduction under Section 199A of the federal tax code that is equal to 20% of a firm's qualified business income (QBI), subject to certain limitations. The individual income tax rate cuts and Section 199A deduction are set to expire at the end of 2025. There is bipartisan support in Congress for extending the Section 199A deduction beyond 2025. This Insight briefly explains the deduction's design, reviews arguments for and against such an extension, and discusses what is known about the deduction's effects. Overview of the Deduction Section 199A allows individuals, estates, and trusts with pass-through business income to deduct 20% of their QBI in calculating their income tax liability, subject to certain limitations. The deduction lowers a taxpayer's adjusted gross income. QBI is a pass-through business owner's net amount from items of income, loss, gain, and deduction from every qualified business he or she owns. QBI does not include wages, capital gains, dividends, and interest and annuity income unrelated to a trade or business. The maximum Section 199A deduction cannot exceed 20% of a pass-through business owner's taxable income, less capital gains and dividends. The deduction is subject to two limits: (1) a specified service trade or business (SSTB) limit and (2) a wage and capital asset (WCA) limit. An SSTB is a personal service business such as accounting, law, and medicine. Whether the limits apply depends on a taxpayer's taxable income (without the deduction) and filing status. In 2024, no limit applies if a taxpayer's taxable income is less than $383,900 for joint filers, and $191,950 for other filers. The limits phase in for income between $383,900 and $483,900 for joint filers, and between $191,950 and $241,950 for other filers. Congressional Research Service https://crsreports.congress.gov IN12226 CRS INSIGHT Prepared for Members and Committees of Congress

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