U.S. Chamber debuts new interactive tool to gauge the impact of pass-through deduction

The U.S. Chamber of Commerce rolled out a new tool that shows the economic impact of the 20 percent pass-through deduction on businesses, workers, and local economies.

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The tool, an interactive map, quantifies the impact of it in every state and congressional district.

For background, Congress passed a permanent reduction to the corporate income tax rate from 35 percent to 21 percent as part of the Tax Cuts and Jobs Act in 2017. To make sure that pass-through businesses like sole proprietorships, partnerships, and S corporations weren’t put at a tax disadvantage relative to C corporations, Congress created a new 20 percent deduction for qualified business income.

However, unlike the permanent reduction for C corporations, this 20 percent deduction for pass-through businesses is scheduled to expire at the end of 2025.

This 20 percent deduction effectively operates as a rate reduction for pass-through businesses, with some limitations. For example, 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 percent deduction may be limited based on the wages paid to non-owner employees. Generally, the more W-2 wages a business pays, the greater the deduction that business’s owner can claim.

With the new tool, available at USChamber.com, users simply click on a state on the interactive map, and it pulls up data relative to pass-through businesses in that state. Specifically, it includes the percentage of employment at pass-through businesses in the state, the tax benefit of the pass-through deduction, and the tax impact of limiting or ending the pass-through deduction.

“Allowing the 20% pass-through deduction to expire at the end of next year would result in a tax increase on one of the major sources of jobs in our nation, directly hurting workers and the economy,” Watson McLeish, senior vice president for Tax Policy at the Chamber, said.

The Chamber is urging Congress to enact the Main Street Tax Certainty Act, which would make the 20 percent pass-through deduction permanent.