U.S Chamber: Main Street Businesses Face 2025 Tax Hike Threat

Source: US Chamber

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 here for a detailed map.

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.

About the authors
Watson McLeish is senior vice president for Tax Policy at the U.S. Chamber of Commerce, where he serves as the primary adviser on all tax policy-related matters.

Curtis Dubay is Chief Economist, Economic Policy Division at the U.S. Chamber of Commerce. He heads the Chamber’s research on the U.S. and global economies.

Makinizi Hoover is the Strategic Advocacy Manager at the U.S. Chamber of Commerce. Her work includes the development and project management of comprehensive data centers that serve as a valuable resource for policymakers, businesses, and the public.