New bill aims to extend 199A pass-through deduction

Legislation to extend the 20% deduction for pass-through businesses beyond its expiration date in 2025 is attracting bipartisan support in the House and Senate.

The Section 199A deduction was included in the Tax Cuts and Jobs Act of 2017, and like many of the tax breaks for individuals and pass-through entities, it is set to expire in two years. It allows a deduction of up to 20% and applies to sole proprietorships, partnerships, S corporations, trusts, or estates, or income from qualified REIT dividends and income from publicly traded partnerships. But there are exceptions and limitations for certain industries, including accounting firms, that earn over a certain level.  

Rep. Lloyd Smucker, R-Pennsylvania, introduced the Main Street Tax Certainty Act, H.R. 4721, in the House on Thursday, to permanently extend Section 199A deduction. The bill has been cosponsored by 92 members of the House and is supported by all the Republican members of the Ways and Means Committee. Sen. Steve Daines, R-Montana, and Bill Cassidy, R-Louisiana, introduced companion legislation in May in the Senate, where it has attracted 18 cosponsors, mostly Republicans.

"The Tax Cuts and Jobs Act, in particular Section 199A, unleashed a robust economy where small businesses invested in their communities, creating more jobs and business opportunities," Smucker said in a statement Thursday. "Providing permanency to this critical pro-growth tax policy will ensure small businesses continue to have tax parity with corporations and will strengthen main streets across the nation."

The bill has attracted support not only from lawmakers, but also from some influential organizations, including the National Federation of Independent Businesses, the National Association of Manufacturers, Associated Builders and Contractors, the American Farm Bureau Federation, and the U.S. Chamber of Commerce. They signed a letter of support earlier this month.

The prospects for passing such legislation, however, are uncertain, as Democrats in the House and Senate have their own preferences for tax extenders, especially for the expanded version of the Child Tax Credit that was available in 2021 under the American Rescue Plan Act.