199a Tax Deduction
What is it, and why Congress must extend it.
When Congress passed the Tax Cuts and Jobs Act (TCJA) in 2017, headlines focused on the drop in the corporate tax rate from 35% to 21%. But for the Main Street businesses that form the backbone of the American economy, another provision quietly became a game-changer: Section 199A.
Known formally as the Qualified Business Income (QBI) deduction, Section 199A gives owners of pass-through businesses a deduction of up to 20% on qualified business income. For millions of small business owners across the country, this deduction isn’t a loophole. It’s a lifeline.
Today, that lifeline is set to expire at the end of 2025 unless Congress acts. With the clock ticking, it’s imperative we understand what 199A is, what it does, and what’s at stake if lawmakers fail to extend it.
What Is Section 199A?
Section 199A, found in Title 26 of the U.S. Code § 199A, allows individuals with pass-through income to deduct up to 20% of their qualified business income (QBI) on their tax return. Eligible business types include sole proprietorships, partnerships, S corporations, and certain trusts and estates.
Pass-through businesses do not pay income taxes at the corporate level. Instead, profits “pass through” to the individual owners' tax returns. Section 199A helps reduce the tax burden on these business owners, partially leveling the playing field with C corporations that received a permanent tax cut under the TCJA.
Who Benefits?
According to IRS data, over 25.9 million taxpayers claimed the 199A deduction in 2021 alone. These are not Wall Street giants; they’re realtors, plumbers, chiropractors, restaurant owners, property managers, and countless other everyday entrepreneurs. Roughly 95% of all U.S. businesses are organized as pass-through entities.
An economic analysis by Ernst & Young and the National Federation of Independent Business (NFIB) found that making the deduction permanent would generate an average of $50 billion in annual GDP growth over ten years. Another study estimated that it supports 2.6 million jobs and contributes $325 billion annually to the U.S. economy.
How It Works
For taxpayers under certain income thresholds ($182,100 for single filers and $364,200 for joint filers in 2023), the deduction is relatively straightforward: 20% of QBI is deductible.
For taxpayers over those thresholds, things get more complex. The deduction is limited based on:
50% of W-2 wages paid by the business, or
25% of W-2 wages plus 2.5% of the unadjusted basis of qualified property.
Additionally, "Specified Service Trades or Businesses" (SSTBs) such as health, law, and financial services face phase-outs and potential exclusion if income exceeds those thresholds.
The Looming Tax Cliff
Without Congressional intervention, Section 199A sunsets after December 31, 2025. The consequences would be dramatic:
A massive tax hike for millions of small business owners.
A lopsided tax code, where C corporations retain their 21% rate while small pass-throughs face much higher effective rates.
A drag on economic growth, job creation, and reinvestment.
Unlike multinational corporations, most small businesses do not have the luxury of moving profits offshore or exploiting foreign loopholes. They rely on every dollar to grow, hire, and serve their communities.
Why Congress Must Act
Extending (or better yet, making permanent) Section 199A is not just a tax policy issue—it’s an economic justice issue. Small businesses create two-thirds of net new jobs in the U.S. and are disproportionately owned by women and minorities. Removing this deduction would hurt the very people Congress claims to champion.
While large corporations got a permanent tax cut, Main Street was given a temporary Band-Aid. As we approach the 2025 tax cliff, it's time to fix that inequity.
A Call to Action
For legislators, this is a defining moment. Will they stand with the job creators, the community builders, and the dreamers who risk everything to run a business? Or will they allow a key support structure to vanish, weakening America’s entrepreneurial spirit?
As organizations like NAIFA mobilize across the country, it is critical to tell this story clearly and forcefully. The numbers speak for themselves. The stakes couldn’t be higher.
Congress must extend Section 199A. Small business depends on it. America depends on it.
