Senior Manager, Strategic Advocacy, U.S. Chamber of Commerce
Published
February 14, 2024
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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
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.
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 on your state and district below.
20% Pass-Through Deduction Impact
Select a state and district below to discover the specific impact of the 20% pass-through deduction.
Click on a state for details
Alabama's percentage of employment at pass-through businesses
Alabama's percentage of employment at large pass-through businesses (over 100 employees)
The collective tax benefit of this deduction in Alabama
Alaska's percentage of employment at pass-through businesses
Alaska's percentage of employment at large pass-through businesses (over 100 employees)
The collective tax benefit of this deduction in Alaska
Arizona's percentage of employment at pass-through businesses
Arizona's percentage of employment at large pass-through businesses (over 100 employees)
The collective tax benefit of this deduction in Arizona
Arkansas's percentage of employment at pass-through businesses
Arkansas's percentage of employment at large pass-through businesses (over 100 employees)
The collective tax benefit of this deduction in Arkansas
California's percentage of employment at pass-through businesses
California's percentage of employment at large pass-through businesses (over 100 employees)
The collective tax benefit of this deduction in California
Colorado's percentage of employment at pass-through businesses
Colorado's percentage of employment at large pass-through businesses (over 100 employees)
The collective tax benefit of this deduction in Colorado
Connecticut's percentage of employment at pass-through businesses
Connecticut's percentage of employment at large pass-through businesses (over 100 employees)
The collective tax benefit of this deduction in Connecticut
Delaware's percentage of employment at pass-through businesses
Delaware's percentage of employment at large pass-through businesses (over 100 employees)
The collective tax benefit of this deduction in Delaware
District of Columbia's percentage of employment at pass-through businesses
District of Columbia's percentage of employment at large pass-through businesses (over 100 employees)
The collective tax benefit of this deduction in District of Columbia
Florida's percentage of employment at pass-through businesses
Florida's percentage of employment at large pass-through businesses (over 100 employees)
The collective tax benefit of this deduction in Florida
Georgia's percentage of employment at pass-through businesses
Georgia's percentage of employment at large pass-through businesses (over 100 employees)
The collective tax benefit of this deduction in Georgia
Hawaii's percentage of employment at pass-through businesses
Hawaii's percentage of employment at large pass-through businesses (over 100 employees)
The collective tax benefit of this deduction in Hawaii
Idaho's percentage of employment at pass-through businesses
Idaho's percentage of employment at large pass-through businesses (over 100 employees)
The collective tax benefit of this deduction in Idaho
Illinois's percentage of employment at pass-through businesses
Illinois's percentage of employment at large pass-through businesses (over 100 employees)
The collective tax benefit of this deduction in Illinois
Indiana's percentage of employment at pass-through businesses
Indiana's percentage of employment at large pass-through businesses (over 100 employees)
The collective tax benefit of this deduction in Indiana
Iowa's percentage of employment at pass-through businesses
Iowa's percentage of employment at large pass-through businesses (over 100 employees)
The collective tax benefit of this deduction in Iowa
Kansas's percentage of employment at pass-through businesses
Kansas's percentage of employment at large pass-through businesses (over 100 employees)
The collective tax benefit of this deduction in Kansas
Kentucky's percentage of employment at pass-through businesses
Kentucky's percentage of employment at large pass-through businesses (over 100 employees)
The collective tax benefit of this deduction in Kentucky
Louisiana's percentage of employment at pass-through businesses
Louisiana's percentage of employment at large pass-through businesses (over 100 employees)
The collective tax benefit of this deduction in Louisiana
Maine's percentage of employment at pass-through businesses
Maine's percentage of employment at large pass-through businesses (over 100 employees)
The collective tax benefit of this deduction in Maine
Maryland's percentage of employment at pass-through businesses
Maryland's percentage of employment at large pass-through businesses (over 100 employees)
The collective tax benefit of this deduction in Maryland
Massachusetts's percentage of employment at pass-through businesses
Massachusetts's percentage of employment at large pass-through businesses (over 100 employees)
The collective tax benefit of this deduction in Massachusetts
Michigan's percentage of employment at pass-through businesses
Michigan's percentage of employment at large pass-through businesses (over 100 employees)
The collective tax benefit of this deduction in Michigan
Minnesota's percentage of employment at pass-through businesses
Minnesota's percentage of employment at large pass-through businesses (over 100 employees)
The collective tax benefit of this deduction in Minnesota
Mississippi's percentage of employment at pass-through businesses
Mississippi's percentage of employment at large pass-through businesses (over 100 employees)
The collective tax benefit of this deduction in Mississippi
Missouri's percentage of employment at pass-through businesses
Missouri's percentage of employment at large pass-through businesses (over 100 employees)
The collective tax benefit of this deduction in Missouri
Montana's percentage of employment at pass-through businesses
Montana's percentage of employment at large pass-through businesses (over 100 employees)
The collective tax benefit of this deduction in Montana
Nebraska's percentage of employment at pass-through businesses
Nebraska's percentage of employment at large pass-through businesses (over 100 employees)
The collective tax benefit of this deduction in Nebraska
Nevada's percentage of employment at pass-through businesses
Nevada's percentage of employment at large pass-through businesses (over 100 employees)
The collective tax benefit of this deduction in Nevada
New Hampshire's percentage of employment at pass-through businesses
New Hampshire's percentage of employment at large pass-through businesses (over 100 employees)
The collective tax benefit of this deduction in New Hampshire
New Jersey's percentage of employment at pass-through businesses
New Jersey's percentage of employment at large pass-through businesses (over 100 employees)
The collective tax benefit of this deduction in New Jersey
New Mexico's percentage of employment at pass-through businesses
New Mexico's percentage of employment at large pass-through businesses (over 100 employees)
The collective tax benefit of this deduction in New Mexico
New York's percentage of employment at pass-through businesses
New York's percentage of employment at large pass-through businesses (over 100 employees)
The collective tax benefit of this deduction in New York
North Carolina's percentage of employment at pass-through businesses
North Carolina's percentage of employment at large pass-through businesses (over 100 employees)
The collective tax benefit of this deduction in North Carolina
North Dakota's percentage of employment at pass-through businesses
North Dakota's percentage of employment at large pass-through businesses (over 100 employees)
The collective tax benefit of this deduction in North Dakota
Ohio's percentage of employment at pass-through businesses
Ohio's percentage of employment at large pass-through businesses (over 100 employees)
The collective tax benefit of this deduction in Ohio
Oklahoma's percentage of employment at pass-through businesses
Oklahoma's percentage of employment at large pass-through businesses (over 100 employees)
The collective tax benefit of this deduction in Oklahoma
Oregon's percentage of employment at pass-through businesses
Oregon's percentage of employment at large pass-through businesses (over 100 employees)
The collective tax benefit of this deduction in Oregon
Pennsylvania's percentage of employment at pass-through businesses
Pennsylvania's percentage of employment at large pass-through businesses (over 100 employees)
The collective tax benefit of this deduction in Pennsylvania
Rhode Island's percentage of employment at pass-through businesses
Rhode Island's percentage of employment at large pass-through businesses (over 100 employees)
The collective tax benefit of this deduction in Rhode Island
South Carolina's percentage of employment at pass-through businesses
South Carolina's percentage of employment at large pass-through businesses (over 100 employees)
The collective tax benefit of this deduction in South Carolina
South Dakota's percentage of employment at pass-through businesses
South Dakota's percentage of employment at large pass-through businesses (over 100 employees)
The collective tax benefit of this deduction in South Dakota
Tennessee's percentage of employment at pass-through businesses
Tennessee's percentage of employment at large pass-through businesses (over 100 employees)
The collective tax benefit of this deduction in Tennessee
Texas's percentage of employment at pass-through businesses
Texas's percentage of employment at large pass-through businesses (over 100 employees)
The collective tax benefit of this deduction in Texas
Utah's percentage of employment at pass-through businesses
Utah's percentage of employment at large pass-through businesses (over 100 employees)
The collective tax benefit of this deduction in Utah
Vermont's percentage of employment at pass-through businesses
Vermont's percentage of employment at large pass-through businesses (over 100 employees)
The collective tax benefit of this deduction in Vermont
Virginia's percentage of employment at pass-through businesses
Virginia's percentage of employment at large pass-through businesses (over 100 employees)
The collective tax benefit of this deduction in Virginia
Washington's percentage of employment at pass-through businesses
Washington's percentage of employment at large pass-through businesses (over 100 employees)
The collective tax benefit of this deduction in Washington
West Virginia's percentage of employment at pass-through businesses
West Virginia's percentage of employment at large pass-through businesses (over 100 employees)
The collective tax benefit of this deduction in West Virginia
Wisconsin's percentage of employment at pass-through businesses
Wisconsin's percentage of employment at large pass-through businesses (over 100 employees)
The collective tax benefit of this deduction in Wisconsin
Wyoming's percentage of employment at pass-through businesses
Wyoming's percentage of employment at large pass-through businesses (over 100 employees)
The collective tax benefit of this deduction in Wyoming
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 Senior Manager of Strategic Advocacy at the U.S. Chamber of Commerce. She leads the housing portfolio and mobilizes resources to address high-priority issues, ensuring effective advocacy on key legislative and regulatory priorities.
