Sen. Ron Wyden (D-Ore.), chairman of the Senate Finance Committee, announced legislation to limit the 20% deduction for qualified business income for S corporations, sole proprietorships and other pass-through entities, which is set to expire in 2025. Wyden would like to add this bill as a component to help pay for a Democrat-led $3 trillion to $4 trillion spending bill that includes money for child care, clean energy, education and housing.
Wyden’s proposal phases out the deduction starting at taxable income of $400,000 per year and caps the deduction at anyone making more than $500,000. It would allow a deduction of 20% of the lowest of either taxable income, $400,000 or taxable income reduced by a taxpayer’s net capital gains for the year. In addition, Wyden’s bill would remove the current restriction that the full pass-through deduction is limited to “specified service trades or businesses.”
Wyden’s changes would apply starting with the 2022 tax year assuming enactment later this year. Biden suggested a similar proposal during his presidential campaign, but it was not included in his budget request. Treasury officials who described the president’s budget request subsequently said not everything from the campaign made it into the proposal.
NRCA continues to advocate for the Main Street Tax Certainty Act that would make the 20% deduction—as currently written—permanent, without the income limits in Wyden’s proposal.
