Congress Issues Data showing Expected Use of Passthrough Deduction

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One of the most discussed changes in the Tax Cuts and Jobs Act of 2017 is the deduction for qualified business income under Internal Revenue Code section 199A, more commonly known as the passthrough deduction (LMC TCJA Alert #4).This month, Congress's Joint Committee on Taxation (JCT) issued a slideshow overview of this law (you can download the full version here). The slides outline its provisions and provide statistics on the number of taxpayers expected to benefit. 

 

JCT is a nonpartisan committee of the United States Congress, originally established under the Revenue Act of 1926. It operates with an experienced professional staff of Ph.D. economists, attorneys, and accountants, who assist members of the majority and minority parties in both houses of Congress on tax legislation.

 

JCT projects that for the 2019 tax year, 39.2 million tax returns will report business income on Schedules C, E, or F of Form 1040. Of these, it expects 26.8 million (68%) will be eligible for the passthrough deduction. However, these 26.8 million returns will account for 91% of all the business income reported.

 

A dollar threshold in the law provides that taxpayers with taxable income below $157,500 ($315,000 on joint returns) may fully deduct 20% of their qualified business income with no restrictions. Taxpayers with income above those thresholds may not take the deduction if they work in certain specified businesses. These higher-income taxpayers are also subject to limitations based on the wages the business pays to its employees and the amount of fixed assets it owns.

 

JCT estimates that of the 26.8 million taxpayers that will qualify for the deduction in 2019, 95% will fall below the income threshold and need not concern themselves with either their type of business or whether they will qualify under the wage and asset limitation. Only 5% will be above the $157,500/$315,000 threshold, but this small group will receive 34% of the passthrough deduction tax benefits reported by all taxpayers.

 

Contact your LMC professional for information about how the new passthrough deduction provisions affect you. All our prior Tax Cuts and Jobs Act Alerts are available on the Updates page of our website.

 

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