Watson M. McLeish Watson M. McLeish
Senior Vice President, Tax Policy
Curtis Dubay Curtis Dubay
Chief Economist, U.S Chamber of Commerce
Makinizi Hoover Makinizi Hoover
Senior Manager, Strategic Advocacy, U.S. Chamber of Commerce

Updated

October 16, 2025

Published

February 14, 2024

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Ensuring Tax Parity for Main Street Businesses

In 2017, Congress permanently lowered the corporate income tax rate by 14 percentage points, from 35% to 21%, as part of the Tax Cuts and Jobs Act. And to ensure that pass-through businesses like sole proprietorships, partnerships, and S corporations—including the overwhelming majority of small businesses—wouldn’t be placed at a major disadvantage relative to C corporations, Congress created a new 20% deduction for qualified business income (QBI) in section 199A of the Internal Revenue Code. Unlike the permanent rate reduction for C corporations, however, the QBI deduction for pass-through businesses was scheduled to expire at the end of 2025

How the Deduction Ties to Employee Wages 

The QBI deduction effectively operates as a rate reduction for pass-through businesses, with some limitations. If a business owner's income exceeds a certain threshold ($394,600 for joint filers and $197,300 for other filers in 2025), 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 QBI deduction is especially important for large pass-through businesses as nearly 31% of all private-sector for-profit jobs at large employers are with large pass-through businesses.  

Extending and Enhancing the QBI Deduction

The One Big Beautiful Bill Act (OBBBA) permanently extends the 20% QBI deduction, ensuring the long-term competitiveness of America’s business tax rates on firms of all sizes and entity types. It also makes taxpayer-favorable changes to the phase-in of existing limitations starting in 2026, which will expand eligibility for the deduction to more businesses. Finally, the law adds a new, inflation-adjusted minimum deduction of $400 for taxpayers with at least $1,000 of QBI from a qualified trade or business in which the taxpayer materially participates.

We applaud Congress for enacting these permanent, pro-growth reforms and giving pass-through businesses the long-term tax certainty and stability they need to hire, invest, and thrive.

The Local Impact

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
  • 50.0%
    Alabama's percentage of employment at pass-through businesses
  • 34.3%
    Alabama's percentage of employment at large pass-through businesses (over 100 employees)
  • $2,334,561,000
    The collective tax benefit of this deduction in Alabama
  • 51.0%
    Alaska's percentage of employment at pass-through businesses
  • 14.1%
    Alaska's percentage of employment at large pass-through businesses (over 100 employees)
  • $456,772,000
    The collective tax benefit of this deduction in Alaska
  • 49.4%
    Arizona's percentage of employment at pass-through businesses
  • 33.4%
    Arizona's percentage of employment at large pass-through businesses (over 100 employees)
  • $4,185,725,000
    The collective tax benefit of this deduction in Arizona
  • 51.7%
    Arkansas's percentage of employment at pass-through businesses
  • 31.8%
    Arkansas's percentage of employment at large pass-through businesses (over 100 employees)
  • $1,398,555,000
    The collective tax benefit of this deduction in Arkansas
  • 46.9%
    California's percentage of employment at pass-through businesses
  • 30.7%
    California's percentage of employment at large pass-through businesses (over 100 employees)
  • $25,340,115,000
    The collective tax benefit of this deduction in California
  • 52.5%
    Colorado's percentage of employment at pass-through businesses
  • 33.8%
    Colorado's percentage of employment at large pass-through businesses (over 100 employees)
  • $4,550,206,000
    The collective tax benefit of this deduction in Colorado
  • 46.9%
    Connecticut's percentage of employment at pass-through businesses
  • 28.1%
    Connecticut's percentage of employment at large pass-through businesses (over 100 employees)
  • $2,353,934,000
    The collective tax benefit of this deduction in Connecticut
  • 45.6%
    Delaware's percentage of employment at pass-through businesses
  • 23.0%
    Delaware's percentage of employment at large pass-through businesses (over 100 employees)
  • $502,943,000
    The collective tax benefit of this deduction in Delaware
  • 50.6%
    District of Columbia's percentage of employment at pass-through businesses
  • 42.6%
    District of Columbia's percentage of employment at large pass-through businesses (over 100 employees)
  • $351,037,000
    The collective tax benefit of this deduction in District of Columbia
  • 48.5%
    Florida's percentage of employment at pass-through businesses
  • 30.8%
    Florida's percentage of employment at large pass-through businesses (over 100 employees)
  • $20,650,242,000
    The collective tax benefit of this deduction in Florida
  • 47.9%
    Georgia's percentage of employment at pass-through businesses
  • 31.3%
    Georgia's percentage of employment at large pass-through businesses (over 100 employees)
  • $5,833,794,000
    The collective tax benefit of this deduction in Georgia
  • 38.6%
    Hawaii's percentage of employment at pass-through businesses
  • 20.3%
    Hawaii's percentage of employment at large pass-through businesses (over 100 employees)
  • $733,898,000
    The collective tax benefit of this deduction in Hawaii
  • 61.5%
    Idaho's percentage of employment at pass-through businesses
  • 33.4%
    Idaho's percentage of employment at large pass-through businesses (over 100 employees)
  • $1,546,367,000
    The collective tax benefit of this deduction in Idaho
  • 49.0%
    Illinois's percentage of employment at pass-through businesses
  • 35.8%
    Illinois's percentage of employment at large pass-through businesses (over 100 employees)
  • $7,691,919,000
    The collective tax benefit of this deduction in Illinois
  • 52.2%
    Indiana's percentage of employment at pass-through businesses
  • 35.6%
    Indiana's percentage of employment at large pass-through businesses (over 100 employees)
  • $3,954,922,000
    The collective tax benefit of this deduction in Indiana
  • 46.0%
    Iowa's percentage of employment at pass-through businesses
  • 22.2%
    Iowa's percentage of employment at large pass-through businesses (over 100 employees)
  • $2,297,460,000
    The collective tax benefit of this deduction in Iowa
  • 50.3%
    Kansas's percentage of employment at pass-through businesses
  • 32.0%
    Kansas's percentage of employment at large pass-through businesses (over 100 employees)
  • $1,938,374,000
    The collective tax benefit of this deduction in Kansas
  • 48.3%
    Kentucky's percentage of employment at pass-through businesses
  • 29.7%
    Kentucky's percentage of employment at large pass-through businesses (over 100 employees)
  • $1,940,420,000
    The collective tax benefit of this deduction in Kentucky
  • 57.2%
    Louisiana's percentage of employment at pass-through businesses
  • 44.6%
    Louisiana's percentage of employment at large pass-through businesses (over 100 employees)
  • $2,360,996,000
    The collective tax benefit of this deduction in Louisiana
  • 55.4%
    Maine's percentage of employment at pass-through businesses
  • 26.3%
    Maine's percentage of employment at large pass-through businesses (over 100 employees)
  • $855,211,000
    The collective tax benefit of this deduction in Maine
  • 52.8%
    Maryland's percentage of employment at pass-through businesses
  • 38.3%
    Maryland's percentage of employment at large pass-through businesses (over 100 employees)
  • $3,227,254,000
    The collective tax benefit of this deduction in Maryland
  • 45.9%
    Massachusetts's percentage of employment at pass-through businesses
  • 28.9%
    Massachusetts's percentage of employment at large pass-through businesses (over 100 employees)
  • $5,141,364,000
    The collective tax benefit of this deduction in Massachusetts
  • 50.4%
    Michigan's percentage of employment at pass-through businesses
  • 35.6%
    Michigan's percentage of employment at large pass-through businesses (over 100 employees)
  • $5,727,092,000
    The collective tax benefit of this deduction in Michigan
  • 50.6%
    Minnesota's percentage of employment at pass-through businesses
  • 31.6%
    Minnesota's percentage of employment at large pass-through businesses (over 100 employees)
  • $4,337,371,000
    The collective tax benefit of this deduction in Minnesota
  • 50.6%
    Mississippi's percentage of employment at pass-through businesses
  • 31.1%
    Mississippi's percentage of employment at large pass-through businesses (over 100 employees)
  • $1,100,080,000
    The collective tax benefit of this deduction in Mississippi
  • 49.8%
    Missouri's percentage of employment at pass-through businesses
  • 31.3%
    Missouri's percentage of employment at large pass-through businesses (over 100 employees)
  • $3,203,494,000
    The collective tax benefit of this deduction in Missouri
  • 65.0%
    Montana's percentage of employment at pass-through businesses
  • 22.1%
    Montana's percentage of employment at large pass-through businesses (over 100 employees)
  • $1,016,712,000
    The collective tax benefit of this deduction in Montana
  • 52.0%
    Nebraska's percentage of employment at pass-through businesses
  • 28.7%
    Nebraska's percentage of employment at large pass-through businesses (over 100 employees)
  • $1,746,650,000
    The collective tax benefit of this deduction in Nebraska
  • 51.3%
    Nevada's percentage of employment at pass-through businesses
  • 34.1%
    Nevada's percentage of employment at large pass-through businesses (over 100 employees)
  • $2,662,435,000
    The collective tax benefit of this deduction in Nevada
  • 54.0%
    New Hampshire's percentage of employment at pass-through businesses
  • 29.9%
    New Hampshire's percentage of employment at large pass-through businesses (over 100 employees)
  • $933,145,000
    The collective tax benefit of this deduction in New Hampshire
  • 51.3%
    New Jersey's percentage of employment at pass-through businesses
  • 36.0%
    New Jersey's percentage of employment at large pass-through businesses (over 100 employees)
  • $6,038,051,000
    The collective tax benefit of this deduction in New Jersey
  • 53.7%
    New Mexico's percentage of employment at pass-through businesses
  • 31.7%
    New Mexico's percentage of employment at large pass-through businesses (over 100 employees)
  • $773,675,000
    The collective tax benefit of this deduction in New Mexico
  • 51.4%
    New York's percentage of employment at pass-through businesses
  • 39.7%
    New York's percentage of employment at large pass-through businesses (over 100 employees)
  • $11,379,223,000
    The collective tax benefit of this deduction in New York
  • 47.2%
    North Carolina's percentage of employment at pass-through businesses
  • 27.2%
    North Carolina's percentage of employment at large pass-through businesses (over 100 employees)
  • $5,950,415,000
    The collective tax benefit of this deduction in North Carolina
  • 58.0%
    North Dakota's percentage of employment at pass-through businesses
  • 30.2%
    North Dakota's percentage of employment at large pass-through businesses (over 100 employees)
  • $905,087,000
    The collective tax benefit of this deduction in North Dakota
  • 49.5%
    Ohio's percentage of employment at pass-through businesses
  • 35.3%
    Ohio's percentage of employment at large pass-through businesses (over 100 employees)
  • $6,351,928,000
    The collective tax benefit of this deduction in Ohio
  • 53.7%
    Oklahoma's percentage of employment at pass-through businesses
  • 33.0%
    Oklahoma's percentage of employment at large pass-through businesses (over 100 employees)
  • $1,914,213,000
    The collective tax benefit of this deduction in Oklahoma
  • 54.1%
    Oregon's percentage of employment at pass-through businesses
  • 30.4%
    Oregon's percentage of employment at large pass-through businesses (over 100 employees)
  • $2,803,720,000
    The collective tax benefit of this deduction in Oregon
  • 50.1%
    Pennsylvania's percentage of employment at pass-through businesses
  • 31.6%
    Pennsylvania's percentage of employment at large pass-through businesses (over 100 employees)
  • $7,437,490,000
    The collective tax benefit of this deduction in Pennsylvania
  • 53.8%
    Rhode Island's percentage of employment at pass-through businesses
  • 30.2%
    Rhode Island's percentage of employment at large pass-through businesses (over 100 employees)
  • $607,222,000
    The collective tax benefit of this deduction in Rhode Island
  • 47.6%
    South Carolina's percentage of employment at pass-through businesses
  • 29.8%
    South Carolina's percentage of employment at large pass-through businesses (over 100 employees)
  • $2,826,848,000
    The collective tax benefit of this deduction in South Carolina
  • 49.5%
    South Dakota's percentage of employment at pass-through businesses
  • 33.3%
    South Dakota's percentage of employment at large pass-through businesses (over 100 employees)
  • $1,045,811,000
    The collective tax benefit of this deduction in South Dakota
  • 46.0%
    Tennessee's percentage of employment at pass-through businesses
  • 31.1%
    Tennessee's percentage of employment at large pass-through businesses (over 100 employees)
  • $4,163,448,000
    The collective tax benefit of this deduction in Tennessee
  • 48.2%
    Texas's percentage of employment at pass-through businesses
  • 31.4%
    Texas's percentage of employment at large pass-through businesses (over 100 employees)
  • $17,649,733,000
    The collective tax benefit of this deduction in Texas
  • 54.8%
    Utah's percentage of employment at pass-through businesses
  • 36.5%
    Utah's percentage of employment at large pass-through businesses (over 100 employees)
  • $2,579,702,000
    The collective tax benefit of this deduction in Utah
  • 56.2%
    Vermont's percentage of employment at pass-through businesses
  • 23.0%
    Vermont's percentage of employment at large pass-through businesses (over 100 employees)
  • $446,210,000
    The collective tax benefit of this deduction in Vermont
  • 48.9%
    Virginia's percentage of employment at pass-through businesses
  • 33.1%
    Virginia's percentage of employment at large pass-through businesses (over 100 employees)
  • $4,809,399,000
    The collective tax benefit of this deduction in Virginia
  • 50.0%
    Washington's percentage of employment at pass-through businesses
  • 27.3%
    Washington's percentage of employment at large pass-through businesses (over 100 employees)
  • $5,435,944,000
    The collective tax benefit of this deduction in Washington
  • 48.9%
    West Virginia's percentage of employment at pass-through businesses
  • 27.5%
    West Virginia's percentage of employment at large pass-through businesses (over 100 employees)
  • $459,724,000
    The collective tax benefit of this deduction in West Virginia
  • 53.5%
    Wisconsin's percentage of employment at pass-through businesses
  • 38.4%
    Wisconsin's percentage of employment at large pass-through businesses (over 100 employees)
  • $3,885,986,000
    The collective tax benefit of this deduction in Wisconsin
  • 60.8%
    Wyoming's percentage of employment at pass-through businesses
  • 26.7%
    Wyoming's percentage of employment at large pass-through businesses (over 100 employees)
  • $498,368,000
    The collective tax benefit of this deduction in Wyoming

Data from IRS, U.S. Census Bureau


Sources:

  1. Internal Revenue Service, SOI Tax Stats - Data by Congressional District 2022
  2. U.S. Census Bureau, ECNSVY - Business Patterns County Business Patterns 2021

About the authors

Watson M. McLeish

Watson M. McLeish

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.

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Curtis Dubay

Curtis Dubay

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.

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Makinizi Hoover

Makinizi Hoover

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.

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