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

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
  • 49.98%
    Alabama's percentage of employment at pass-through businesses
  • 34.3%
    Alabama's percentage of employment at large pass-through businesses (over 100 employees)
  • $1,832,963,000
    The collective tax benefit of this deduction in Alabama
  • 50.96%
    Alaska's percentage of employment at pass-through businesses
  • 14.1%
    Alaska's percentage of employment at large pass-through businesses (over 100 employees)
  • $347,496,000
    The collective tax benefit of this deduction in Alaska
  • 49.37%
    Arizona's percentage of employment at pass-through businesses
  • 33.4%
    Arizona's percentage of employment at large pass-through businesses (over 100 employees)
  • $3,259,505,000
    The collective tax benefit of this deduction in Arizona
  • 51.71%
    Arkansas's percentage of employment at pass-through businesses
  • 31.8%
    Arkansas's percentage of employment at large pass-through businesses (over 100 employees)
  • $1,025,961,000
    The collective tax benefit of this deduction in Arkansas
  • 46.85%
    California's percentage of employment at pass-through businesses
  • 30.7%
    California's percentage of employment at large pass-through businesses (over 100 employees)
  • $22,250,339,000
    The collective tax benefit of this deduction in California
  • 52.51%
    Colorado's percentage of employment at pass-through businesses
  • 33.8%
    Colorado's percentage of employment at large pass-through businesses (over 100 employees)
  • $3,769,891,000
    The collective tax benefit of this deduction in Colorado
  • 46.92%
    Connecticut's percentage of employment at pass-through businesses
  • 28.1%
    Connecticut's percentage of employment at large pass-through businesses (over 100 employees)
  • $1,883,590,000
    The collective tax benefit of this deduction in Connecticut
  • 45.60%
    Delaware's percentage of employment at pass-through businesses
  • 23.0%
    Delaware's percentage of employment at large pass-through businesses (over 100 employees)
  • $396,332,000
    The collective tax benefit of this deduction in Delaware
  • 50.59%
    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)
  • $304,293,000
    The collective tax benefit of this deduction in District of Columbia
  • 48.47%
    Florida's percentage of employment at pass-through businesses
  • 30.8%
    Florida's percentage of employment at large pass-through businesses (over 100 employees)
  • $14,719,544,000
    The collective tax benefit of this deduction in Florida
  • 47.89%
    Georgia's percentage of employment at pass-through businesses
  • 31.3%
    Georgia's percentage of employment at large pass-through businesses (over 100 employees)
  • $4,621,284,000
    The collective tax benefit of this deduction in Georgia
  • 38.60%
    Hawaii's percentage of employment at pass-through businesses
  • 20.3%
    Hawaii's percentage of employment at large pass-through businesses (over 100 employees)
  • $530,368,000
    The collective tax benefit of this deduction in Hawaii
  • 61.53%
    Idaho's percentage of employment at pass-through businesses
  • 33.4%
    Idaho's percentage of employment at large pass-through businesses (over 100 employees)
  • $1,225,835,000
    The collective tax benefit of this deduction in Idaho
  • 48.95%
    Illinois's percentage of employment at pass-through businesses
  • 35.8%
    Illinois's percentage of employment at large pass-through businesses (over 100 employees)
  • $5,764,240,000
    The collective tax benefit of this deduction in Illinois
  • 52.22%
    Indiana's percentage of employment at pass-through businesses
  • 35.6%
    Indiana's percentage of employment at large pass-through businesses (over 100 employees)
  • $2,975,903,000
    The collective tax benefit of this deduction in Indiana
  • 45.97%
    Iowa's percentage of employment at pass-through businesses
  • 22.2%
    Iowa's percentage of employment at large pass-through businesses (over 100 employees)
  • $1,776,802,000
    The collective tax benefit of this deduction in Iowa
  • 50.29%
    Kansas's percentage of employment at pass-through businesses
  • 32.0%
    Kansas's percentage of employment at large pass-through businesses (over 100 employees)
  • $1,641,629,000
    The collective tax benefit of this deduction in Kansas
  • 48.31%
    Kentucky's percentage of employment at pass-through businesses
  • 29.7%
    Kentucky's percentage of employment at large pass-through businesses (over 100 employees)
  • $1,486,679,000
    The collective tax benefit of this deduction in Kentucky
  • 57.22%
    Louisiana's percentage of employment at pass-through businesses
  • 44.6%
    Louisiana's percentage of employment at large pass-through businesses (over 100 employees)
  • $1,605,846,000
    The collective tax benefit of this deduction in Louisiana
  • 55.38%
    Maine's percentage of employment at pass-through businesses
  • 26.3%
    Maine's percentage of employment at large pass-through businesses (over 100 employees)
  • $671,338,000
    The collective tax benefit of this deduction in Maine
  • 52.79%
    Maryland's percentage of employment at pass-through businesses
  • 38.3%
    Maryland's percentage of employment at large pass-through businesses (over 100 employees)
  • $2,778,707,000
    The collective tax benefit of this deduction in Maryland
  • 45.91%
    Massachusetts's percentage of employment at pass-through businesses
  • 28.9%
    Massachusetts's percentage of employment at large pass-through businesses (over 100 employees)
  • $4,050,880,000
    The collective tax benefit of this deduction in Massachusetts
  • 50.39%
    Michigan's percentage of employment at pass-through businesses
  • 35.6%
    Michigan's percentage of employment at large pass-through businesses (over 100 employees)
  • $4,679,900,000
    The collective tax benefit of this deduction in Michigan
  • 50.60%
    Minnesota's percentage of employment at pass-through businesses
  • 31.6%
    Minnesota's percentage of employment at large pass-through businesses (over 100 employees)
  • $3,533,841,000
    The collective tax benefit of this deduction in Minnesota
  • 50.64%
    Mississippi's percentage of employment at pass-through businesses
  • 31.1%
    Mississippi's percentage of employment at large pass-through businesses (over 100 employees)
  • $810,338,000
    The collective tax benefit of this deduction in Mississippi
  • 49.81%
    Missouri's percentage of employment at pass-through businesses
  • 31.3%
    Missouri's percentage of employment at large pass-through businesses (over 100 employees)
  • $2,635,581,000
    The collective tax benefit of this deduction in Missouri
  • 65.02%
    Montana's percentage of employment at pass-through businesses
  • 22.1%
    Montana's percentage of employment at large pass-through businesses (over 100 employees)
  • $802,716,000
    The collective tax benefit of this deduction in Montana
  • 52.04%
    Nebraska's percentage of employment at pass-through businesses
  • 28.7%
    Nebraska's percentage of employment at large pass-through businesses (over 100 employees)
  • $1,222,575,000
    The collective tax benefit of this deduction in Nebraska
  • 51.29%
    Nevada's percentage of employment at pass-through businesses
  • 34.1%
    Nevada's percentage of employment at large pass-through businesses (over 100 employees)
  • $1,978,619,000
    The collective tax benefit of this deduction in Nevada
  • 53.98%
    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)
  • $700,387,000
    The collective tax benefit of this deduction in New Hampshire
  • 51.27%
    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)
  • $4,550,046,000
    The collective tax benefit of this deduction in New Jersey
  • 53.67%
    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)
  • $587,391,000
    The collective tax benefit of this deduction in New Mexico
  • 51.37%
    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)
  • $8,476,088,000
    The collective tax benefit of this deduction in New York
  • 47.20%
    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)
  • $4,393,346,000
    The collective tax benefit of this deduction in North Carolina
  • 57.95%
    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)
  • $682,096,000
    The collective tax benefit of this deduction in North Dakota
  • 49.47%
    Ohio's percentage of employment at pass-through businesses
  • 35.3%
    Ohio's percentage of employment at large pass-through businesses (over 100 employees)
  • $5,130,727,000
    The collective tax benefit of this deduction in Ohio
  • 53.71%
    Oklahoma's percentage of employment at pass-through businesses
  • 33.0%
    Oklahoma's percentage of employment at large pass-through businesses (over 100 employees)
  • $1,430,792,000
    The collective tax benefit of this deduction in Oklahoma
  • 54.06%
    Oregon's percentage of employment at pass-through businesses
  • 30.4%
    Oregon's percentage of employment at large pass-through businesses (over 100 employees)
  • $2,333,120,000
    The collective tax benefit of this deduction in Oregon
  • 50.12%
    Pennsylvania's percentage of employment at pass-through businesses
  • 31.6%
    Pennsylvania's percentage of employment at large pass-through businesses (over 100 employees)
  • $5,647,816,000
    The collective tax benefit of this deduction in Pennsylvania
  • 53.82%
    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)
  • $486,454,000
    The collective tax benefit of this deduction in Rhode Island
  • 47.63%
    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)
  • $2,154,221,000
    The collective tax benefit of this deduction in South Carolina
  • 49.45%
    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)
  • $712,090,000
    The collective tax benefit of this deduction in South Dakota
  • 45.96%
    Tennessee's percentage of employment at pass-through businesses
  • 31.1%
    Tennessee's percentage of employment at large pass-through businesses (over 100 employees)
  • $3,026,293,000
    The collective tax benefit of this deduction in Tennessee
  • 48.22%
    Texas's percentage of employment at pass-through businesses
  • 31.4%
    Texas's percentage of employment at large pass-through businesses (over 100 employees)
  • $12,753,961,000
    The collective tax benefit of this deduction in Texas
  • 54.77%
    Utah's percentage of employment at pass-through businesses
  • 36.5%
    Utah's percentage of employment at large pass-through businesses (over 100 employees)
  • $2,155,293,000
    The collective tax benefit of this deduction in Utah
  • 56.17%
    Vermont's percentage of employment at pass-through businesses
  • 23.0%
    Vermont's percentage of employment at large pass-through businesses (over 100 employees)
  • $336,953,000
    The collective tax benefit of this deduction in Vermont
  • 48.85%
    Virginia's percentage of employment at pass-through businesses
  • 33.1%
    Virginia's percentage of employment at large pass-through businesses (over 100 employees)
  • $3,872,594,000
    The collective tax benefit of this deduction in Virginia
  • 49.98%
    Washington's percentage of employment at pass-through businesses
  • 27.3%
    Washington's percentage of employment at large pass-through businesses (over 100 employees)
  • $4,407,529,000
    The collective tax benefit of this deduction in Washington