AICPA Recommends Scaling Back Section 199A QBI Deduction Limitation
Washington, D.C. (February 14, 2025) – In a letter submitted leadership of the Congressional tax writing committees today, the American Institute of CPAs (AICPA) asked to amend the Section 199A Qualified Business Income (QBI) deduction in preparation for a tax reconciliation bill. By amending the Section 199A deduction, owners of specified service trades or businesses (SSTBs) that are eligible for the QBI deduction would not experience steep reductions in their QBI deduction created by the narrow QBI deduction limitation phase-in range.
Section 199A generally allows owners of pass-through entities to deduct 20 percent of the owner’s QBI earned in a qualified trade or business. Owners of SSTBs can claim the QBI deduction if the taxable income, before consideration of the QBI deduction itself, of the owner is less than certain threshold amounts. Once a taxpayer’s taxable income exceeds the threshold amounts, certain limitations on the deduction begin to phase-in.
The AICPA recommends that Congress broaden the QBI deduction by increasing the $50,000 (non-joint returns) and $100,000 (joint returns) amounts under section 199A(b)(3)(B) and section 199A(d)(3)(A). This will prevent taxpayers within the phase-in range from experiencing significant reductions of the QBI deduction for exceeding the SSTB threshold amounts. The AICPA also recommends that these QBI limitation phase-in range amounts be adjusted for inflation annually.
“By increasing and indexing the phase-in range, the distinction between SSTB QBI and non-SSTB QBI is decreased but not removed, while the marginal tax rate effect of the phase-in limitation is reduced” said Daniel Hauffe, AICPA Senior Manager, Tax Policy & Advocacy. “We believe these changes will help enhance horizontal equity among small business owners and reduce such owners’ need for complex tax planning regarding the QBI deduction.
About the American Institute of CPAs
The American Institute of CPAs (AICPA) is the world’s largest member association representing the CPA profession, with 400,000 members in the United States and worldwide, and a history of serving the public interest since 1887. AICPA members represent many areas of practice, including business and industry, public practice, government, education and consulting. AICPA sets ethical standards for its members and U.S. auditing standards for private companies, not-for-profit organizations, and federal, state and local governments. It develops and grades the Uniform CPA Examination, offers specialized credentials, builds the pipeline of future talent and drives continuing education to advance the vitality, relevance and quality of the profession.
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BACKGROUND
November 21, 2017 - Tax Cuts and Jobs Act
February 21, 2018 - Request for Immediate Guidance Regarding IRC Section 199A – Deduction for Qualified Business Income of Pass-Through Entities (Pub. L. No. 115-97, Sec. 11011)
AICPA Guiding Principles of Good Tax Policy (2025)