PIA supports making permanent the tax deductions currently available to some independent insurance agencies that are organized as passthrough entities.
Following the passage of the December 2017 tax reform package (P.L. 115-141), which created a deduction of up to 20 percent for “agents,” PIA played a key role in confirming that qualifying insurance agencies were eligible for tax deductions for passthrough entities. The provision offered much-needed tax relief for qualifying owners of insurance agencies organized as passthrough corporations by enabling them to claim up to a 20 percent tax deduction.
The 2017 tax reform law established a deduction for households with income from passthrough businesses, including many independent insurance agencies. Passthroughs historically are taxed through their owners and do not qualify for corporate income tax benefits; their owners pay taxes on the business as though the business income is personal income. The 2017 passthrough deduction allows qualified individuals to exclude up to 20 percent of their passthrough business income from federal income tax. The deduction is subject to several complex restrictions, including the presence of “qualified business income,” the amount of qualified taxable income relative to the applicable threshold for the year in question, and whether the business owner intends to file individually or jointly.
Unlike the C-corporation tax cuts also included in the package, the passthrough deduction contained in the 2017 tax law is temporary. PIA members with qualified passthroughs will lose the deduction once it sunsets on December 31, 2025, unless Congress acts to make it permanent. PIA will ask Congress to provide certainty and consistency to eligible independent agencies by making permanent this important tax relief provision.
Make Tax Relief for Passthroughs Permanent
The tax deduction for passthrough entities has eased some of the pressure of running a small business, particularly over the last two years, and has allowed eligible insurance agency owners to invest in their agencies, improve their businesses, and provide for their families.
For these reasons, PIA has begun to lay the groundwork to make the tax deduction permanent. We strongly support the Main Street Tax Certainty Act of 2021 (H.R. 1381/S. 480), which would make the 20 percent passthrough deduction permanent and is sponsored by Representatives Jason Smith (R-MO) and Henry Cuellar (D-TX), and Senator Steve Daines (R-MT).
Opposing Proposed Tax Increases for Small Businesses in Reconciliation Spending Bill
In November 2021, after a months-long debate, the U.S. House passed H.R. 5376, the $1.75 trillion budget reconciliation bill marketed by the Democratic majority as the “Build Back Better” Act. If enacted, the reconciliation package would allocate roughly $1.75 trillion in spending over a 10-year period.
Many of the provisions that would have most harmed independent agents were ultimately not included in the bill, thanks in large part to PIA’s advocacy. Over the past several months, PIA worked tirelessly to push back on proposals that would have imposed unfair tax burdens on small businesses, including: the imposition of a broad new tax information reporting regime on all bank accounts over a certain amount; the reduction or repeal of the 20 percent deduction for passthroughs; and an end to the use of stepped up basis for capital gains.
At one time or another, all these provisions were under consideration for inclusion in the budget reconciliation package, and PIA is pleased to have successfully kept them out of the House-passed bill.
The status of H.R. 5376 in the U.S. Senate is still very fluid because it does not have the support necessary to pass in the Senate. PIA is continuing to work with congressional allies to protect small businesses from the inclusion of onerous new tax burdens as the reconciliation process proceeds. To see the latest blog posts on this issue, click here.
For the most up-to-date information on tax and the rest of our issues, be sure to visit and follow the PIA Advocacy blog, located at www.piaadvocacy.com.