This year, lawmakers have the opportunity to advance smart, pro-growth tax policies and avoid the largest tax increase in American history, which will otherwise occur when key provisions of the 2017 Tax Cuts and Jobs Act (TCJA) expire at the end of 2025. 

In 2017, Congress permanently lowered the corporate income tax rate by 14 percentage points—from 35% to 21%—as part of the TCJA.

To ensure that pass-through businesses like sole proprietorships, partnerships, and S corporations would not be placed at a major tax disadvantage relative to C corporations, Congress also created a new 20% deduction for qualified business income (QBI) in section 199A of the Internal Revenue Code. 

Calculate Your Potential Tax Increase

Our new QBI Tax Increase Calculator is designed to provide a simplified illustration of the potential tax cost to Main Street business owners if Congress allows section 199A to expire at the end of this year, based on the estimated 2026 tax brackets provided by the Tax Foundation.

Disclaimer: Your actual taxes will vary based on credits, deductions, etc. This is an estimate of the likely tax increase imposed by the expiration of these provisions.

The QBI Deduction: How It Works and What It Does

The 20% QBI deduction effectively operates as a rate reduction for pass-through businesses, which currently make up over 95% of all U.S. businesses. If a business owner’s income exceeds a certain threshold ($394,600 for joint filers and $197,300 for other filers in 2025), however, 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, therefore, the more W-2 wages a business pays, the greater the deduction that business’s owner(s) can claim.

Coupled with TCJA’s reduction of the top marginal individual income tax rate from 39.6% to 37%, the 20% QBI deduction results in a top marginal rate of 29.6% for most pass-through businesses. Since it took effect in 2018, the deduction has increased the after-tax return on capital investments in pass-through businesses and boosted the amount of revenue accruing to workers through higher wages.

2025 Tax Cliff and Implications for Main Street Businesses

Unlike the TCJA’s permanent statutory rate reduction for C corporations, the 20% QBI deduction for pass-through businesses is scheduled to expire at the end of 2025. Absent congressional action, therefore, the top marginal tax rate on pass-through businesses would jump by 10 percentage points—from 29.6% to 39.6%—on January 1, 2026.

This would deliver a major blow to the more than 95% of American businesses currently classified as pass-through entities, which employ 58% of all U.S. private-sector workers.