At press time, the U.S. House of Representatives Committee on Ways and Means was expected to pass H.R. 1, the “Tax Cuts and Jobs Act,” today. The legislation would make major changes to the nation’s tax laws, and the full House could vote on it as early as next week.
Big “I” members can log in to review a Big “I” analysis of the House tax bill.
One major concern for Big “I” members is the treatment of pass-through entities under H.R. 1. The legislation includes a maximum 25% tax rate for sole proprietorships, partnerships and S corporations, if they are currently taxed at a higher rate. Generally, 30% of pass-through income would be eligible for the 25% rate, with the remaining 70% being taxed at the relevant individual rate. However, for “specified services activities” that would include most if not all activities related to the sale and servicing of insurance, 0% of income would generally be eligible for the 25% rate unless the business owner could affirmatively show otherwise.
Consequently, many owners of insurance sales businesses would not be able to take advantage of the new rate and instead would continue to be subject to individual tax rates for all their business income. For that reason, the Big “I” led a coalition of organizations, including the National Association of Insurance and Financial Advisors and the Council of Insurance Agents & Brokers, to express concerns regarding the bill’s treatment of some small businesses. This week, the coalition sent a letter to Reps. Kevin Brady (R-Texas) and Richard Neal (D-Massachusetts), who are Chair and Ranking Member of the Ways and Means Committee.
Responding to calls for improvements to the small business tax provisions in the bill, Chairman Brady proposed revisions earlier today that include a new reduced rate for small businesses with net active business income under certain levels. This rate structure would apply to all types of pass-through businesses, including insurance agencies and brokerages. Big “I” members can log in to review the review the details.
The U.S. Senate has also been working on its own version of tax reform, and the coalition sent a separate letter to Sens. Orin Hatch (R-Utah) and Ron Wyden (D-Oregon), Chair and Ranking Member of the Senate Finance Committee, ahead of the unveiling of Senate legislation to urge fair taxation for small businesses.
Senate Republicans are expected to release details of their tax legislation today, and it is expected to contain several significant differences from the House legislation, including how pass-through entities are taxed. The Senate legislation is also expected to delay tax cuts on C corporations for one year and completely remove the deduction for state and local taxes. However, the Senate is expected to leave some other individual deductions in place as is, such as the mortgage interest and medical expense deductions.
The Senate Finance committee is expected to mark up their tax legislation next week, with a full vote in the Senate expected sometime after Thanksgiving. President Trump hopes to have a bill on his desk by the end of the year.
The Big “I” will provide a detailed analysis of the Senate bill in next week’s News & Views e-newsletter.
Wyatt Stewart is Big “I” senior director of federal government affairs. Jennifer Webb is Big “I” federal government affairs counsel.