As Congress examines the effects of the new tax law on small businesses and the economy, the Big “I” weighed in at a recent hearing to raise concerns about how the law applies to independent agents and brokers.
The Committee on Ways and Means in the U.S. House of Representatives, which oversees tax-related issues, is holding a series of hearings to examine how the new tax law is growing the economy and creating jobs. Last month, the committee held a hearing on the law’s impact on small businesses.
The Big “I” and a coalition of other producer groups submitted a statement for the record related to the hearing. A key small business-focused provision of the new tax law creates a section in the individual tax code (26 U.S.C. §199A) that allows for a 20% deduction on “qualified business income” for owners and shareholders of pass-through businesses.
Two-thirds of Big “I” member agencies are organized as pass-through entities, and many should be able to benefit from the new deduction in whole or in part. However, it is currently unclear whether insurance agencies and brokerages will be able to receive the full benefit of this deduction. The Big “I” and other producer groups are seeking clarity on this issue from the Treasury Department.
The outstanding issue for many Big “I” member agencies is whether selling and servicing insurance is considered a “specified service trade or business” under any implementing regulations or guidance on the new law. This is important because the law prohibits an owner or shareholder of a “specified service trade or business” with annual taxable income above $415,000 (joint) and $207,500 (single) from using the new deduction.
In April, the coalition sent a letter to key Treasury Department officials and met with department staff. As a follow-up from the meeting, the coalition recently sent another letter to the Treasury Department, which recently released information indicating it does not intend to issue any clarifying rules on Section 199A until December. However, draft rules may be released as early as this summer.
The Big “I” believes Congress did not intend to limit insurance agency owners from receiving the full benefits of the pass-through deduction because it specifically excluded the word “insurance” from the definition of a “specified service trade or business” in the new law. Furthermore, interpreting the pass-through provisions of the law in a narrow and exclusionary manner is against the broad public policy goals of the law: to create jobs and grow the economy.
The association will continue advocating that any implementing regulations or guidance treats agents and brokers appropriately.
Jennifer Webb is Big “I” federal government affairs counsel.