Mom and Pop Tax Relief Act
- Sponsor
- Rep. Moore, Gwen [D-WI-4]
- Committees
- Ways and Means Committee (primary)
- Last action
- May 7, 2025
Bottom line
The bill aims to simplify the qualified business income deduction and redirect its benefits primarily to smaller businesses and individuals with lower adjusted gross incomes, while removing complex calculation requirements.
What it actually does
This bill significantly modifies Section 199A of the Internal Revenue Code, which provides a deduction for qualified business income (QBI). It caps the maximum QBI deduction at $25,000, removes the previous 20% of QBI limitation, and introduces a new adjusted gross income (AGI) phase-out for the deduction starting at $200,000 ($400,000 for joint filers). Additionally, it simplifies the deduction by eliminating complex W-2 wage and unadjusted basis of qualified property (UBIA) limitations, and removes the exclusion for specified service trade or businesses (SSTBs).
Proponents argue
Proponents argue that the bill simplifies a notoriously complex tax provision, making it more accessible and less burdensome for small business owners, often referred to as 'mom and pop' businesses. By capping the deduction and introducing an AGI phase-out, it targets tax relief to those who need it most, rather than allowing larger businesses or high-income individuals to benefit disproportionately. The removal of W-2 wage and UBIA limitations would significantly reduce compliance burdens for many small businesses.
Opponents contend
Opponents might contend that capping the deduction at $25,000 could negatively impact larger pass-through businesses that currently benefit from a higher, uncapped 20% deduction, potentially increasing their tax burden and disincentivizing growth. The AGI phase-out could also be seen as a penalty for successful small businesses as their deduction diminishes with increased income. While acknowledging simplification, critics might argue these specific changes could reduce economic incentives for investment and job creation by larger pass-through entities.
The bill text is short and focused, allowing for a quick initial read, but understanding its full implications requires familiarity with the existing complex Section 199A of the tax code.
Section 2(a)(1) amending 199A(b)(1); Section 2(a)(2) amending 199A(a)(2) and 199A(b)(2)
Cap on Qualified Business Income Deduction and Removal of 20% Limitation
This provision fundamentally changes how the qualified business income (QBI) deduction is calculated. Instead of being 20% of QBI, the deduction is now capped at a maximum of $25,000. It also removes the previous rule that limited the deduction to 20% of the taxpayer's taxable income, simplifying the overall calculation.
Supporters argue
Proponents argue this change simplifies the deduction and ensures a meaningful benefit for smaller businesses, aligning with the bill's goal of providing 'Mom and Pop Tax Relief.' The flat cap makes the benefit predictable and easier to understand.
Critics contend
Critics might argue that capping the deduction at $25,000 could be seen as penalizing successful, larger pass-through businesses by limiting their tax benefit, potentially reducing incentives for growth and investment.
Tradeoffs
This provision balances the goal of simplification and targeted relief for small businesses against the potential reduction of benefits for larger pass-through entities, which might see less incentive for scaling operations.
Section 2(b) amending 199A(b)
Introduction of Adjusted Gross Income (AGI) Limitation
This provision introduces a new income-based limitation on the QBI deduction. The $25,000 combined qualified business income amount is reduced (but not below zero) for taxpayers whose adjusted gross income (AGI) exceeds $200,000 ($400,000 for those filing jointly). This means higher-income individuals will see their deduction phased out as their income rises above these thresholds.
Section 2(c) amending 199A(c)
Simplification of Loss Carryover Rules
This section removes the specific rules for carrying over qualified business losses from one year to the next for the purpose of calculating the QBI deduction. By striking paragraph (2) of Section 199A(c), it simplifies the deduction calculation by eliminating a complex carryover mechanism that taxpayers previously had to track.
Section 2(d) amending various parts of 199A(b), 199A(g), 199A(f), 199A(d), and 199A(e)
Elimination of W-2 Wage, UBIA, and Specified Service Trade or Business (SSTB) Limitations
This section makes several technical changes to align the tax code with the new $25,000 cap and AGI phase-out. Crucially, it removes the complex W-2 wage and unadjusted basis of qualified property (UBIA) limitations that previously restricted the QBI deduction. It also simplifies the definition of 'qualified trade or business' by removing the specific rules for 'specified service trade or business' (SSTB), meaning SSTBs are no longer excluded from the deduction.
The bill eliminates the W-2 wage and unadjusted basis of qualified property (UBIA) limitations, and the rules distinguishing specified service trade or businesses (SSTBs) from other qualified businesses for the purpose of the QBI deduction.
Section 2(d)(1)(A), (B), (C), (2)(A), (3), (5) of the bill, amending various subsections of 199A
Why it matters:While it is standard legislative practice for technical tax changes to be listed as conforming amendments, the collective impact of these specific deletions is substantial, fundamentally reshaping the QBI deduction's structure and eligibility.
Case for: Supporters argue that these changes dramatically simplify the tax code for pass-through entities, reducing compliance costs and extending the deduction to SSTBs, which were previously often excluded. This makes the deduction more accessible and equitable for a broader range of small businesses.
Case against: Critics might contend that the original W-2 wage and UBIA limitations were intended to tie the deduction to job creation and capital investment, and their removal disconnects the deduction from these economic activities. The SSTB exclusion was also a deliberate policy choice to limit benefits to certain professions, and its removal, even with a cap, could be debated.
Estimated impact: This change will lead to a significant reduction in complexity for millions of pass-through businesses. It broadens eligibility for the deduction to SSTBs, though the $25,000 cap and AGI phase-out will limit the maximum benefit for any single entity.