House GOP Budget Plan Proposes Expanded Tax Break for Pass-Through Businesses

House Republicans have introduced a sweeping budget proposal that would permanently extend and expand a key tax deduction for millions of small business owners, freelancers, and gig economy workers.

The legislation, dubbed the One Big Beautiful Bill Act, aims to modify the Section 199A deduction for qualified business income (QBI), originally enacted under the 2017 Tax Cuts and Jobs Act. Currently set to expire after 2025, the deduction is worth up to 20% of eligible revenue for pass-through businesses, including sole proprietors, partnerships, S-corporations, and certain trusts and estates.

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Under the new proposal, the maximum QBI deduction would increase to 23% starting in 2026, and changes would be made to the phaseout structure that limits the benefit based on income and business type.

According to IRS data, 25.6 million taxpayers claimed the QBI deduction in 2022, a notable increase from 18.7 million in 2018, the first year it was available.

The plan could particularly affect high-earning owners of “specified service trades or businesses” (SSTBs) such as doctors, lawyers, and financial advisors, who currently face full deduction phaseouts above certain income thresholds. The House bill proposes adjusting those calculations, potentially allowing a greater number of SSTB owners to qualify for the tax break.

Tax documents | Source: Pexels

Certified financial planner Ben Henry-Moreland noted the revised phaseout rules could provide “some [tax] benefit” across income levels, but would primarily help higher-income SSTB owners.

Senate Republicans are expected to debate the proposed changes, which are part of a broader package of tax breaks totaling in the trillions.