March 19, 2018

Iowa Fiscal Partnership: Passing through a special break

ITEP Work in Action

The tax bill that recently passed the Iowa Senate included a provision from the recent federal tax cut bill that provides preferential tax treatment for certain kinds of business income earned mostly by the highest income taxpayers. The “Qualified Business Income Deduction” (QBID) provides a 20 percent exemption of that income from the personal income tax. This is one of the most complicated and least understood provisions in the federal legislation, and one of the most amenable to manipulation. It also is one of the costliest and is skewed to very high-income tax filers. It applies to income (known as pass-through income) from partnerships and other non-corporate businesses reported on the individual income tax. The federal QBID alone is estimated to account for over one-third of the total costs of the federal tax bill by 2023, and could be more as tax accountants and attorneys seek ways to maximize the QBID benefits.

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