Federal Tax Legislation is a win for the local business community

For several years, the Quad Cities Chamber has advocated for the certainty and extension of key federal tax provisions for employers. President Trump recently signed into law federal tax  legislation that includes permanent extensions of all the Quad Cities Chamber’s federal tax priorities — a measure supported by Iowa Senators Joni Ernst and Chuck Grassley and Iowa Representative Mariannette Miller-Meeks. This includes: 

• 20% Qualified Business Income (QBI) deduction: Permanence for the 20% QBI deduction prevents an unprecedented tax increase on small businesses. 
• Bonus depreciation: Provides for 100% depreciation on certain capital assets in year one. 
• R&D Expensing: Reverts to pre-TCJA (Tax Cuts & Jobs Act of 2017) expensing of R&D expenses by allowing full expensing in the year they are incurred. 
• Interest Deduction Limitations: Permanently reinstated calculation of ATI (Adjusted Taxable Income) to align with EBITDA (Earnings Before Interest, Taxes, Depreciation and Amortization) - effective for taxable years beginning after December 31, 2024.

“Providing tax certainty for small businesses and local employers was our top priority,” said Ryan Sempf, Executive Director of Government Affairs for the Chamber. “This complex and wide-ranging bill accomplished those goals and provides additional expansion of pro-growth tax policy that will help to spur economic growth and investment in the Quad Cities region.” 

In addition to the Chamber’s priority issues – other changes with business impact were included in the final bill. Details on those provisions can be found below: 

• New bonus depreciation provision for Qualified Production Property (QPP): The act amends section 168 to add a new section 168(n) that allows a taxpayer to elect to apply 100% bonus depreciation to qualified production property. New section 168(n)(2)(A) generally defines “qualified production property” as the portion of any nonresidential real property used by the taxpayer as an integral part of a qualified production activity. Property must be placed in service before January 1, 2031. 
• Enhancement of Advanced Manufacturing Investment Credit (48D): The act increases the credit to 35%, up from 25% for property placed in service after December 31, 2025. 
• Permanent renewal and enhancement of opportunity zones: The act makes opportunity zones permanent with new Qualified Opportunity Zones (QOZ) designations on a rolling 10-year basis, while narrowing the range of census tracts eligible for designation as an opportunity zone. Additional changes were made to the program. 
• Deduction for tip income: A new deduction is introduced for individuals (even those individuals who do not itemize) during tax years 2025 through 2028 who receive qualified tips in an occupation which traditionally and customarily receives tips. 
  • Additionally, this provision expands the FICA tip tax credit for a portion of the employer-paid Social Security taxes for employee cash tips to include beauty service establishments. 
• Deduction for certain overtime pay: The act introduces a new deduction (even for individuals who do not itemize) for those who receive “qualified overtime compensation” during tax years 2025 through 2028. The provision would exclude qualified tips (as defined in proposed section 224(c) and amounts received as a highly compensated employee (as defined in section 414(q) (1)). “Qualified overtime compensation” is overtime compensation paid to an individual under Section 7 of the Fair Labor Standards Act of 1938 that is in excess of the regular rate at which such individual is employed. 
  • The proposal would limit this deduction to $12,500 ($25,000 for taxpayers who are Married Filing Jointly), reduced (but not below zero) by $100 for each $1,000 by which the taxpayer's “modified adjusted gross income” exceeds $150,000 ($300,000 MFJ). 
• Enhancement of the Employer-Provided Childcare Credit: The credit amount determined under section 45F is increased to a maximum allowable credit of $500,000 instead of $150,000 ($600,000 in the case of an eligible small business), subject to an inflation adjustment. 
• Extension and enhancement of Paid Family and Medical Leave Credit: The act makes the credit permanent, applying enhancements to the credit for taxable years beginning after December 31, 2025.  
• Permanent enhancement of the Low-Income Housing Tax Credit: The act permanently increases the State Housing Credit ceiling for allocation of the 9% Low-Income Housing Tax Credit (LIHTC) by 12% for calendar years after 2025 and increases the availability of certain 4% LIHTC projects by reducing the tax exempt bond financing threshold to 25% for bonds issued starting 2026. 
• State and local tax deduction (SALT): The act increases the cap on the SALT deduction to $40,000 but limits the increase to five years (2025-2029), after which the cap would permanently revert to $10,000 ($5,000 for married individuals filing separately). The deductibility of SALT imposed on passthrough entities, including PTET workaround taxes would be unaffected by the legislation. 
• Credentialing expenses/529 accounts: The act adds a new category of “postsecondary credentialing expenses” to the definition of “qualified higher education expenses” to include a broad category of tuition and other expenses related to certain approved postsecondary programs, such as vocational training. 
• Educational assistance for student loan payments: Section 127 of the code permits an employer to maintain an Educational Assistance Program for the benefit of its employees. Under such a program, an employer can provide educational assistance (subject to certain qualification requirements related to the program) to its employees on a tax-free basis, up to a limit of $5,250 per year. The act amends section 127 to make this provision permanent. The act provides for annual inflation indexation of this amount, beginning in years after 2026.