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Bill

HR 8415

Small Business Tax Cut Act

119th Congress Introduced by Mike Carey and 8 co-sponsors

The bill increases the QBI deduction from 20% to 23% and applies a 75% phase-in for higher incomes, includes qualified BDC interest dividends, and updates inflation timing.

Introduced in House
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WeVote Research Nonpartisan
Bill Summary · HR 8415

Overview

  • Bill: HR 8415 | Session: 119 | Title: Small Business Tax Cut Act
  • Purpose: Amend the Internal Revenue Code to increase the deduction for qualified business income (QBI) and modify related income thresholds and mechanisms.
  • Introduction: Introduced in the House on April 21, 2026, by Rep. Kustoff with multiple cosponsors. Referred to the House Committee on Ways and Means.

What the bill aims to do

  • Increase the QBI deduction under Section 199A from 20% to 23% for specified portions of qualified business income.
  • Adjust and modify the income-based limitations that determine how much QBI deduction a taxpayer can take, including changes to the phase-in of these limitations.
  • Extend and refine the treatment of certain investments related to Qualified Business Income, specifically introducing a new category: qualified BDC (Business Development Company) interest dividends, and clarifying eligibility and calculation for the QBI deduction in relation to these dividends.
  • Update inflation adjustment mechanics used to set relevant thresholds and phase-in amounts, extending the inflation adjustment timeline.

Key provisions and changes

  1. Increase in QBI deduction percentage

    • Subsections a(2), b(1)(B), and b(2)(A) of IRC Section 199A are amended to raise the deduction from 20% to 23%.

  2. Modification of income-based limitations (Section 199A(b)(3))

    • Rewrites the determination of the combined QBI amount with new rules for taxpayers below and above a specified threshold:
      • For taxpayers with taxable income below the threshold: apply the QBI deduction without regard to certain subparagraphs and preserve treatment of specified service trades or businesses (SSTBs) as QBI businesses.
      • For taxpayers above the threshold: replace the prior limitation with a phase-in approach that reduces the deduction gradually as taxable income rises above the threshold.
      • The phase-in amount is 75% of the excess over the threshold, shaping the new limitation amount.

  3. Deductions involving Qualified BDC interest dividends

    • The QBI deduction can apply to qualified BDC interest dividends by:
      • Including “qualified BDC interest dividends” in the definitions alongside qualified REIT dividends for purposes of the QBI deduction (joining existing categories).
      • Defining “qualified BDC interest dividend” as dividends from an electing BDC (Business Development Company) that derive from net interest income properly allocable to a QBI of the BDC.
      • Specifying that an electing BDC is a BDC that has elected to be treated as a regulated investment company under section 851.

  4. Inflation adjustment updates

    • Adjusts the inflation-adjustment timeline, moving the reference year for certain adjustments from 2018 to 2025, and modifies how the inflation-based adjustment is computed (e.g., replacing calendar year 2017 references with updated baselines).

  5. Effective date

    • Applies to taxable years beginning after December 31, 2026.

Who is affected

  • Taxpayers claiming the QBI deduction under Section 199A, particularly:
    • Individuals with qualified business income from passthrough entities (sole proprietorships, partnerships, S corporations) affected by the revised 23% deduction.
    • Taxpayers near or above the income threshold, due to the new phase-in of the deduction limits.
  • Taxpayers holding investments in Qualified Business Development Companies (BDCs), specifically those receiving qualified BDC interest dividends, which would be treated similarly to other QBI-eligible dividends (e.g., REIT dividends).
  • Electing BDCs themselves, as their dividends may become eligible for the QBI deduction.
  • Taxpayers impacted by inflation-adjusted thresholds, since the bill changes the base year for adjustments.

Procedural and timeline aspects

  • Phase-in: Introduces a 75% phase-in amount for the excess of taxable income over the threshold when applying the income-based limitations.
  • Effective date: Provisions apply to taxable years beginning after December 31, 2026.
  • Legislative track: Referred to the House Ways and Means Committee; cosponsors include several House members.

Potential impact (high-level)

  • For many small businesses and pass-through entities, the QBI deduction would be more favorable (23% rather than 20%), increasing after-tax income for eligible income.
  • Taxpayers with higher taxable income would face a more gradual limitation of the QBI deduction due to the new phase-in structure, potentially preserving more deduction for a broader group of taxpayers than under current law.
  • The inclusion of qualified BDC interest dividends expands the universe of income that can qualify for the QBI deduction, potentially benefiting investors in certain BDC structures.

Note: This summary reflects the bill text as introduced and does not reflect any later amendments or changes that may be adopted during markup or floor consideration.

Compiled from official sources — confirm details with the bill’s official record.

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