In a major win for small-business insurance agencies and brokerages, final regulations issued January 18 by the U.S. Treasury and the Internal Revenue Service (IRS) specifically state that “insurance cannot be considered a financial service” for the purpose of taking the 20% pass-through tax deduction that was passed as part of the tax reform legislation signed into law in late 2017.
“This is a big win for agents,” said PIA National Executive Vice President & CEO Mike Becker. “PIA aggressively advocated for this tax relief for pass-through entities since passage of the tax reform law (P.L. 115-141) in December 2017. We advocated for the language that was passed by Congress, then ultimately adopted by Treasury and the IRS in their regulations.”
Many members of the National Association of Professional Insurance Agents (PIA) own independent insurance agencies that are organized as sole proprietorships, partnerships, or Subchapter S corporations. Such small businesses do not pay corporate income tax. Instead, their income “passes through” the firm and appears directly on their owners’ individual tax returns, where it is taxed as normal income. The 20% deduction, subject to other limitations imposed by law or regulation, will lower these individuals’ tax bills.
Treasury’s final regulations state that, in general, “financial services” do not include insurance, and therefore that insurance agents are permitted to take the deduction.
“PIA was gratified to see that Treasury and the IRS recognize that the typical insurance agent is not engaged in ‘financial services’ in the way Congress described them, allowing agents the opportunity to take the 20% pass-through deduction. Also, we’re glad this rule was issued in time for the start of the 2018 tax season,” said Lauren G. Pachman, Esq., PIA counsel and director of regulatory affairs. “It’s a great day for small-business insurance agencies, whose businesses will be taxed the way pass-through entities were intended to be by Congress.”
Founded in 1931, PIA is a national trade association that represents member insurance agents and their employees who sell and service all kinds of insurance but specialize in coverage of automobiles, homes and businesses. PIA members are Local Agents Serving Main Street America SM. PIA’s web address is www.pianet.com.
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