In December 2017, the Tax Cuts and Jobs Act provided for a permanent flat 21% tax rate for corporations. Under the law, qualified trades or businesses such as private practice physical therapists who pay their business taxes through their individual tax returns may be able to utilize a 20% tax deduction on qualified business income. The Department of Treasury has proposed to add physical therapists to the list of Specified Service Trades or Businesses (SSTB). If categorized as an SSTB, a physical therapist would NOT be eligible for the Code Section 199A deduction UNLESS their income was below $157,500 as an individual or $315,000 if married filing jointly. Once an income passes these initial thresholds, the deduction phases out for those whose incomes are between $315,000 and $415,000 for married taxpayers who file jointly and between $157,500 and $207,500 for single taxpayers. The deduction would not available for those whose income exceeds $415,000 (if married filing jointly).
PPS commented on the proposed rule, arguing that physical therapists should be treated as general qualified trades or businesses and not be added to the SSTB definition. Should the final rule not make the changes proposed by the Administration, a larger number of private practice section members would be able to utilize the 20% pass through tax deduction. Please consult your tax professional for advice as this tax break impacts the tax year beginning January 1, 2018.
