Section 199A 250k Comparison

By Jason Watson, CPA
Posted Wednesday, October 20, 2021

Same online retailer (not a specified service business) showing single versus married.

		Single			Married
ln		No S	S Corp		No S	S Corp
1	Business Income	250,000	250,000		250,000	250,000
2	less W-2 Wages inc. SEHI, HSA, etc.	0	87,500		0	87,500
3	less Payroll Taxes	0	6,694		0	6,694
4	Net Business Income Section 199A	250,000	155,806		250,000	155,806
5	Adjustments to 1040 / NBI
6	less Social Security Tax	7,979	0		7,979	0
7	less Medicare Tax	3,348	0		3,348	0
8	less SEHI, HSA, etc.	0	0		0	0
9	Other Taxable Income	0	0		0	0
10	Adjusted Gross Income*	238,673	243,306		238,673	243,306
11	Itemized / Std Deductions	12,000	12,000		24,000	24,000
12	Taxable Income Before Section 199A	226,673	231,306		214,673	219,306
13	Section 199A Net Biz Income	50,000	31,161		50,000	31,161
14	Section 199A W-2 Wage Limit	0	43,750		0	43,750
15	Section 199A Taxable Income Limit	45,335	46,261		42,935	43,861
16	Section 199A Benefit	0	31,161		42,935	31,161
17	Marginal Income Tax Rate	35%	35%		24%	24%
18	Income Tax Benefit from Section 199A	0	-10,906		-10,304	-7,479
19	plus Self-Employment Tax	22,654	0		22,654	0
20	plus Tax on Line 12 Delta (above)	0	1,622		0	1,112
21	plus Payroll Tax	0	13,388		0	13,388
22	Net Tax After Section 199A Benefit	22,654	4,103		12,350	7,021
23	Net S Corp Benefit $		18,551			5,329

*includes the S Corp W-2

There are several notables, takeaways and explanations-

Assumptions are $250,000 in business income prior to $87,500 in reasonable shareholder salary. Itemized deductions are $12,000 as a single taxpayer and $24,000 as a married taxpayer.

Note the spreads in Section 199A deduction benefit on Line 16 and the subsequent income tax benefit on Line 18. In the scenario where the taxpayer is single, he or she is phased out of Section 199A deduction because of income and subsequent W-2 limitations (Line 14).

The example is used to show the limitations of Section 199A due to income based on marital status. However, note that by electing S Corp tax status the Section 199A benefit is identical (Line 16). The difference then becomes the income tax benefit of this deduction which is a factor of marginal tax rates (Line 17).

For couples who are not married, there might be a reason to be legally married without altering your relationship definition just to grab some additional Section 199A benefit. Vegas baby!