Important Disclaimer: This legislation has NOT become law yet. The House has passed their version, but it still needs to go through the Senate and be signed by the President. Tax planning should be done carefully with professional guidance.

**Last updated 5.27.25

As an insurance agency owner, you're likely watching the proposed tax legislation with keen interest. The House recently passed what they're calling the "One Big Beautiful Bill" – a comprehensive tax package that could significantly impact how you run your business and manage your personal finances. Let's break down what this bill contains and what it could mean for your agency.

TLDR (Too Long Didn't Read)

This proposed legislation would extend most Tax Cuts and Jobs Act (TCJA) provisions permanently, enhance the Section 199A business deduction from 20% to 23%, and introduce several new tax breaks. For insurance agency owners, the most significant impacts would likely be the enhanced QBI deduction, higher SALT deduction caps, and potential benefits from tip/overtime exemptions for qualifying employees.

Key Provisions That Could Impact Insurance Agencies

Section 199A (QBI) Deduction Enhancement

Current Law: 20% deduction on qualified business income Proposed Change: Increase to 23% permanently

What This Means for You: If your agency operates as a pass-through entity (LLC, S-Corp, partnership), this 3-percentage-point increase could provide meaningful tax savings. For an agency with $500,000 in qualified business income, this could mean an additional $15,000 in deductions annually.

State and Local Tax (SALT) Deduction Changes

Current Law: $10,000 cap per household Proposed Change: Increase to $40,000 per household ($20,000 for married filing separately)

Impact: This is particularly relevant for agency owners in high-tax states. The deduction phases out for taxpayers with modified adjusted gross income over $500,000 ($250,000 for married filing separately).

Estate Tax Exemption

Proposed Change: Permanently increase basic exemption to $15 million (indexed for inflation)

Why It Matters: For successful agency owners planning succession or thinking about passing the business to family members, this higher exemption could significantly reduce estate tax exposure.

Employee-Related Provisions

Tips and Overtime Tax Exemptions

The bill proposes eliminating income taxes on:

• Tips for employees in traditionally tipped occupations (2025-2028)
• Overtime pay for eligible workers (2025-2028)

For Insurance Agencies: While most insurance roles aren't traditionally tipped, some agencies have service roles that might qualify. The overtime exemption could benefit non-exempt employees who work extra hours during busy periods.

Enhanced Employer Credits

• Child Care Credit: Increased from 25% to 40% of qualified expenditures (50% for small businesses)
• Paid Family Leave Credit: Made permanent

Bottom Line: These could reduce your costs for providing employee benefits.

Additional Business-Friendly Provisions (2025-2029)

• 100% Bonus Depreciation: Restored for equipment purchases
• R&D Expensing: Immediate deduction for domestic research costs
• Business Interest Deduction: Less restrictive limitations

Personal Tax Benefits for Agency Owners

Enhanced Standard Deductions (2025-2028)

• Married filing jointly: Additional $2,000
• Head of household: Additional $1,500
• Single filers: Additional $1,000

Senior Bonus Deduction (2025-2028)

$4,000 additional deduction for taxpayers 65 and older (phases out at higher incomes)

Car Loan Interest Deduction (2025-2028)

Up to $10,000 deduction for qualified passenger vehicle loan interest (with income limits and requirement for U.S.-assembled vehicles)

Debunking Common Misinformation

❌ Myth: "I can pay myself only in tips to avoid all taxes"

✅ Reality: The bill specifically limits tip exemptions to occupations that "traditionally and customarily" receive tips. Insurance sales and management don't qualify. Attempting to reclassify regular compensation as tips would be tax fraud.

❌ Myth: "I can bill everything as overtime to my employees to help them avoid taxes"

✅ Reality:

• Overtime exemptions only apply to legitimate overtime under Fair Labor Standards Act (FLSA)
• You can't artificially create "overtime" by manipulating schedules
• Employees must still pay Social Security and Medicare taxes on overtime
• Misclassifying regular wages as overtime could trigger labor law violations

❌ Myth: "These tax breaks are permanent"

✅ Reality: Many of the new provisions (tips, overtime, car loans, senior deductions) are temporary (2025-2028). Only some TCJA extensions are permanent.

❌ Myth: "This eliminates all taxes on tips and overtime"

✅ Reality: These exemptions only apply to federal income tax. Employees still owe:

• Social Security taxes (6.2%)
• Medicare taxes (1.45%)
• State income taxes (unless state also passes exemption)
• Unemployment taxes

Compliance Considerations

If This Becomes Law:

• Payroll Systems: You'll need to track and report tip and overtime income separately
• Employee Education: Workers will need to understand they'll get refunds when filing, not immediate relief
• Record Keeping: Enhanced documentation requirements for qualifying tip and overtime income
• State Variations: Some states are considering their own tip/overtime exemptions; others may not conform

Strategic Planning Considerations

Business Structure Review

With the enhanced QBI deduction, now might be a good time to review your business structure with your tax advisor to ensure you're maximizing pass-through benefits.

Compensation Planning

Consider how tip and overtime exemptions might affect your compensation strategies, but remember:

• Don't artificially create tip positions where none exist
• Overtime must be legitimate FLSA overtime
• Focus on fair compensation practices, not tax gimmicks

Estate Planning

The higher estate tax exemption could open new succession planning opportunities for family-owned agencies.

Timeline and Reality Check

Current Status: House passed, heading to Senate Estimated Cost: $3.8 trillion over 10 years Likelihood: High for TCJA extensions, uncertain for new provisions

Key Dates to Watch:

• TCJA provisions expire December 31, 2025
• New provisions would start January 1, 2025 (retroactively if passed later)

Action Steps for Agency Owners

1. Don't Make Major Changes Yet – Wait for final legislation
2. Review Your Business Structure – Discuss QBI optimization with your tax advisor
3. Evaluate Employee Classifications – Ensure FLSA compliance regardless of tax changes
4. Plan for Compliance – Start thinking about payroll system updates if bill passes
5. Stay Informed – Monitor legislative progress through reliable tax resources

The Bottom Line

While this proposed legislation offers several potential benefits for insurance agency owners – particularly the enhanced QBI deduction and higher SALT caps – it's important to focus on sound business practices rather than chasing tax gimmicks. The most valuable provisions for most agency owners will likely be the business-focused changes rather than the headline-grabbing tip and overtime exemptions.

Remember: good tax planning starts with good business fundamentals. Whether this bill passes or not, focus on building a profitable, compliant business that serves your clients well. The tax benefits will follow.

Always consult with qualified tax and legal professionals before making significant business or compensation decisions based on proposed legislation.

**5/27/25 Note: This analysis is based on the House-passed bill as of May 2025 and information from the Journal of Accountancy and other professional tax sources. Legislation may change significantly as it moves through the legislative process.