Tax deduction for U.S. manufacturers would rise from 20% to 30% under House bill

What does this do?

HR 8755 would increase the qualified business income deduction from 20 percent to 30 percent for business owners who qualify as domestic manufacturers. To qualify, at least 85 percent of a business's income must come from making physical products, and at least 20 percent of the costs tied to those products must come from labor and overhead expenses inside the United States. The bill also removes charitable donations from the taxable income figure used to calculate the deduction for people who itemize, with both changes taking effect in the 2026 tax year.

Who does it affect?

The bill affects self-employed people and owners of pass-through businesses, including sole proprietorships, partnerships, and S-corporations. Large corporations subject to the standard corporate income tax are not affected.

Why does it matter?

Small and mid-sized manufacturers who produce physical goods and conduct a meaningful share of their production work domestically would see the largest change in their deductible income. Owners who do not meet the 85 percent income or 20 percent labor and overhead thresholds would remain at the existing 20 percent deduction rate.

Where does it stand?