W-2 Wage and UBIA Limitation

Definition

The W-2 Wage and UBIA Limitation is a cap applied to the Section 199A deduction for taxpayers whose taxable income exceeds the statutory thresholds, restricting the deduction to the greater of 50% of W-2 wages paid by the business or 25% of W-2 wages plus 2.5% of the unadjusted basis of qualified property (UBIA). This limitation is designed to prevent high-income pass-through owners from receiving an outsized deduction relative to their real economic activity. CPAs must carefully calculate both components to determine which yields the more favorable result for each client.