Guidance on domestic production activities deduction

Wage limitation for section 199 deduction

“…Under the wage expense safe harbor method, the amount of paragraph (e)(1) wages that is properly allocable to DPGR is determined by multiplying the amount of paragraph (e) (1) wages by the ratio of the taxpayer's wage expense included in calculating QPAI for the tax year to the taxpayer's total wage expense used in calculating taxable income. The following example is based on an example provided in the regulations.…”

“…It is this wage limitation that is the primary focus of this column. 1 It is important to note that the definition of wages in the new guidance is for purposes of IRC Section 199 only and has no effect on determining the amount of wages for income tax withholding, Social Security taxes, Medicare taxes, or unemployment taxes.…”