QBI Deduction Guide (2025 & 2026)
The Section 199A pass-through deduction — who qualifies, SSTB rules, income phase-outs, and the W-2/UBIA limits that decide your 20%.
The §199A qualified business income (QBI) deduction lets eligible pass-through owners deduct up to 20% of qualified business income — one of the largest tax breaks in the code for self-employed taxpayers, partners, and S-corp shareholders. The One Big Beautiful Bill Act made it permanent.
Who qualifies for the QBI deduction in 2025 and 2026?
Owners of pass-through businesses (sole proprietors, partnerships, S-corps, most LLCs) qualify. For 2025, the deduction phases out for specified service trades (SSTBs) between $197,300–$247,300 (single) and $394,600–$494,600 (MFJ); for 2026 the bands are $201,750–$276,750 (single) and $403,500–$553,500 (MFJ). Non-SSTBs above those thresholds are limited by W-2 wages and qualified property basis. The deduction was made permanent by OBBBA.
- •Up to 20% deduction on QBI
- •2025 SSTB phase-out: $197,300 single / $394,600 MFJ
- •2026 SSTB phase-out: $201,750–$276,750 single / $403,500–$553,500 MFJ
- •Permanent under OBBBA — no 2025 sunset
QBI is one of those deductions that looks simple on paper — '20% off your business income' — and turns into a maze the moment you cross the income threshold. The two things that trip people up: whether they're an SSTB, and how S-corp salary trades against the deduction.
Real-world scenario
S-corp consultant (SSTB), $300K taxable income, single, 2025
Consulting is an SSTB. For 2025, above the $197,300 single threshold the deduction phases out and is fully gone by $247,300 (for 2026 the band is $201,750–$276,750). At $300K taxable income, the QBI deduction is $0. Landing at $241K instead — accelerating expenses or deferring December billing — does not bring back the full 20%. With $48K of QBI and $48K of S-corp W-2 wages, only the applicable percentage (12.6%) of the QBI and wages counts, so the deduction is about $1,210 (worth about $387 in federal tax at the 32% bracket). Only getting taxable income down to $197,300 or less preserves the full $48K × 20% = $9,600.
The part most people miss
S-corp owners face a real trade-off in the other direction from how it is usually stated: every dollar of W-2 salary you pay yourself INCREASES total FICA/payroll tax (employee plus employer share) and REDUCES the K-1 profit that counts as QBI, while also raising the W-2 wages that feed the 50%/25%+2.5% limit. Your QBI figure comes from Schedule K-1 Box 17 code V. The 'optimal' salary depends on your bracket, your state, and whether the W-2 wage limit binds at all. Below ~$200K of business profit it usually doesn't matter much; above ~$400K it can shift the math meaningfully.
What Counts as QBI
Qualified business income is the net amount of qualified items of income, gain, deduction, and loss from a qualified U.S. trade or business. It generally includes:
- • Schedule C net profit (sole proprietors, single-member LLCs)
- • Ordinary income on K-1 from a partnership or S-corp
- • Net rental income that rises to a §162 trade or business or meets the Rev. Proc. 2019-38 safe harbor
- • Section 1231 gains taxed as ordinary income
QBI specifically excludes:
- • W-2 wages (yours or anyone else's)
- • Guaranteed payments to partners
- • Reasonable compensation paid by an S-corp to its owner
- • Capital gains, dividends, and interest not allocable to the business
- • Income earned outside the United States
SSTB vs. Non-SSTB
A Specified Service Trade or Business is any field where the principal asset is the reputation or skill of its employees. The statutory list:
- • Health
- • Law
- • Accounting
- • Actuarial science
- • Performing arts
- • Consulting
- • Athletics
- • Financial services
- • Brokerage services
- • Investing and investment management
Not SSTBs: engineering and architecture are explicitly excluded by statute, even though both rely heavily on professional skill. Real estate brokerage is an SSTB; real estate investing/operating generally is not.
Below the income threshold, SSTB classification doesn't matter — you get the full 20%. Above the threshold, SSTB owners phase out entirely; non-SSTBs face the W-2/UBIA limits instead.
2025 & 2026 Income Thresholds
| Filing status | Year | Phase-in start | Phase-in end |
|---|---|---|---|
| Single, HoH or surviving spouse | 2025 | $197,300 | $247,300 |
| Married filing jointly | 2025 | $394,600 | $494,600 |
| Married filing separately | 2025 | $197,300 | $247,300 |
| Single, HoH or surviving spouse | 2026 | $201,750 | $276,750 |
| Married filing jointly | 2026 | $403,500 | $553,500 |
| Married filing separately | 2026 | $201,775 | $276,775 |
2025 figures from IRS Rev. Proc. 2024-40; 2026 figures from IRS Rev. Proc. 2025-32 §4.26, with the $75,000 / $150,000 phase-in ranges set by OBBBA §70105 (they were $50,000 / $100,000 through 2025). SSTBs phase out to $0 across the band; non-SSTBs phase into the W-2/UBIA limit.
The W-2 Wage and UBIA Limits
Above the income threshold, non-SSTB owners face an additional cap. The QBI deduction can't exceed the greater of:
- • 50% of W-2 wages paid by the business, OR
- • 25% of W-2 wages + 2.5% of the unadjusted basis immediately after acquisition (UBIA) of qualified property
The UBIA test is why real-estate-heavy businesses (rentals, hotels, manufacturing) can still get a meaningful deduction even with low payroll — depreciable property props up the limit for its full recovery period (or 10 years, whichever is longer).
Frequently Asked Questions
Sources & References
Primary references used for this content
Qualified Business Income Deduction Simplified Computation
Simplified QBI form (below income threshold)
View on irs.gov
Qualified Business Income Deduction
Full QBI computation with SSTB and W-2/UBIA worksheets
View on irs.gov
Rental Real Estate Safe Harbor for §199A
250-hour safe harbor for rentals to qualify as a §162 trade or business
View on irs.gov
2026 Inflation Adjustments
Official 2026 QBI income thresholds
View on irs.gov
One Big Beautiful Bill Act — §199A Permanence
Made the QBI deduction permanent
View on congress.gov
✓5 primary sources; links re-checked on a weekly rotation by the source watcher
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Disclaimer: This calculator provides estimates for educational purposes only. Not tax, legal, or financial advice. Results may vary based on your specific circumstances. Consult a qualified CPA or tax professional for personalized guidance.