The qualified business income (QBI) deduction under Section 199A can reduce a pass-through owner's taxable income by up to 20 percent. Significant limits apply once income clears the annual threshold. This page covers how it works. It is general information, not tax advice.
What the QBI deduction is
Added by the 2017 Tax Cuts and Jobs Act as Section 199A, the QBI deduction lets eligible owners of pass-through businesses (sole proprietorships, partnerships, S-corps, and most LLCs) deduct up to 20 percent of their qualified business income. Section 70105 of the One Big Beautiful Bill Act (P.L. 119-21, enacted July 2025) made the deduction permanent starting in 2026, widened the phase-in ranges, and added a small minimum deduction. Use the QBI Deduction Calculator to estimate your deduction.
Income thresholds
Below an annual taxable-income threshold, most pass-through owners get the full 20 percent with no additional tests. Above it, the deduction is limited by W-2 wages paid and the business's qualified property basis. Certain service businesses phase out entirely. For 2026, the threshold is $201,750 (single) or $403,500 (married filing jointly), per IRS Rev. Proc. 2025-32 (Oct. 9, 2025). The QBI Eligibility Checker shows where your income falls.
Specified service businesses (SSTBs)
Fields such as health, law, accounting, consulting, and financial services are SSTBs under IRC 199A. Engineering and architecture are explicitly excluded from that list. Below the threshold, SSTBs qualify for the full deduction. Above it, the deduction phases out across a $75,000 (single) or $150,000 (MFJ) range and is eliminated entirely at the top. Non-service businesses retain the wage-and-property-limited deduction even at higher incomes.
How it fits with other taxes
The QBI deduction reduces income tax, not self-employment tax. A self-employed owner still owes SE tax at 15.3% on 92.35% of net profit (the Self-Employment Tax Calculator estimates that separately). The 1099 Tax Calculator models both taxes together. Electing S-corp status reshapes both the wage test and the SE calculation, which the S-Corp Tax Savings Calculator handles.
Getting it right
The QBI deduction interacts with entity choice, wages, and retirement contributions in ways that respond to planning. Contributing to a SEP-IRA or solo 401(k), for instance, reduces taxable income and can keep a near-threshold filer in the simpler calculation zone. Because the thresholds adjust each year and the limitations involve several interacting rules, run the estimates here and confirm anything material with a tax professional before filing.
All calculators on this site
- QBI Deduction Calculator: Full Section 199A deduction with W-2 wage, property basis, and SSTB limits applied. Files on Form 8995 or Form 8995-A.
- Self-Employment Tax Calculator: Social Security and Medicare (SE) tax on net self-employment profit, including the deductible half.
- 1099 Tax Calculator: Total estimated tax owed on 1099 income, with quarterly payment amounts.
- S-Corp Tax Savings Calculator: Side-by-side comparison of S-corp payroll tax vs. sole-proprietor SE tax, accounting for the reasonable salary requirement.
- QBI Eligibility Checker: Shows which Section 199A limits apply at your income level, below threshold, in the phase-in range, or above it.
Frequently asked questions
What is the QBI deduction?
A deduction of up to 20% of qualified business income under IRC Section 199A, available to eligible pass-through owners. It reduces income tax, not SE tax.
Who qualifies?
Owners of sole proprietorships, partnerships, S-corps, and most LLCs. Any business income flowing through to a personal return is in scope, subject to income-based limits.
What is an SSTB?
A specified service trade or business under IRC 199A: health, law, accounting, consulting, financial services, and related fields. Engineering and architecture are explicitly excluded. Above the upper threshold, SSTBs receive no deduction.
Does QBI reduce self-employment tax?
No. The QBI deduction reduces income tax only. Self-employment tax (15.3% on 92.35% of net earnings) still applies in full regardless of the deduction.
Is this tax advice?
No. Thresholds are indexed and change annually. Confirm your situation with a qualified tax professional before filing.