The qualified business income deduction, often called the QBI deduction or Section 199A deduction, lets many owners of sole proprietorships, partnerships and S corporations deduct up to 20 percent of their business profit from taxable income. It started for 2018 and was set to expire after 2025. The One Big Beautiful Bill Act (Public Law 119-21) made it permanent and changed some of its rules starting in 2026.
Who qualifies and what counts
The deduction is available to owners of sole proprietorships, partnerships, S corporations and some trusts and estates. Income earned through a C corporation, or as an employee, does not qualify.
QBI is the net income from a qualified U.S. trade or business, generally after the deductions tied to that business, such as one-half of self-employment tax, the self-employed health insurance deduction and retirement plan contributions. According to the IRS, QBI does not include:
- Capital gains and losses
- Interest income not allocable to a business
- Wages, including reasonable compensation paid by an S corporation to its owner
- Guaranteed payments from a partnership
- Income not effectively connected with a U.S. business
Because S corporation wages are not QBI, the owner's salary matters. See reasonable compensation for S corporation owners. Rental real estate can qualify if it rises to a trade or business, and Revenue Procedure 2019-38 offers a safe harbor.
The income thresholds
Your taxable income before the QBI deduction decides how many limits apply.
| Tax year | Single: limits begin | Joint: limits begin | Single: limits fully apply | Joint: limits fully apply |
|---|---|---|---|---|
| 2025 | $197,300 | $394,600 | $247,300 | $494,600 |
| 2026 | $201,750 | $403,500 | $276,750 | $553,500 |
Below the threshold, the deduction is generally 20 percent of QBI (and qualifying REIT and partnership income), limited to 20 percent of taxable income less net capital gain. Most small businesses can use the simpler Form 8995.
Above the threshold, Form 8995-A applies and two limits phase in over the range:
- W-2 wage and property limit. QBI from each business can be reduced to the greater of 50 percent of the W-2 wages the business pays, or 25 percent of those wages plus 2.5 percent of the unadjusted basis of qualified property.
- Specified service trades or businesses (SSTBs). Fields such as health, law, accounting, consulting, financial services and athletics, and businesses whose main asset is the owner's reputation or skill, lose the deduction as income rises through the range. Above the range, an SSTB gets none. Engineering and architecture are not treated as SSTBs.
For 2026 the phase-in range widens from $50,000 ($100,000 for joint filers) to $75,000 ($150,000 for joint filers). That is why the 2026 "fully apply" figures sit farther above the starting points.
Changes starting in 2026
- Permanent. The deduction no longer has an end date.
- Wider phase-in range for the wage, property and SSTB limits, as shown above.
- Minimum deduction. Taxpayers with at least $1,000 of QBI from one or more active businesses get a deduction of at least $400. Both amounts are adjusted for inflation after 2026. The IRS says a business is active for this purpose if the owner meets at least one of the material participation tests.
Aggregation and tracking
Owners who hold several businesses may be able to combine them for the wage and property limits. The conditions include at least 50 percent common ownership for most of the year, no SSTBs in the group, and at least two of three tests on common products or services, shared facilities or centralized functions, and operating in reliance on one another. The choice must generally be made consistently in later years. Losses from a prior year can carry forward and reduce the deduction in later years, so keep a record of them.
Planning points
- Choices about owner salary, equipment purchases and retirement contributions can change the deduction, but they also have their own tax effects. Look at the whole picture, not the QBI line alone.
- Entity type matters. Compare structures with our guide on choosing an entity.
How we can help
We calculate the QBI deduction for sole proprietors, partnerships and S corporations, track carryforward losses, and review whether aggregation or the wage and property limits affect your return. Planning ahead of year-end is when choices matter most. See our tax planning and business tax preparation services, or contact us.
Frequently asked questions
Do I have to itemize to claim the QBI deduction?
No. It is a deduction from taxable income that is available to itemizers and non-itemizers.
Does the QBI deduction lower my self-employment tax?
No. It reduces income tax only. Self-employment tax is figured separately.
Do doctors, lawyers and accountants qualify?
They are SSTBs. They can claim the deduction if taxable income is at or below the threshold, with a partial deduction inside the phase-in range and none above it.
Which form do I use?
Form 8995 is the simpler form for taxable income at or below the threshold. Form 8995-A is required for higher income or in certain other cases, such as an SSTB in the phase-in range.
Is the deduction permanent now?
Yes. Public Law 119-21 made it permanent, with the changes described above starting in 2026.
Official sources
- IRS: Qualified business income deduction
- IRS: Instructions for Form 8995
- IRS: Instructions for Form 8995-A
- IRS: Rev. Proc. 2025-32 (2026 inflation adjustments), in Internal Revenue Bulletin 2025-45
This page is a plain-language summary. The official source controls if there is any difference.
General information only, not tax, legal or accounting advice for your situation. Rules, limits and deadlines change; confirm the current rules with the official source or a qualified professional before you act. Reading this page does not create a professional relationship with CPA Tax Payroll and Accounting Corp.