QBI Deduction Calculator (Section 199A)

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How the Section 199A QBI deduction works

The qualified business income (QBI) deduction, created by Section 199A of the Internal Revenue Code, lets owners of pass-through businesses deduct up to 20% of their qualified business income from their federal taxable income. It applies to sole proprietors (Schedule C), partners in partnerships, S corporation shareholders, and many owners of LLCs, trusts and estates. It does not apply to income earned as a C corporation, nor to wages you receive as an employee.

Qualified business income is the net profit from a US trade or business. It excludes items that are not really business operating income: capital gains and losses, dividends, interest income not properly allocable to the business, and reasonable compensation or guaranteed payments paid to the owner. So an S corporation shareholder who pays themselves a salary counts only the remaining pass-through profit as QBI, not the W-2 wages.

The deduction is the lesser of two amounts: (1) 20% of your combined QBI, or (2) 20% of your taxable income minus net capital gains and qualified dividends. This second cap - the "overall limitation" - stops the deduction from wiping out tax on income that is already taxed at preferential capital-gains rates. For most owners with modest investment income the first figure controls, but high earners with large capital gains can find the overall limit binding.

Crucially, the QBI deduction is a below-the-line deduction that you can take whether or not you itemize. It is subtracted after your standard or itemized deduction, reducing taxable income directly. It does not reduce self-employment tax, adjusted gross income, or net investment income tax - only your income tax. Because it lowers taxable income rather than being a credit, its cash value depends on your marginal rate: a 24%-bracket taxpayer saves about 24 cents per dollar deducted. Most taxpayers report it on Form 8995 (the simplified form for those under the income thresholds) or Form 8995-A (for those above the thresholds who must apply the wage and property limits).

The One Big Beautiful Bill Act (OBBBA) made the deduction permanent beginning in 2026; before that it had been scheduled to expire after 2025. That permanence, plus the wider phase-in ranges and new minimum deduction described below, makes QBI planning a lasting part of pass-through tax strategy rather than a temporary perk.

Income thresholds, the SSTB phase-out and the W-2/UBIA limit

Everything about the QBI deduction hinges on your taxable income before the deduction compared with an annual threshold. Below the threshold the rules are simple; above it they get complicated fast.

Below the threshold. For 2026 the threshold is $201,750 for single and head-of-household filers, $201,775 for married filing separately, and $403,500 for married filing jointly. (For 2025 the figures were $197,300 and $394,600.) If your taxable income is at or under your threshold, you simply deduct 20% of QBI - no wage test, no property test, and even specified service businesses qualify in full.

Inside the phase-in range. Above the threshold the deduction phases in the limitations over a band. OBBBA widened this band for 2026 to $75,000 for single/HoH/MFS and $150,000 for joint filers - up from $50,000 and $100,000 in 2025. So a 2026 single filer is fully phased in at $276,750 and a joint filer at $553,500. Inside the band, two things happen at once: the W-2 wage and property limit begins to bite for every business, and for an SSTB an "applicable percentage" of your QBI, wages and property is gradually excluded until it reaches zero at the top.

The W-2 wage / UBIA limit. Once you are over the threshold, a non-service business cannot deduct more than the greater of (a) 50% of the W-2 wages the business paid, or (b) 25% of W-2 wages plus 2.5% of the unadjusted basis immediately after acquisition (UBIA) of qualified property. This rewards businesses that employ people or own depreciable assets. A high-earning consultant-turned-solo owner with no employees and no equipment may find this limit reduces their deduction to almost nothing even before the SSTB rule applies.

SSTBs. A specified service trade or business is one in health, law, accounting, actuarial science, performing arts, consulting, athletics, financial services, brokerage, investing, or any trade whose principal asset is the reputation or skill of its owners. Engineering and architecture are deliberately excluded. For an SSTB, once taxable income exceeds the top of the phase-in range the deduction is completely eliminated - subject only to the 2026 minimum described next. This calculator flags SSTB status because it can be the difference between a full 20% deduction and zero.

What OBBBA changed for 2026: the new $400 minimum deduction

The biggest QBI news is the One Big Beautiful Bill Act, signed in 2025. Beyond making Section 199A permanent, it introduced three practical changes that take effect for tax years beginning after 2025 - that is, from the 2026 tax year onward.

1. A new $400 minimum deduction. Under new Section 199A(i), any taxpayer whose aggregate QBI from one or more active qualified trades or businesses is at least $1,000 receives a minimum QBI deduction of $400, regardless of the wage, property or SSTB limits that would otherwise reduce it. This is a floor, not a cap: if your ordinary 20% calculation produces more than $400 you still get the larger amount. The rule mainly helps small and part-time business owners and high-income service professionals who would otherwise be phased out to zero. Both the $1,000 QBI floor and the $400 amount will be indexed for inflation after 2026. Note the requirement that the business be active - purely passive investment income does not qualify you for the minimum.

2. Wider phase-in ranges. As covered above, the phase-in band grew from $50,000 to $75,000 for single filers and from $100,000 to $150,000 for joint filers. A wider band makes the transition from a full deduction to a limited or zero deduction more gradual, so the marginal tax hit of earning one extra dollar near the threshold is smaller. Many owners who were fully phased out under the old $100,000 band now retain a partial deduction.

3. Inflation-adjusted thresholds. The 2026 thresholds ($201,750 / $403,500) come from IRS Rev. Proc. 2025-32 and rise each year with inflation, so more income stays under the simple below-threshold rules over time.

What did not change is just as important. The headline rate stayed at 20% - proposals to raise it to 23% were dropped. The overall limit (20% of taxable income minus capital gains) remains. The list of SSTBs is unchanged, and the W-2 wage/UBIA formula is unchanged. So while OBBBA made the deduction permanent and slightly more generous at the margins, the core mechanics you use to plan - reasonable S corp salary levels, employing family members to create W-2 wages, and watching the taxable-income threshold - all still apply. If you are near a threshold, deferring income, bunching deductions, or making retirement-plan contributions to drop below it can be worth far more than the mechanics suggest, because it can restore the full 20%.

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