Qualified Business Income Deduction
Deduct up to 20% of your pass-through business income, and learn the limits that kick in as income rises.
TL;DR
- Deduct up to 20% of
qualifiedBusinessIncomefrom a pass-through. - Below the
threshold, take the full deduction with no extra tests. - Above it,
W-2wagelimits apply andSSTBscan phase out entirely.
What QBI Is
20% DeductionTake up to a fifth of qualified business income.
Up to 20% of QBIPass-Throughs OnlySole props, partnerships, and S corps qualify.
Not C corps or W-2 wagesBusiness Income OnlyIt excludes capital gains, dividends, and interest.
Net trade or business incomeNot SE TaxIt lowers income tax, not self-employment tax.
Cuts taxable income onlyIncome Thresholds
Full BelowUnder the line, take the full 20% with no tests.
$201,750 single / $403,500 jointPhase-In RangeThe limits fade in over the range above it.
+$75k single / +$150k jointOverall CapLimited to 20% of taxable income minus gains.
20% of (taxable income - gains)$400 FloorNew for 2026 if you have $1,000+ of QBI.
Minimum $400 deductionService Businesses
What CountsHealth, law, accounting, consulting, finance, and more.
Skill- or reputation-based fieldsFine BelowUnder the threshold, SSTBs get the full deduction.
Below the line = full 20%Gone AboveOver the upper limit, SSTBs lose it entirely.
Above upper limit = $0Not EverythingEngineering and architecture are not SSTBs.
Engineers/architects excludedMaximize It
Lower Taxable IncomeRetirement contributions can pull you under the line.
Max 401(k), IRA, HSAPay W-2 WagesWages lift the cap for businesses above the line.
S-corp salary raises the limitHold Qualified PropertyBusiness real estate adds to the property test.
2.5% of property basisFile the FormClaim it on the simple or complex QBI form.
Form 8995 or 8995-ATips
- If your income is near the
threshold, a retirement contribution can pull you under it and restore the full deduction. - Above the threshold, paying more
W-2wages, often through an S-corp, can lift the wage-based limit on your deduction.
Warnings
- The IRS defines a
SSTBbroadly, so consulting and financial firms often count, losing the deduction at high income. - The deduction cannot exceed 20% of
taxableIncomeminus net capital gains, so large gains can shrink it.
In Practice
See how a sole proprietor under the income line claims the full deduction.
You are single, run a sole proprietorship with $80,000 of qualified business income, and have $90,000 of taxable income, below the $201,750 threshold.
- Deduction: 20% x $80,000 = $16,000.
- Overall cap: 20% x $90,000 taxable income = $18,000.
- The $16,000 is under the cap, so you take it in full.
- It lowers taxable income from $90,000 to $74,000.
You deduct $16,000 straight off your taxable income.
Below the threshold, the full 20% applies with no wage or property test.
FAQ
Owners of pass-through businesses: sole proprietorships, partnerships, S corporations, and some trusts and estates. It gives up to 20% of qualified business income as a deduction under Section 199A. Income from a C corporation or from W-2 wages does not qualify, and the deduction lowers taxable income but not self-employment tax.
Below $201,750 of taxable income single, or $403,500 married filing jointly, you get the full 20% with no extra tests. Above those lines the limits phase in over the next $75,000 single or $150,000 joint. New for 2026, owners with at least $1,000 of qualified business income get a minimum deduction of $400.
A specified service trade or business, such as health, law, accounting, consulting, financial services, or any field trading on your personal reputation or skill. Below the threshold, SSTB owners get the full deduction. Above the upper limit, they lose it entirely, while non-SSTB owners are only limited by the wage and property tests.
For a non-SSTB above the threshold, your deduction is capped at the greater of 50% of the W-2 wages the business paid, or 25% of wages plus 2.5% of the cost of qualified property. It rewards businesses that pay wages or own assets, which is one reason high earners consider an S corporation to create W-2 wages.