The Qualified Business Income (QBI) deduction is one of the largest tax breaks available to small-business owners. It lets you deduct up to 20% of your pass-through business income from federal taxable income. For 2026 it is permanent and comes with new thresholds and a small minimum deduction worth knowing.
What the QBI deduction is
Formally the Section 199A deduction, QBI lets owners of pass-through entities deduct up to 20% of their qualified business income. A pass-through is a business that does not pay income tax at the entity level — profits flow to your personal return, where the 20% deduction applies. That covers sole proprietorships (Schedule C), partnerships, S corporations, and most LLCs. C-corporation income and W-2 wages do not qualify.
Qualified business income is your net profit from a domestic trade or business after ordinary business expenses. Investment items — capital gains, dividends, and interest not tied to the business — are excluded, as are reasonable S-corp shareholder wages and partner guaranteed payments (those are treated more like wages).
The 2026 thresholds and phase-in
The 2026 limits were set by the IRS in Revenue Procedure 2025-32 and widened by the One Big Beautiful Bill Act (OBBBA), signed July 4, 2025, which made the deduction permanent:
| Filing status | Phase-in begins | Fully phased in |
|---|---|---|
| Single / Head of household | $201,750 | $276,750 |
| Married filing jointly | $403,500 | $553,500 |
Below the threshold, the math is simple: deduct 20% of QBI with no further tests. These thresholds are based on your total taxable income — so a spouse's W-2 income or investment income can push you into the phase-in range even with modest business profit.
What changes above the threshold
Once taxable income crosses the phase-in start, two limits appear. For a Specified Service Trade or Business (SSTB) — such as law, health, accounting, consulting, athletics, financial services, or any business whose main asset is the owner's reputation or skill — the deduction phases out and reaches zero at the fully phased-in amount. For a non-SSTB, the deduction is instead capped at the greater of 50% of W-2 wages paid, or 25% of W-2 wages plus 2.5% of the unadjusted basis of qualified property. A sole proprietor with no employees and little depreciable property can see the deduction shrink sharply above the threshold.
A $400 minimum and the taxable-income cap
New for 2026, if you materially participate in at least one qualified trade or business and have $1,000 or more of QBI from it, your deduction cannot be less than $400 — a floor that helps thin-margin businesses. Separately, the deduction can never exceed 20% of your total taxable income minus net capital gain, so the benefit has an overall ceiling regardless of how large your QBI is.
Worked example
A single freelance designer has $90,000 of net Schedule C profit and no other income. Her taxable income (after the 2026 standard deduction) is well below the $201,750 threshold, so no SSTB or wage test applies. Her QBI deduction is the lesser of 20% × $90,000 ($18,000) or 20% × taxable income. The taxable-income cap is the binding limit, so the deduction lands below $18,000 — still a meaningful reduction. Run your own numbers with the Self-Employment Tax Calculator and the Tax Deduction Finder.
Frequently Asked Questions
What is the QBI deduction for 2026?
The Qualified Business Income (QBI) deduction under Section 199A lets owners of pass-through businesses deduct up to 20% of their qualified business income from federal taxable income. The One Big Beautiful Bill Act made it permanent, so it applies for 2026 and beyond.
Who qualifies for the QBI deduction?
Sole proprietors, partners in partnerships, S-corporation shareholders, and most LLC members with domestic business income. C-corporation owners and W-2 employees do not qualify. The business must be a real trade or business conducted in the United States.
What are the 2026 QBI income thresholds?
For 2026, the limitation begins phasing in at $201,750 of taxable income for single and head-of-household filers and $403,500 for married filing jointly; it is fully phased in at $276,750 and $553,500 respectively. Below the threshold you get the full 20% deduction with no wage or property test.
Is there a minimum QBI deduction in 2026?
Yes. New for 2026, if you materially participate in a qualified trade or business and have at least $1,000 of qualified business income from it, your QBI deduction cannot be less than $400. This mainly helps thin-margin or early-stage businesses.
Take action in 2026
Start with the Self-Employment Tax Calculator to see your pass-through profit, then use the Tax Deduction Finder to capture every write-off. If your income is near the phase-in range, a tax professional can model the wage and property tests before you file.