QBI Deduction in 2026: The 20% Pass-Through Rule, Now Permanent
Quick answer
The qualified business income (QBI) deduction lets sole proprietors, partners and S corporation owners deduct up to 20% of qualified business income from taxable income. The One Big Beautiful Bill Act made it permanent, and for 2026 the limits phase in above $201,750 of taxable income, or $403,500 married filing jointly.
QBI deduction (Section 199A) figures for 2026
| Item | 2026 position |
|---|---|
| Deduction rate | 20% of qualified business income, plus 20% of qualified REIT dividends and PTP income |
| Status | Permanent: the One Big Beautiful Bill Act (July 2025) removed the scheduled end-of-2025 sunset |
| Taxable income threshold | $201,750 single and other filers; $403,500 married filing jointly; $201,775 married filing separately |
| Limitations fully phased in at | $276,750 single and other filers; $553,500 married filing jointly (OBBBA widened the ranges to $75,000 / $150,000) |
| New minimum deduction | $400, for taxpayers with at least $1,000 of QBI from a business they materially participate in; both figures inflation-indexed after 2026 |
| Overall cap | The lesser of the QBI deduction or 20% of taxable income minus net capital gain |
| Above the threshold | W-2 wage and qualified property limits phase in; SSTBs phase out entirely by the top of the range |
| What QBI excludes | Capital gains, wages, reasonable compensation from your own S corp, and guaranteed payments |
| Claimed on | Form 8995 (simplified) or Form 8995-A, with any Form 1040 |
The QBI deduction is the closest thing self-employed Americans have to a standing pay rise from the tax code: up to 20% of qualified business income simply removed from taxable income, on top of the standard deduction. It arrived with the 2017 tax law as a temporary measure, and the One Big Beautiful Bill Act of July 2025 made it permanent, so the 2026 figures above are the settled rules rather than a countdown. For a sole proprietor with $60,000 of qualified profit, that is up to $12,000 off taxable income for filing a form.
Two rules do the quiet damage. First, the lesser-of rule: the deduction is capped at 20% of your taxable income minus net capital gain, so a large standard deduction or a low-income year can shrink it below 20% of profit. Second, the thresholds: below $201,750 of taxable income ($403,500 joint) for 2026 the deduction is clean and mechanical, but across the phase-in range the W-2 wage and property tests arrive, and specified service businesses phase out entirely. Below the threshold, Form 8995 is genuinely simple; above it, the interaction of wages, entity choice, and aggregation elections is where a CPA earns their fee, and this guide deliberately stays conceptual there.
The deduction also has a blind spot worth knowing: it does nothing to self-employment tax, which is levied before QBI enters the picture. And it interacts with retirement saving, since pre-tax contributions reduce the income the 20% is applied to; the sheltering arithmetic lives in solo 401(k) contribution limits and the plan choice in SEP IRA vs solo 401(k). Workplace figures are in 401(k) contribution limits for 2026, and the rest of the US reference shelf is at /us/guides.
This is general information for US readers, not personal tax advice. Figures are from Rev. Proc. 2025-32 and Public Law 119-21 for tax years beginning in 2026.
Frequently asked questions
What income qualifies for the QBI deduction?
The net income of a US trade or business you own through a pass-through: sole proprietorship, partnership, S corporation, or some trusts and estates. It excludes capital gains, dividends, interest, wage income, and reasonable compensation you pay yourself from an S corp. W-2 employees get nothing from it on their wages.
Can I claim the QBI deduction if I take the standard deduction?
Yes. It is a below-the-line deduction that does not require itemising: you take the standard deduction and the QBI deduction together. That combination is exactly how most self-employed people with modest profits claim it, usually on the one-page Form 8995.
Is the QBI deduction going away after 2025?
No. Section 199A was originally scheduled to expire at the end of 2025, but the One Big Beautiful Bill Act, signed in July 2025, made it permanent and widened the phase-in ranges from 2026. Planning articles written before mid-2025 that warn of the sunset are out of date.
What is an SSTB and why does it matter?
A specified service trade or business: health, law, accounting, consulting, financial services, performing arts, athletics, and any business where the main asset is the owner's reputation or skill. Below the taxable income threshold it makes no difference. Across the phase-in range the deduction shrinks, and above the top of the range an SSTB owner gets nothing.
What changed in the QBI deduction under the One Big Beautiful Bill Act?
Three things from 2026: the deduction became permanent instead of expiring after 2025; the phase-in ranges widened to $75,000 ($150,000 for joint filers), so the wage and SSTB limits bite more gradually; and a new minimum $400 deduction applies where you have at least $1,000 of QBI from a business you materially participate in.
Does the QBI deduction reduce self-employment tax?
No. It reduces taxable income for income tax only. Self-employment tax is still calculated on your full net earnings before the QBI deduction, and the deduction does not lower adjusted gross income either, so it does not help with AGI-tested benefits or phase-outs.
Sources
General information, not financial advice. Tax rules and figures can change; check the current position on irs.gov or ssa.gov before acting.