# QBI Deduction (§199A)

> The 20% deduction on qualified business income for pass-through owners. Made permanent by OBBBA, with a new $400 minimum starting in 2026.

Category: self-employment-and-taxes
Updated: 2026-05-26
Canonical: https://everylastmile.app/glossary/qbi-deduction

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The **Qualified Business Income (QBI) deduction** under **IRC §199A** lets eligible pass-through owners — sole proprietors, partners, S-corporation shareholders, and certain REIT/PTP investors — deduct up to **20% of their qualified business income** from federal taxable income.

**The OBBBA changes everything (and nothing).** §199A was scheduled to sunset at the end of 2025 under the TCJA. **OBBBA §70105** made §199A permanent. The same section also added new IRC §199A(i), creating a **minimum $400 deduction** for taxpayers with at least $1,000 of QBI — a floor that protects very small businesses from being shut out by the wage/W-2/UBIA limitation. The $400 and $1,000 figures index for inflation after 2026.

**2026 thresholds (Rev. Proc. 2025-32 §4.26).**

- Single / Head of Household / MFS: $201,750 (taxable income before the deduction)
- Married Filing Jointly: $403,500
- The OBBBA also widened the phase-in range to **$75,000 single / $150,000 MFJ** above those thresholds.

Below the threshold, the calculation is straightforward: 20% of QBI, capped at 20% of (taxable income − net capital gains). Above the threshold, the wage/UBIA limits and the SSTB carve-out kick in.

**The SSTB carve-out.** Specified Service Trades or Businesses — health, law, accounting, actuarial, performing arts, consulting, athletics, financial services, brokerage, and any trade where the principal asset is the reputation or skill of the owner — lose the QBI deduction once income clears the phase-in. _Critically for ELM readers_: rideshare driving, delivery, freelance design, engineering, real estate (rental as a §162 trade), and most gig work are **not** SSTBs.

**Worked example.** Olivia is a freelance graphic designer, single filer. She nets $80,000 on Schedule C in 2026 after the half-SE-tax deduction. Her taxable income (after standard deduction) is well below the $201,750 threshold.

- QBI = $80,000 (Schedule C net minus the §164(f) half-SE-tax deduction)
- 20% × $80,000 = **$16,000 QBI deduction**

That $16,000 comes off line 13 of Form 1040 — _after_ AGI, so it reduces income tax but **not** SE tax. Olivia's effective marginal rate of 22% turns this into $3,520 in tax savings.