QBI Deduction Basics for 2026
How Section 199A’s 20% deduction works below and above the taxable-income threshold, what SSTBs change, and why W-2 wages and UBIA matter for larger firms.
Published 2026-05-08 · Updated 2026-07-20
Section 199A lets eligible owners deduct up to 20% of qualified business income from a sole proprietorship, partnership, or S corporation—limited by 20% of taxable income minus net capital gain. Below the taxable-income threshold, wage and property limits generally do not apply for non-SSTB businesses.
Specified service trades or businesses (SSTBs)—many health, law, consulting, and financial services activities—phase out the deduction once taxable income enters the phase-in range above the threshold. Classification is facts-and-circumstances heavy; do not rely on a slogan.
Above the threshold
Non-SSTB owners face a wage/UBIA limitation: generally the greater of 50% of W-2 wages or 25% of W-2 wages plus 2.5% of unadjusted basis of qualified property. S corporations that pay reasonable W-2 wages can unlock more QBI deduction than an identical LLC that pays none—while also changing payroll tax.
QBI is after many Schedule C expenses but before the QBI deduction itself. Guaranteed payments and certain investment items are carved out. Always reconcile K-1 boxes carefully.
Model QBI with the Section 199A calculator using current-year thresholds from the site’s tax data, then stress-test S-corp salary vs distribution only after reasonable-compensation and payroll costs are included.
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Tax year 2026 · Last reviewed 2026-07-20 · Reviewed by US Tax Tools editorial · Methodology