What Is the QBI Deduction and Who Still Qualifies in 2026?
Sam's List Editorial | 2026-07-24
The qualified business income deduction, or QBI deduction, lets many owners of pass-through businesses deduct up to 20 percent of their qualified business income before calculating federal income tax. It comes from Section 199A of the tax code, and for years it carried an expiration date. That has changed: the deduction was made permanent for tax years beginning after December 31, 2025, so it is a fixture of the 2026 tax landscape rather than a benefit set to disappear.
Here is what the deduction is, how it works, and who still qualifies for it in 2026.
What the QBI Deduction Actually Is
The QBI deduction is a deduction of up to 20 percent of qualified business income for owners of pass-through entities: sole proprietorships, partnerships, S corporations, and most LLCs. Because these businesses pass their income through to the owner's personal return, the deduction shows up there, reducing the income on which you are taxed rather than the tax itself.
Qualified business income is generally the net income from a qualifying US business. It does not include items like capital gains, dividends, or interest income not tied to the business, and it does not include reasonable compensation an S-corp pays its owner or guaranteed payments to partners. The deduction is available whether or not you itemize, which is part of why it matters to so many owners.
The 2026 Income Thresholds
The deduction gets more complicated as income rises, and the key figures are the taxable-income thresholds. For 2026, the thresholds are $201,750 for single filers and $403,500 for married couples filing jointly.
Below those thresholds, the calculation is relatively simple: most owners can take the full 20 percent of qualified business income, subject to an overall limit tied to taxable income. Above them, additional limitations kick in, and for some businesses the deduction phases out entirely. This is why the same deduction can feel automatic for one owner and frustratingly conditional for another.
How the Phase-Ins and Limits Work
Once your income is above the threshold, two things happen. First, the deduction becomes subject to limits based on the W-2 wages your business pays and the unadjusted basis of the qualified property it holds. In practice, a business with employees and payroll can often still claim a meaningful deduction, while a high-income business with little payroll may see it reduced.
Second, the range over which these limits phase in has been widened. For 2026, the phase-in range is $75,000 for non-joint returns and $150,000 for joint returns, up from the narrower ranges that applied before, and these ranges are indexed for inflation going forward. A wider phase-in means the limits ramp up more gradually rather than hitting all at once, which is generally friendlier to owners near the threshold.
There is also a new minimum benefit worth knowing: for 2026, if you have at least $1,000 of qualified business income from a business in which you materially participate, you can claim a minimum deduction of $400, even if the standard calculation would produce less. It is a modest floor, but it recognizes small active businesses that might otherwise compute a negligible deduction.
The SSTB Trap
The biggest catch for higher earners is the specified service trade or business rule, usually shortened to SSTB. These are fields where the principal asset is the reputation or skill of the owners: health, law, accounting, consulting, financial services, performing arts, and similar professions.
Below the income thresholds, being an SSTB does not matter; you can claim the deduction like anyone else. Above them, the SSTB deduction phases out, and once your income clears the top of the phase-in range, owners of these businesses generally cannot claim the deduction at all. This is where two owners with identical incomes can get very different results purely because of what their businesses do, and it is one of the most misunderstood parts of the rule.
Who Still Qualifies in 2026
Putting it together, most pass-through owners under the income thresholds can claim the deduction on their qualifying business income, SSTB or not. Owners above the thresholds who run non-service businesses can often still claim it, subject to the W-2 wage and property limits. Owners above the thresholds who run service businesses face a phase-out and, at higher incomes, likely lose it.
Because the deduction turns on income level, business type, payroll, and entity structure, the same strategy does not fit everyone. Some owners can influence the outcome, for example through how an S-corp sets reasonable compensation or how much the business invests in wages and property, but those moves have their own trade-offs and should not be made just to chase a deduction. This is squarely an area where a knowledgeable accountant earns their fee, because a small planning change can swing the result and a wrong assumption can cost real money. You can find and compare tax-focused firms in the Sam's List accountant directory.
Frequently Asked Questions
Is the QBI deduction still available in 2026? Yes. The Section 199A qualified business income deduction was made permanent for tax years beginning after December 31, 2025, so it applies for 2026 and going forward with no scheduled expiration. The core benefit remains a deduction of up to 20 percent of qualified business income for eligible pass-through owners.
What are the 2026 income limits for the QBI deduction? For 2026, the taxable-income thresholds are $201,750 for single filers and $403,500 for married filing jointly. Below these, most owners can take the full deduction subject to an overall income limit. Above them, W-2 wage and property limits apply, and service businesses face a phase-out over a range of $75,000 for single and $150,000 for joint filers.
Who cannot take the QBI deduction? Owners of specified service trades or businesses, such as law, accounting, health, consulting, and financial services, generally lose the deduction once their taxable income rises above the top of the phase-in range. C corporations do not qualify at all, since QBI applies to pass-through income. Certain investment-type income is also excluded.
Does an S-corp owner's salary count as QBI? No. Reasonable compensation paid to an S-corp owner is wages, not qualified business income, so it is excluded from the QBI calculation. This creates a planning tension, because a higher salary reduces QBI while a lower salary can raise compliance risk. Setting reasonable compensation well is a decision to make with an accountant.
About the author: Kimberly Green is the cofounder of Sam's List, where business owners and high earners find vetted CPAs, financial advisors, and fractional CFOs. She's met one-on-one with 400+ financial professionals and writes from the real data behind thousands of client-advisor matches. Ask her anything about finding an accountant - she's heard it all, including the questions people are afraid to ask.