The QBI Deduction (20% Pass-Through) Explained
The qualified business income deduction lets many self-employed people deduct 20% of their business profit. Here's how it works in 2026 and where the limits kick in.
The basics: If you qualify, you deduct 20% of your qualified business income from your taxable income. It's a deduction you get on top of your business expenses, and you don't have to itemize to claim it.
Who qualifies
The QBI deduction (also called the Section 199A or pass-through deduction) applies to income from sole proprietorships, single-member LLCs, partnerships, and S-corporations. It was made permanent by the 2025 tax law. For most self-employed people below the income thresholds below, it's straightforward: 20% of your net business profit comes off your taxable income.
The 2026 income thresholds
Below these taxable-income levels, you generally get the full 20% with no complications:
| Filing status | Phase-in starts | Fully phased in |
|---|---|---|
| Single / Head of household | $201,775 | $276,775 |
| Married filing jointly | $403,550 | $553,550 |
Above the starting threshold, two limitations phase in.
Limitation 1: service businesses
If you run a specified service trade or business (SSTB), consulting, health, law, accounting, financial services, and similar fields where the main asset is your reputation or skill, the deduction phases out completely once your taxable income passes the top of the range above. Below the threshold, SSTBs get the full deduction like everyone else.
Limitation 2: the wage/property limit
For non-service businesses above the threshold, the deduction is capped at the greater of 50% of the W-2 wages your business paid, or 25% of wages plus 2.5% of the cost of qualified property. A solo business with no employees and no payroll can see this limit shrink or eliminate the deduction at high incomes, which is one reason the math gets complicated up there.
How it interacts with an S-corp
As a sole proprietor or LLC, your QBI is based on your full net profit. As an S-corp, only the pass-through portion after your salary counts as QBI, so paying yourself a high salary can reduce this deduction. That trade-off is exactly why the "best" entity choice isn't always obvious.
Estimate your taxes now →Enter your income and see your federal, self-employment, and state tax in seconds, free.The calculator above already factors the QBI deduction, including the phase-out and wage limit, into your estimate, so you can see its real effect on your total tax rather than guessing.