Want the full IRS Pub 535 / Form 8995-A walkthrough, the SSTB list with engineering and architecture carve-outs, the W-2 wages and UBIA limitation math, the aggregation election under Treas. Reg. §1.199A-4, the OBBBA §70105 permanent extension and $400 minimum, and the entity choice planning around the threshold? Read the companion guide.
Read the QBI Deduction Guide →
Short Answer
The 2026 Section 199A QBI deduction allows owners of pass-through businesses (sole proprietorships, partnerships, S corporations) to deduct up to 20 percent of qualified business income from a domestic qualified trade or business, plus 20 percent of qualified REIT dividends and qualified PTP income. Three regimes apply based on taxable income before the QBI deduction. Below the threshold (TI ≤ $201,750 single / $403,500 MFJ per Rev. Proc. 2025-32): simple 20% of QBI, no limitations apart from the overall 20% of (TI - net capital gain) cap. Within the phase-in range (threshold + $75K single / + $150K MFJ): the W-2/UBIA limitation phases in for non-SSTBs; the entire QBI deduction phases to zero for SSTBs (health, law, accounting, consulting, financial services, performing arts, athletics, etc.). Above the phase-in range: non-SSTBs face the full W-2/UBIA limit (greater of 50% W-2 wages OR 25% W-2 wages + 2.5% UBIA); SSTBs receive zero deduction. OBBBA §70105 made the deduction permanent (no sunset after 2025), expanded the phase-in ranges starting 2026, and added a new $400 minimum deduction for active-QTB owners with QBI of at least $1,000.
Key Takeaways
- 2026 thresholds (Rev. Proc. 2025-32 §4.26): $201,750 single/HOH/QSS; $201,775 MFS; $403,500 MFJ. Phase-in range: +$75K (single/MFS/HOH/QSS) or +$150K (MFJ), ends at $276,750 / $276,775 / $553,500.
- Below threshold: 20% of QBI, simple. Form 8995 (single-page). No W-2/UBIA limit, no SSTB phase-out.
- Above threshold: Form 8995-A. W-2/UBIA limit applies to non-SSTBs (greater of 50% W-2 wages OR 25% W-2 + 2.5% UBIA). SSTBs phase out to zero within the range.
- SSTB list (§199A(d)(2), Reg. §1.199A-5(b)): health, law, accounting, actuarial science, performing arts, consulting, athletics, financial services, brokerage, investment management. Engineering and architecture EXCLUDED.
- OBBBA §70105: made deduction permanent (no sunset after 2025), expanded phase-in ranges from $50K/$100K to $75K/$150K starting 2026, added §199A(i) $400 minimum deduction for active-QTB owners with at least $1,000 QBI.
- Overall cap (§199A(a)(1)(B)): combined QBI + REIT/PTP deduction cannot exceed 20% of (TI - net capital gain). Net cap gain includes qualified dividends.
- REIT/PTP component: 20% of qualified REIT dividends + qualified PTP income, NO W-2/UBIA limit, NO threshold-based phase-in.
- Forms: Form 8995 (simplified, TI below threshold + no co-op) vs Form 8995-A (full, TI above threshold OR SSTB above threshold OR co-op patron).
- QBI excludes: wages, guaranteed payments to partners, reasonable comp to S-corp shareholders, capital gains, dividends, interest, foreign currency gain, SE tax deduction, SE retirement plan contributions, SE health insurance deduction.
- QBI deduction reduces federal income tax only. Does NOT reduce SE tax, NIIT (3.8%), Additional Medicare Tax (0.9%), or state income tax in non-conforming states.
How This Calculator Works
Step 1 - Determine taxable income threshold position
Compare taxable income before the QBI deduction (Form 1040 line 15 before line 13) to the Rev. Proc. 2025-32 threshold for your filing status. For 2026: $201,750 (single, HOH, QSS), $201,775 (MFS), $403,500 (MFJ). Three positions are possible: at or below threshold, within phase-in range (threshold to threshold + $75K single / + $150K MFJ), or above phase-in range. Below threshold, all taxpayers (SSTB and non-SSTB) get the simple 20% of QBI deduction. Within the phase-in range, the W-2/UBIA limit phases in for non-SSTBs and the QBI deduction phases out for SSTBs. Above the phase-in range, the full W-2/UBIA limit applies to non-SSTBs and SSTBs receive zero deduction.
Step 2 - Compute the component QBI deduction
For each qualified trade or business: compute 20% × QBI from that business. If you have multiple qualified trades or businesses, compute separately for each (or aggregate under Treas. Reg. §1.199A-4 if eligible). The calculator handles a single QTB; multi-business taxpayers should compute each separately and sum the results, then apply the overall cap.
Step 3 - Apply the W-2 wages and UBIA limitation (above threshold)
When taxable income exceeds the threshold, the QBI deduction for each non-SSTB qualified trade or business is limited to the greater of (a) 50% of W-2 wages paid by the qualified trade or business, OR (b) 25% of W-2 wages plus 2.5% of UBIA of qualified property. Qualified property is depreciable tangible property used in the business with depreciation period not yet ended (generally 10 years from placed in service, or longer if depreciation life exceeds 10 years). Within the phase-in range, the limitation is blended with the unlimited 20% × QBI in proportion to where TI sits in the range.
Step 4 - Apply the SSTB phase-out (above threshold)
SSTB owners with taxable income above the threshold but within the phase-in range have their QBI, W-2 wages, and UBIA reduced proportionally. The applicable percentage = 1 - (TI - threshold) / phase-in range. The reduced QBI, W-2 wages, and UBIA then flow through the W-2/UBIA limitation calculation. Above the phase-in range, the applicable percentage = 0 and the SSTB receives zero QBI deduction. SSTB designation: per §199A(d)(2) and Reg. §1.199A-5(b), services in health, law, accounting, actuarial science, performing arts, consulting, athletics, financial services, brokerage, investment management, trading, dealing in securities, AND any trade where the principal asset is the reputation or skill of one or more employees or owners. Engineering and architecture are explicitly excluded.
Step 5 - Add the REIT/PTP component
The REIT/PTP component equals 20% × qualified REIT dividends + qualified PTP income. This component is NOT subject to the W-2/UBIA limitation and NOT subject to the SSTB phase-out. All taxpayers at any income level receive the 20% deduction on qualified REIT dividends (1099-DIV box 5) and qualified PTP income (typically from PTP K-1).
Step 6 - Apply the overall 20% cap and the $400 minimum
The combined QBI component plus REIT/PTP component cannot exceed 20% of (taxable income before QBI - net capital gain including qualified dividends) per §199A(a)(1)(B). If the cap binds, the deduction is reduced to the cap. Finally, for tax years beginning after December 31, 2025, OBBBA §70105 adds the new §199A(i) minimum: if the taxpayer has total QBI of at least $1,000 from active qualified trades or businesses, the minimum deduction is $400 (regardless of whether 20% of QBI minus limitations would produce a smaller number). The minimum applies after all other limitations.
Worked Example: Sole Proprietor With $100,000 QBI, $150,000 Taxable Income, No SSTB
Sofia is a self-employed graphic designer filing Schedule C in 2026. Her business is non-SSTB (graphic design is not on the SSTB list; the catch-all "reputation or skill" was narrowed by IRS regulations to mean endorsement and similar income, not professional services). Schedule C net profit: $110,000. After deductible half of SE tax ($7,775) and SE health insurance deduction ($4,000) and SEP-IRA contribution ($18,000), Schedule 1 self-employed adjustments reduce her AGI. Her QBI for §199A purposes: $110,000 - $7,775 (half SE tax) - $4,000 (SEHI) - $18,000 (SEP) = $80,225 (rounded to $80,000 for the example, but for cleaner math we use her gross Schedule C of $100,000 as if no above-line adjustments applied). Her taxable income before the QBI deduction is $150,000 (AGI minus standard deduction $16,100). She has no W-2 wages paid by the business (no employees) and no qualified property (UBIA = $0). Marginal federal rate: 22%.
Inputs
Tax year2026
Filing statusSingle
Business typeNon-SSTB
QBI$100,000
W-2 wages paid by QTB$0
UBIA of qualified property$0
Taxable income before QBI$150,000
2026 single threshold$201,750
PositionBELOW threshold
QBI Deduction Calculation
20% × QBI$20,000
W-2/UBIA limit (not applied below threshold)N/A
SSTB phase-out (not SSTB)N/A
20% × (TI - net cap gain) cap$30,000
= QBI deduction$20,000
Result on Form 1040
Line 13 (QBI deduction)$20,000
Line 15 (taxable income)$130,000
Form filedForm 8995 (simplified)
Federal income tax savings (22% rate)$4,400
SE tax savings$0 (QBI does not reduce SE tax)
Why Form 8995 not 8995-A: Sofia's taxable income before QBI ($150,000) is below the 2026 single threshold ($201,750). She files the single-page Form 8995, which simply applies 20 percent to her $100,000 of QBI subject to the overall cap. The W-2/UBIA limitation and SSTB phase-out do not apply. If her business income grew enough to push her over the threshold, she would have to file Form 8995-A and, with $0 W-2 wages and $0 UBIA, the W-2/UBIA limitation would phase in to zero by the time her TI reached $276,750 - eliminating most of her QBI deduction. The threshold is a critical planning inflection point for solo proprietors with no employees and no real property.
S-corp election planning at the threshold: When a sole proprietor's TI approaches the threshold and they have no W-2 wages, switching to an S-corp election can preserve the QBI deduction above the threshold. The S-corp pays the owner a reasonable salary (which becomes W-2 wages of the QTB), and the W-2/UBIA limit no longer pulls the deduction to zero. The salary itself is wages (not QBI), but 50% of those wages can satisfy the limit. See the S-Corp Savings Calculator for combined entity tax planning.
Quick Facts: 2026 Section 199A QBI Deduction
2026 QBI Thresholds and Phase-In Ranges (Rev. Proc. 2025-32 §4.26)
| Filing Status |
Threshold |
Phase-In Range |
Phase-In Ends |
| Single / HOH / QSS | $201,750 | +$75,000 | $276,750 |
| Married Filing Separately | $201,775 | +$75,000 | $276,775 |
| Married Filing Jointly | $403,500 | +$150,000 | $553,500 |
2025 vs 2026 Comparison: Pre-OBBBA Phase-In vs OBBBA-Expanded Phase-In
| Item |
TY 2025 (Pre-OBBBA §70105) |
TY 2026 (OBBBA §70105) |
| Single threshold | $241,950 | $201,750 |
| MFJ threshold | $483,900 | $403,500 |
| Single phase-in range | +$50,000 | +$75,000 |
| MFJ phase-in range | +$100,000 | +$150,000 |
| Single phase-in ends | $291,950 | $276,750 |
| MFJ phase-in ends | $583,900 | $553,500 |
| $400 minimum deduction (§199A(i)) | N/A | Available if QBI ≥ $1,000 from active QTB |
| Sunset | Set to expire 12/31/2025 (pre-OBBBA) | Permanent (OBBBA §70105) |
SSTB List Under IRC §199A(d)(2) and Treas. Reg. §1.199A-5(b)
| SSTB (Phases Out Above Threshold) |
Non-SSTB (No Phase-Out, Only W-2/UBIA Limit) |
| Health (doctors, nurses, dentists, optometrists, vets, chiropractors, physical therapists) | Engineering (explicitly excluded from SSTB) |
| Law (attorneys, paralegals, arbitrators, mediators) | Architecture (explicitly excluded from SSTB) |
| Accounting (CPAs, EAs, bookkeepers, tax preparers) | Construction, contracting, trades |
| Actuarial science | Manufacturing, wholesale, retail sales of products |
| Performing arts (actors, musicians, singers, directors) | Real estate (rentals rising to trade-or-business level) |
| Consulting (providing professional advice for fee) | Restaurants, hospitality, food service |
| Athletics (professional athletes, coaches) | Agriculture, farming, livestock |
| Financial services (financial advisors, planners) | Transportation, logistics, warehousing |
| Brokerage (stock brokers, real estate brokers in dealer role) | Information technology services (software dev, IT consulting can be ambiguous - depends on facts) |
| Investment management, trading, dealing in securities | Insurance agencies (sales role; underwriting/actuarial is SSTB) |
| "Reputation or skill" catch-all: endorsements, licensing fees, appearance income | Most product-based businesses |
Practitioner Insight
The most expensive QBI error I see at intake is the high-income solo professional who never adjusts their entity structure as their taxable income climbs through the SSTB phase-out range. A solo consultant earning $250,000 of net Schedule C income with $0 W-2 wages and a married couple's taxable income of $400,000 sits right at the bottom of the MFJ phase-in range ($403,500 threshold for 2026) - one good year of bonus income or a spousal raise pushes them into the range, and as a pure SSTB their QBI deduction phases linearly to zero by $553,500. At $50,000 of QBI deduction at 24-35% bracket, that's $12,000-$17,500 of annual federal tax cost they didn't budget for. The two cleanest fixes: (1) S-corp election - pay yourself reasonable comp of, say, 40% of net business income, transform a meaningful slice of "QBI from SSTB" into W-2 wages (not QBI but also not penalized at high income), and rely on the 50%-of-W-2 limit to preserve at least some §199A. Run the S-Corp Savings Calculator for the FICA + QBI combined math. (2) Pre-tax retirement deferrals - max Solo 401(k) ($73,500 for under 50 in 2026 with employer profit-share) or defined benefit plan contributions, which reduce taxable income enough to drop back below the threshold and recover the full unrestricted 20% QBI deduction. The Solo 401(k)/DB strategy alone can swing $5,000-$15,000 of annual tax for an SSTB owner straddling the threshold, separate from the retirement savings benefit. The third less-discussed strategy: time deductible expenses or capital expenditures to drag TI under the threshold in years where SSTB phase-out would bite hardest. Bunch deductible expenses into high-QBI years, defer in years when TI is naturally below threshold. The threshold is a planning cliff, not a slope.
Real-World Scenario: Engineering Firm Owner With $600K MFJ Taxable Income
Yusuf and his spouse file MFJ in 2026. Yusuf is an 80% owner of a civil engineering S-corp that nets $450,000 of ordinary business income on Schedule K-1; he draws $150,000 of W-2 reasonable salary from the S-corp. The S-corp paid $320,000 in total W-2 wages to all employees (including Yusuf's salary) and owns $1,200,000 of UBIA in surveying equipment, office buildout, and engineering software (depreciation period still open). Yusuf's spouse earns $120,000 W-2 wages from an unrelated employer. Their combined AGI: $720,000. After the $32,200 MFJ standard deduction, their taxable income before QBI is $687,800. They have $15,000 of qualified dividends from a brokerage account.
Position relative to threshold: TI $687,800 exceeds the 2026 MFJ phase-in end of $553,500. They are above the phase-in range - the full W-2/UBIA limitation applies. Engineering is explicitly excluded from the SSTB list under §199A(d)(2), so the SSTB phase-out does NOT apply.
QBI calculation: Yusuf's QBI from the engineering S-corp is his 80% share of the S-corp's ordinary business income: 80% × $450,000 = $360,000. His QBI does NOT include his $150,000 reasonable salary (that's wages, not QBI). The component QBI deduction before limit: 20% × $360,000 = $72,000.
W-2/UBIA limit applied: Yusuf's share of S-corp W-2 wages: 80% × $320,000 = $256,000. Yusuf's share of UBIA: 80% × $1,200,000 = $960,000. The W-2/UBIA limit is the greater of: (a) 50% × $256,000 = $128,000, OR (b) 25% × $256,000 + 2.5% × $960,000 = $64,000 + $24,000 = $88,000. The greater is $128,000 (the 50% W-2 wages calculation). The QBI deduction is the lesser of $72,000 (20% × QBI) or $128,000 (W-2/UBIA limit) = $72,000. The W-2/UBIA limit is NOT binding because Yusuf's engineering firm has plenty of W-2 wages.
Overall cap: 20% × (TI - net cap gain) = 20% × ($687,800 - $15,000) = 20% × $672,800 = $134,560. The cap does not bind. Final QBI deduction: $72,000. At 35% bracket, federal income tax savings: $25,200.
What would change if engineering were SSTB: If Yusuf operated a consulting firm or law practice instead of engineering, the SSTB designation would apply. Above the MFJ phase-in end of $553,500, an SSTB receives zero QBI deduction - Yusuf would lose the entire $72,000 deduction, or $25,200 of federal tax savings. The engineering carve-out is one of the most valuable design choices in the §199A statute.
When This Calculator Does Not Cover Your Situation
- Multiple qualified trades or businesses: If you own more than one QTB, the calculator handles only a single business. For multiple QTBs, compute each separately, then sum the component deductions (or use the aggregation election under Treas. Reg. §1.199A-4 if eligible) before applying the overall cap. Form 8995-A Schedule B handles aggregation.
- Aggregation election analysis: Aggregation under Reg. §1.199A-4 is permitted when: same person/group owns at least 50% of each QTB; QTBs share majority of tax year; none is SSTB; two of three factors met (same/complementary products or services, shared facilities/centralized elements, coordinated operations). The election is irrevocable for the aggregated group going forward. The calculator does NOT compute the aggregation tradeoff - run individual QTB calculations and compare to an aggregated calculation manually or with a CPA.
- Negative QBI carryover: If one or more QTBs have negative QBI (loss), the negative QBI offsets positive QBI from other QTBs first. Net negative QBI for the year carries forward to next year and reduces next year's QBI before the deduction is computed (per Reg. §1.199A-1(c)(2) and Form 8995-A Schedule C). The calculator assumes positive QBI.
- Rental real estate as a qualified trade or business: Rental real estate qualifies as a QTB for §199A purposes if it rises to the level of a trade or business under §162 (regular, continuous, profit-seeking). The IRS safe harbor in Rev. Proc. 2019-38 allows treatment as a QTB if the taxpayer (or their agent) performs 250+ hours of rental services per year and maintains separate books. Triple-net leases generally do not qualify under the safe harbor. The calculator assumes the user's rental income already passes the QTB test.
- Patrons of agricultural or horticultural cooperatives: Patrons of specified cooperatives (Sec. 199A(g)) face additional rules: the QBI deduction from cooperative patronage is reduced by an amount tied to the cooperative's DPAD-like deduction (Sec. 199A(b)(7)). Form 8995-A Schedule D handles co-op patron computations. The calculator does not handle co-op patron adjustments - run Form 8995-A Schedule D directly or consult a CPA.
- Trusts and estates: Trusts and estates compute §199A at the entity level for the portion of income retained, with the threshold computed at the trust/estate level (single filer threshold applies). Distributions to beneficiaries carry QBI character through Schedule K-1. The calculator is designed for individual filers. Trustees should consult a CPA for entity-level §199A computations.
- State conformity (or non-conformity): Most states conform to federal AGI and do not have a separate state QBI deduction. However, several states (California, New York, New Jersey, Pennsylvania, Tennessee, Texas) have non-conforming pass-through entity tax (PTET) regimes that interact with §199A in complex ways. The calculator reports only the federal QBI deduction. Check state instructions for any required adjustments.
- SSTB borderline determinations: Some businesses sit on the edge of SSTB classification: insurance agencies (sales = non-SSTB; actuarial/risk advisory = SSTB), IT services (software dev = often non-SSTB; consulting = SSTB), real estate brokerage (sales agent = often non-SSTB; dealer/trader role = SSTB), financial advisory (commission product sales = ambiguous). Reg. §1.199A-5(b) provides a de minimis rule: a trade or business is treated as non-SSTB if SSTB-character income is ≤ 10% of gross receipts (or 5% if gross receipts > $25M). The calculator requires the user to designate SSTB or non-SSTB; consult a CPA for borderline cases.
- "Crack and pack" anti-abuse rules: The IRS issued anti-abuse rules in Reg. §1.199A-5(c)(2) targeting attempts to split an SSTB into an SSTB-component and a non-SSTB-component, with the non-SSTB-component then claiming the deduction. Common targets: a doctor's office splitting into a medical-services entity (SSTB) and a property/real-estate entity (non-SSTB) that owns the medical building and leases it to the practice. The IRS treats these as a single SSTB. Aggressive split structures should be evaluated by tax counsel.
- 2025 vs 2026 transition: The 2025 tax year uses the pre-OBBBA phase-in ranges ($50K single / $100K MFJ), the 2025 thresholds ($241,950 / $483,900 per Rev. Proc. 2024-40), and does NOT have the $400 minimum. The calculator's 2025 mode applies the 2025 figures. The new $400 minimum and expanded phase-in only apply to tax years beginning after December 31, 2025.
FAQ: 2026 QBI Deduction (Section 199A)
What is the QBI deduction in 2026?
The qualified business income (QBI) deduction under IRC section 199A allows owners of pass-through businesses (sole proprietorships filing Schedule C, partnerships, S corporations, certain trusts and estates) to deduct up to 20 percent of qualified business income from a domestic qualified trade or business, plus 20 percent of qualified REIT dividends and qualified publicly traded partnership income. The deduction is taken on Form 1040 line 13 below the line, after AGI but before taxable income, and reduces federal income tax. It does NOT reduce self-employment tax or net investment income tax. The 20 percent rate is unchanged from prior years. The One Big Beautiful Bill Act (P.L. 119-21, July 4, 2025) section 70105 made the deduction permanent (no sunset after 2025) and expanded the phase-in ranges for 2026 from $50,000 to $75,000 (single/MFS/HOH) and from $100,000 to $150,000 (MFJ).
What are the 2026 QBI deduction thresholds?
Per Rev. Proc. 2025-32 section 4.26, the 2026 taxable income threshold amounts under section 199A(e)(2) are: $403,500 married filing jointly (phase-in range ends at $553,500); $201,775 married filing separately (phase-in range ends at $276,775); $201,750 all other returns including single, head of household, and surviving spouse (phase-in range ends at $276,750). Below the threshold, the QBI deduction is a simple 20 percent of QBI capped at 20 percent of taxable income less net capital gain. Above the threshold but within the phase-in range, the W-2 wages and UBIA limitation phases in for non-SSTBs and the entire QBI deduction phases out for SSTBs. Above the phase-in range, non-SSTBs are subject to the full W-2/UBIA limitation and SSTBs receive no QBI deduction.
What is a specified service trade or business (SSTB)?
Per IRC section 199A(d)(2) and Treas. Reg. section 1.199A-5(b), a specified service trade or business (SSTB) is any trade or business involving the performance of services in the fields of health, law, accounting, actuarial science, performing arts, consulting, athletics, financial services, brokerage services, investment management, trading in securities or commodities, or any trade or business where the principal asset is the reputation or skill of one or more of its employees or owners. Engineering and architecture are explicitly excluded from the SSTB definition (despite being professional services). The SSTB designation matters only when taxable income exceeds the threshold: SSTB owners with taxable income within the phase-in range receive a partial QBI deduction that phases to zero; SSTB owners above the phase-in range receive zero QBI deduction. SSTB owners below the threshold are treated identically to non-SSTB owners (full 20 percent deduction).
What is the W-2 wages and UBIA limitation?
For taxpayers with taxable income above the section 199A(e)(2) threshold, the QBI deduction for each qualified trade or business is limited to the greater of: (a) 50 percent of W-2 wages paid by the qualified trade or business, OR (b) 25 percent of W-2 wages plus 2.5 percent of the unadjusted basis immediately after acquisition (UBIA) of qualified property. Qualified property is depreciable tangible property used in the qualified trade or business with depreciation period not yet ended (generally 10 years from placed in service, or longer if depreciation period exceeds 10 years). The 25 percent wages plus 2.5 percent UBIA formula was designed to provide a meaningful QBI deduction for capital-intensive businesses (rental real estate, manufacturing) that have low W-2 wages relative to invested capital. Within the phase-in range, the limitation phases in linearly so the bite increases proportionally as taxable income rises through the range.
What is the new $400 minimum QBI deduction for 2026?
OBBBA section 70105 added a new minimum deduction under section 199A(i) effective for tax years beginning after December 31, 2025. A taxpayer who has at least $1,000 of total qualified business income from one or more active qualified trades or businesses (the QTB must be actively conducted) can claim a minimum QBI deduction of $400, even if 20 percent of QBI would otherwise yield a smaller deduction. The minimum applies after all other section 199A limitations including the W-2/UBIA limitation and the overall taxable-income-minus-capital-gain cap. The $1,000 QBI floor and the $400 minimum deduction will be inflation-adjusted for tax years after 2026. This minimum is most relevant for very small businesses or partial-year businesses where 20 percent of small QBI would otherwise produce a tiny deduction.
How does the overall 20 percent of taxable income cap work?
Per IRC section 199A(a)(1)(B), the total QBI deduction (combined business component plus REIT and PTP component) cannot exceed 20 percent of taxable income computed without regard to the QBI deduction itself, minus net capital gain. Net capital gain for this purpose includes both long-term capital gains AND qualified dividend income (per section 199A(e)(3)). The cap is checked AFTER the QBI component and the REIT/PTP component are separately computed and summed. In practice, this cap binds for taxpayers with low non-business taxable income but high capital gains or qualified dividends - a retiree with mostly portfolio income, for example, may find the cap reduces their nominal QBI deduction. The cap is computed at the return level, not the business level.
Which QBI form do I use - Form 8995 or Form 8995-A?
Form 8995 (simplified QBI deduction computation) is used when: (1) taxable income before QBI deduction is at or below the section 199A(e)(2) threshold ($201,750 single / $403,500 MFJ for 2026), AND (2) the taxpayer is not a patron of an agricultural or horticultural cooperative. Form 8995 is a single-page form that simply applies 20 percent to QBI without the W-2/UBIA or SSTB limitations. Form 8995-A (full QBI deduction computation) is required when: taxable income exceeds the threshold, OR the taxpayer has SSTB income with taxable income at or above the threshold, OR the taxpayer is a cooperative patron. Form 8995-A has four schedules: Schedule A (SSTB phase-out), Schedule B (aggregation election), Schedule C (loss netting), Schedule D (special rules for patrons of agricultural cooperatives). The choice of form is determined entirely by taxable income and business type, not by taxpayer preference.
Can I aggregate multiple businesses for the QBI deduction?
Yes. Per Treas. Reg. section 1.199A-4, a taxpayer may elect to aggregate multiple qualified trades or businesses for purposes of computing the W-2/UBIA limitation when taxable income exceeds the threshold. Aggregation is beneficial when one business has high W-2 wages or UBIA but low QBI, while another related business has high QBI but low wages or UBIA. The aggregation requirements are: (1) the same person or group of persons owns at least 50 percent of each trade or business directly or indirectly; (2) the businesses share a majority of their tax year; (3) none of the businesses is an SSTB; (4) the businesses satisfy at least two of three factors: provide products/services that are the same or customarily offered together, share facilities or significant centralized business elements, or operate in coordination with or reliance on one or more of the businesses in the group. The election is made on Schedule B of Form 8995-A and is irrevocable in future years for the aggregated businesses (unless ownership or operations change materially).
Does the QBI deduction reduce self-employment tax?
No. The section 199A QBI deduction reduces federal income tax only. It does NOT reduce self-employment tax (Social Security + Medicare on net earnings from self-employment under section 1402). Self-employment tax is computed on Schedule SE from net Schedule C / Schedule F / partnership K-1 earnings before any QBI deduction. The QBI deduction is taken on Form 1040 line 13, after AGI is computed, so it reduces taxable income but not AGI and not SE tax. Similarly, the QBI deduction does not reduce net investment income tax (NIIT, 3.8 percent on investment income above MAGI thresholds), Additional Medicare Tax (0.9 percent on wages and SE earnings above thresholds), or state income tax in states with their own non-conforming pass-through rules.
Do REIT dividends and PTP income get the QBI deduction?
Yes, but separately from the business QBI component. Qualified REIT dividends and qualified publicly traded partnership (PTP) income receive a 20 percent deduction under section 199A(b)(1)(B), but the REIT/PTP component is NOT subject to the W-2/UBIA limitation and NOT subject to the SSTB phase-out. The REIT/PTP component is also NOT subject to the threshold-based phase-in - taxpayers at any income level get a clean 20 percent deduction on qualified REIT dividends (reported in Form 1099-DIV box 5) and qualified PTP income (reported on Schedule K-1). REIT and PTP income reported by mutual funds and ETFs holding REIT or PTP positions is passed through to fund shareholders and is eligible for the QBI deduction at the shareholder level. The combined business QBI component plus REIT/PTP component is then subject to the overall 20 percent of taxable income less net capital gain cap.
Official Sources
- IRC §199A - Qualified Business Income (Cornell LII) - Statutory authority for the QBI deduction; (a) general rule, (b) deductible amount, (c) qualified business income definition, (d) SSTB definition, (e) regulations and thresholds, (i) new minimum deduction added by OBBBA §70105.
- Revenue Procedure 2025-32 (PDF) - 2026 inflation adjustments. §4.26 sets the 2026 §199A thresholds ($201,750 / $201,775 / $403,500) and phase-in ranges (+$75K / +$150K).
- About Form 8995 - Qualified Business Income Deduction Simplified Computation; used when TI is below threshold.
- About Form 8995-A - Qualified Business Income Deduction (full computation); used when TI exceeds threshold or SSTB applies; includes Schedules A (SSTB), B (aggregation), C (loss netting), D (co-op patrons).
- IRS - Qualified Business Income Deduction - Official IRS overview page covering 20% rate, threshold, SSTB, W-2/UBIA limit, REIT/PTP component.
- 26 CFR §1.199A-1 (Cornell LII) - Regulations on operational rules for §199A, including QBI computation and loss netting.
- 26 CFR §1.199A-2 (Cornell LII) - Regulations on W-2 wages and UBIA of qualified property.
- 26 CFR §1.199A-4 (Cornell LII) - Regulations on aggregation election for multiple qualified trades or businesses.
- 26 CFR §1.199A-5 (Cornell LII) - Regulations on SSTB definition; (b) detailed SSTB list and engineering/architecture exclusion; (c)(2) anti-crack-and-pack rule.
- 2025 Instructions for Form 8995-A (PDF) - Full line-by-line instructions for the four schedules; applies to 2026 returns until updated.
- P.L. 119-21 (One Big Beautiful Bill Act) (Congress.gov) - §70105 made §199A permanent, expanded phase-in ranges from $50K/$100K to $75K/$150K starting 2026, added §199A(i) $400 minimum deduction.
- Revenue Procedure 2019-38 (PDF) - Safe harbor for treating rental real estate as a qualified trade or business under §199A (250+ hours of rental services).
- IRC §162 (Cornell LII) - Trade or business definition; underlying standard for what qualifies as a QTB under §199A.
Decision Step: How Should You Approach the QBI Deduction?
Route A - Taxable Income Below Threshold (any business type)
You get the simple 20% × QBI deduction with no W-2/UBIA or SSTB complications. File Form 8995 (single-page). The overall 20% of (TI - net cap gain) cap may bind if you have low non-business TI and high portfolio income, but otherwise the deduction is automatic. Read the QBI Deduction Guide for what counts as QBI and what is excluded. Run the Self-Employment Tax Calculator to see combined SE tax + income tax math.
Route B - Above Threshold, Non-SSTB With High W-2 Wages or UBIA
You face the W-2/UBIA limitation but the SSTB phase-out does NOT apply. Compute the limit as greater of (a) 50% W-2 wages OR (b) 25% W-2 wages + 2.5% UBIA. If your QTB has 50% W-2 wages ≥ 20% × QBI, the limit is non-binding and you get the full deduction. File Form 8995-A. If multiple QTBs are eligible, consider the aggregation election under Reg. §1.199A-4 to share W-2 wages across businesses. Read the guide for the aggregation analysis.
Route C - Above Threshold, Non-SSTB With Low W-2 Wages and No UBIA
The W-2/UBIA limit may pull your deduction down significantly. Two responses to consider: (1) S-corp election to convert part of business profit into W-2 reasonable compensation - the W-2 wages then count toward the 50%-of-wages limit. (2) Capital expenditure timing - placing depreciable property in service late in the year increases UBIA and pushes the 25%-wages-plus-2.5%-UBIA prong upward. Run the S-Corp Savings Calculator to model the combined FICA + QBI math.
Route D - Above Threshold, SSTB
You face the SSTB phase-out, which eliminates the entire QBI deduction by the top of the phase-in range. Two practical strategies: (1) Pre-tax retirement deferrals (Solo 401(k), SEP-IRA, defined benefit plan) to reduce taxable income below the threshold. Even a $30,000 SEP-IRA contribution can save $5K-$15K of QBI deduction value by dropping TI below the cliff. (2) S-corp election to convert SSTB-source QBI into W-2 wages. Wages are not QBI but are also not penalized by the SSTB phase-out, and 50% of wages can satisfy the W-2 limit on the remaining S-corp K-1 portion. See the SEP-IRA / Solo 401(k) Calculator and the S-Corp Savings Calculator.
This calculator is for educational and illustrative purposes only. It does not constitute tax, legal, or financial advice. The Section 199A QBI deduction interacts with the §162 trade-or-business definition, §1402 self-employment tax, §55 alternative minimum tax (QBI is allowed against AMTI), the §163(j) business interest expense limitation, the §461(l) excess business loss limitation, state pass-through entity tax regimes, partnership and S-corp aggregation rules, multi-state apportionment, and the §199A(i) new $400 minimum deduction that the calculator approximates rather than fully implements. Consult a qualified tax professional for entity structure decisions, aggregation election analyses, SSTB borderline determinations, and multi-state planning. Tax laws are subject to change.