What Is Qualified Business Income (QBI)? (2026)
Qualified Business Income (QBI) is the net profit from a pass-through business that qualifies for a special deduction of up to 20%. Created by the 2017 Tax Cuts and Jobs Act and made permanent by the OBBB Act of 2025, the QBI deduction (also called the Section 199A deduction) lets eligible owners of sole proprietorships, partnerships, S corporations, and most LLCs subtract up to a fifth of their business profit before figuring income tax.
What counts as QBI
QBI is the net income (revenue minus expenses) from a qualified US trade or business. It does not include:
- W-2 wages you earn as an employee
- Capital gains or losses
- Dividends and interest income
- Income earned outside the United States
- Guaranteed payments to a partner for services
If you are a freelancer, gig worker, landlord operating as a business, or small-business owner, your business profit is usually QBI.
The 20% deduction, in plain terms
If you qualify, you deduct up to 20% of your QBI directly from your taxable income. On $50,000 of business profit, that is a $10,000 deduction, which at a 22% bracket saves roughly $2,200 in federal tax. The deduction is taken whether you itemize or take the standard deduction, a rare and valuable feature.
The deduction is also capped at 20% of your taxable income minus net capital gains, so it cannot wipe out your entire tax bill.
Income limits for 2026
How easily you qualify depends on your total taxable income:
| Taxable income (2026, approximate, indexed yearly) | What applies |
|---|---|
| Below ~$200,000 single / ~$400,000 married | Full 20% deduction for almost any business |
| Above those thresholds | Limitations based on W-2 wages paid and property owned; some businesses phase out |
Below the threshold, the rules are simple: take 20% of your QBI. Above it, the IRS applies a “W-2 wages and qualified property” limit, and certain businesses lose the deduction entirely (see below).
Specified service businesses (SSTBs)
A Specified Service Trade or Business includes fields where the main asset is the reputation or skill of the owner: health, law, accounting, consulting, financial services, performing arts, athletics, and similar. If you run an SSTB and your income is above the threshold, the QBI deduction phases out and disappears at higher incomes. Below the threshold, SSTB owners still get the full deduction.
What the OBBB Act changed
The QBI deduction was scheduled to expire at the end of 2025. The OBBB Act of 2025 made it permanent, widened the phase-in range above the income thresholds (making the cliff less harsh), and added a minimum deduction for taxpayers with at least $1,000 of QBI from an active business. For most small-business owners, the practical result is that the 20% deduction is here to stay.
How to claim it
The deduction is calculated on Form 8995 (simplified, for those under the income threshold) or Form 8995-A (for higher incomes or SSTBs), and flows onto your Form 1040. Good tax software handles it automatically once you enter your business income.
Bottom line
- QBI = your pass-through business profit that qualifies for a deduction of up to 20%.
- Most freelancers and small-business owners under ~$200k single / ~$400k married get the full 20% with little complexity.
- Above those incomes, wage/property limits and the SSTB rules can reduce or remove it.
- The OBBB Act made the deduction permanent.
Estimate your self-employment tax and net business income with our self-employment tax calculator, then see your overall picture in the federal tax calculator. This article is general information, not tax advice; confirm your QBI deduction with a CPA.
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Rakesh Choudhary, PhD · Founder & Editor
Rakesh Choudhary, PhD, is the founder of Calcinum. A sociologist by training, he builds every calculator on the site and maintains its 2026 federal and state tax data, sourced from primary references (IRS, SSA, state revenue departments, DFAS) and re-verified whenever the law changes. Tax data is sourced from primary references (IRS, state revenue departments, SSA, DFAS) and re-verified annually each tax year.
Editorial standards: Every article cites primary sources and is reviewed against current tax-law data before publication. See our full methodology & accuracy for sourcing and review process.
Not financial advice: This article is for general informational purposes only. Calcinum does not provide regulated tax, legal, or investment advice. Consult a qualified professional for decisions specific to your situation.