What is the Qualified Business Income Deduction (QBID)?

The Qualified Business Income Deduction (QBID), also called the Section 199A deduction, is a valuable tax break available to many self-employed individuals and owners of pass-through businesses. If you qualify, you may be able to deduct up to 20% of your qualified business income (QBI) on your federal tax return.

Unlike most business deductions, the QBID is claimed on your individual tax return and can be taken whether you use the standard deduction or itemize deductions.

The deduction is generally available to owners of:

  • Sole proprietorships
  • Partnerships
  • S corporations
  • Certain LLCs taxed as pass-through entities

What's New for Tax Year 2026?

The One Big Beautiful Bill Act (OBBBA) made several important changes to the Section 199A deduction beginning with tax year 2026 (returns filed in 2027).

These changes include:

  • The QBID is now permanent and no longer scheduled to expire after 2025.
  • The income phase-in ranges for wage, property, and specified service business limitations were expanded.
  • A new minimum deduction may be available for certain eligible business owners.

What Does the QBID Include?

The deduction may consist of two separate components:
  1. Up to 20% of qualified business income (QBI) from a qualified trade or business.
  2. A deduction related to:
    • Qualified Real Estate Investment Trust (REIT) dividends, and
    • Qualified Publicly Traded Partnership (PTP) income.
Most taxpayers who qualify claim the deduction based on income from their business activities.

Who Can Claim the QBID?

The deduction may be available to:
  • Individuals
  • Trusts
  • Estates
To qualify, the taxpayer must receive:
  • Qualified business income from a pass-through business,
  • Qualified REIT dividends, or
  • Qualified PTP income.

Common Examples

You might qualify for the QBID if you're:
  • A freelancer receiving Form 1099-NEC income
  • An independent contractor
  • A rideshare or delivery driver
  • A sole proprietor filing Schedule C
  • A partner in a partnership
  • A shareholder in an S corporation

What Income Does Not Qualify?

Not all income is eligible for the deduction.

The following types of income generally do not qualify:

  • Wages earned as an employee and reported on Form W-2
  • Income earned through a C corporation
  • Certain investment-related income, such as capital gains and some interest income
A simple rule of thumb: if you're earning employee wages, those wages are not considered qualified business income.

How Is the QBID Calculated?

In general, the deduction is the lesser of:
  1. 20% of qualified business income, plus 20% of qualified REIT dividends and qualified PTP income; or
  2. 20% of taxable income, reduced by net capital gains.

Because multiple limitations may apply, especially for higher-income taxpayers, the actual deduction can be lower than a full 20%.

The TaxSlayer program automatically calculates the Qualified Business Income Deduction when applicable, helping you avoid complicated calculations.

What Can Limit the QBID?

Depending on your income and business type, your deduction may be reduced or limited by:
  • The type of business you operate
  • Whether the business is a Specified Service Trade or Business (SSTB)
  • Your taxable income
  • W-2 wages paid by the business
  • The Unadjusted Basis Immediately After Acquisition (UBIA) of qualified business property
These limitations generally affect taxpayers with higher taxable income.

2026 Income Thresholds

For taxpayers below the annual Section 199A income thresholds, wage and property limitations generally do not apply.

For tax year 2026, the threshold amounts are:

  • $201,750 for Single and Head of Household filers
  • $403,500 for Married Filing Jointly taxpayers
If your taxable income is below these amounts, claiming the deduction is often much simpler.

Expanded Phase-In Ranges for 2026

The OBBBA increased the phase-in ranges used to apply wage, property, and SSTB limitations.

For tax year 2026, the phase-in ranges are:

  • $75,000 for Single, Head of Household, and Married Filing Separately taxpayers
  • $150,000 for Married Filing Jointly taxpayers
As income moves through these ranges, deduction limitations are gradually applied rather than all at once.

What Is a Specified Service Trade or Business (SSTB)?

An SSTB is a business whose principal asset is the reputation or skill of its owners or employees.

Examples may include certain businesses involved in:

  • Health services
  • Law
  • Accounting
  • Consulting
  • Financial services
  • Performing arts
If your taxable income exceeds the applicable phase-out range, an SSTB may receive a reduced deduction or lose eligibility entirely.

New Minimum QBID Beginning in 2026

Starting in tax year 2026, some taxpayers may qualify for a new minimum deduction.

You may be eligible if:

  • You materially participate in a qualified trade or business, and
  • You have at least $1,000 of aggregate qualified business income

Eligible taxpayers may qualify for a minimum QBID of $400.

Both the $1,000 income requirement and the $400 minimum deduction amount will be adjusted for inflation in future years.

General Limitation on the Deduction

The total QBID is generally limited to the lesser of:
  • 20% of combined qualified business income, plus qualified REIT dividends and qualified PTP income; or
  • 20% of taxable income, reduced by net capital gains.
This overall limitation applies even when a taxpayer otherwise qualifies for the deduction.
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