Section 199A is permanent: how pass-through owners lock in the 20% QBI deduction
It was set to vanish at the end of 2025. Instead, the 20% deduction for LLC, S-corp and sole-proprietor income is now a permanent fixture — with a wider phase-in range and a new guaranteed minimum. Here's how it works, which zone you're in, and the levers that actually protect it.
If you own a pass-through business — a sole proprietorship, partnership, LLC or S corporation — Section 199A lets you deduct up to 20% of your qualified business income (QBI) straight off your taxable income. On $200,000 of QBI, that's a $40,000 deduction you don't have to spend a cent to earn.
It was always temporary. The 2017 tax law wrote in an expiry date of December 31, 2025, and for years owners planned around losing it. The One Big Beautiful Bill Act, through section 70105, deleted that sunset. Section 199A is now a permanent part of the tax code.
What else changed
| Feature | Before | From 2026 |
|---|---|---|
| Expiry | Ended after 2025 | Permanent |
| Deduction rate | 20% | 20% (unchanged) |
| Phase-in range — single | $50,000 | $75,000 |
| Phase-in range — joint | $100,000 | $150,000 |
| Minimum deduction | None | $400 (if QBI ≥ $1,000, active) |
The wider phase-in range and the $400 minimum apply to tax years beginning after December 31, 2025 — so your 2026 return, not the 2025 one. Both the thresholds and the new minimum are indexed for inflation.
The three zones — everything depends on which one you're in
Section 199A looks complicated because it behaves like three different rules stacked on top of each other, switching over as your taxable income rises. Find your zone first; everything else follows.
Below the threshold
Deduct a straight 20% of QBI. No wage test, no property test — and service businesses qualify in full. Filed on the short Form 8995.
Inside the range
The wage/property limit starts to bite, and service-business income begins to disappear on a sliding scale. This is the zone where planning pays most.
Over the range
Service businesses get nothing (bar the new $400 floor). Everyone else is capped by the W-2 wage and property test.
| Tax year | Full deduction up to | Phase-in ends at |
|---|---|---|
| 2025 — Single | $197,300 | $247,300 |
| 2025 — Married filing jointly | $394,600 | $494,600 |
| 2026 — Single | $201,750 | $276,750 |
| 2026 — Married filing jointly | $403,500 | $553,500 |
Thresholds are based on taxable income before the QBI deduction — not gross revenue, and not your business profit alone. 2026 figures are the inflation-adjusted amounts published by the IRS in Revenue Procedure 2025-32.
Estimate your deduction
The phase-in maths is genuinely fiddly — it's why the IRS has a whole separate form (8995-A) for it. Enter your figures and the calculator will place you in a zone and apply the right rules.
The two tests that bite above the threshold
1. The W-2 wage and property test
Once you're past the threshold, your deduction can't exceed the greater of:
- 50% of the W-2 wages your business paid; or
- 25% of W-2 wages plus 2.5% of UBIA — the unadjusted original cost of your qualified depreciable property.
This is why a high-earning consultant with no employees can lose the deduction entirely, while a property-heavy or payroll-heavy business keeps it. It's also the single biggest reason profitable sole proprietors above the threshold look hard at S-corp election — paying yourself a reasonable W-2 salary creates wages that support the deduction.
2. The specified service business (SSTB) exclusion
If your business is an SSTB — health, law, accounting, actuarial science, performing arts, consulting, athletics, financial services, brokerage, or any business whose principal asset is the reputation or skill of its owners — your deduction phases out completely once you clear the top of the range. Architects and engineers are specifically excluded from the SSTB list, so they keep the deduction.
The new $400 minimum — small, but genuinely new
From 2026, if you have at least $1,000 of QBI from an active qualified trade or business in which you materially participate, you get a minimum deduction of $400 — or your regular calculated deduction, whichever is greater. Both figures are indexed for inflation after 2026.
It won't change life for a high earner, but it matters in two places: very small side businesses, and service-business owners above the range who would otherwise have been reduced to zero. It's a floor, not a bonus — you don't add it on top.
What counts as QBI — and what definitely doesn't
Counts: net income from a domestic trade or business operated as a sole proprietorship, partnership, LLC or S corporation. Qualified REIT dividends and publicly traded partnership income get their own parallel 20% treatment.
Doesn't count: W-2 wages you receive as an employee; reasonable compensation you pay yourself from your own S corporation; guaranteed payments to partners; C-corporation income; capital gains and losses; most interest and dividend income; and foreign-earned business income. Rental activity qualifies only where it rises to a trade or business under Section 162, or meets the IRS rental safe harbour.
Note the S-corp tension: your salary reduces QBI, but it also creates W-2 wages that support the deduction above the threshold. The optimal salary is a genuine calculation, not a guess — and it must still be reasonable compensation.
How to protect the deduction
Because the cliff is driven by taxable income, the levers are mostly about managing that number in the year you need it managed.
- Know your distance to the threshold. If you're within striking range of $403,500 (joint) or $201,750 (single) for 2026, every dollar of income reduction is worth far more than face value.
- Use retirement contributions. A solo 401(k), SEP or defined-benefit plan reduces taxable income — often the cleanest way to drop back under the threshold.
- Time income and expenses. Deferring an invoice or accelerating a deductible purchase can move you between zones. Pair this with bonus depreciation planning.
- Revisit your S-corp salary. Above the threshold, W-2 wages support the deduction; below it, they reduce QBI. The right answer flips depending on your zone.
- Consider aggregation. If you own several related businesses, electing to aggregate them can combine wages and property to pass the limit tests.
- Separate genuine non-SSTB activities. Where a business has distinct service and non-service lines, careful (and legitimate) structuring can preserve part of the deduction — but the anti-abuse rules here are strict, so get advice.