What is Qualified Business Income?
Qualified Business Income (QBI) is the net amount of qualified income, gain, deduction, and loss from any qualified trade or business operated as a pass-through entity. That includes sole proprietorships, single-member LLCs, partnerships, and S corporations. The QBI deduction, also known as the Section 199A deduction, allows eligible taxpayers to deduct up to 20% of their QBI from their federal taxable income.
Under the One Big Beautiful Bill Act (OBBBA), signed July 4, 2025, the QBI deduction was made permanent. Previously, it was scheduled to expire after 2025. OBBBA also added a new minimum $400 deduction floor for taxpayers with at least $1,000 of QBI who materially participate in the business. This means even if your taxable income is very low, you may still receive a meaningful deduction as long as you meet the participation and QBI thresholds.
The deduction is not the same as a business expense. Business expenses reduce your Schedule C profit before QBI is calculated. The QBI deduction then reduces your federal taxable income after the standard or itemized deduction. It is an above-the-line benefit specific to pass-through business owners. Importantly, it does not reduce self-employment tax. Self-employment tax is calculated on your net earnings from self-employment before the QBI deduction is applied.
For tax year 2026, the income thresholds are $201,750 for single filers and $403,500 for married filing jointly. Below these thresholds, the full 20% deduction generally applies, subject to the minimum floor. Above them, a phase-out window begins, widened to $75,000 for single filers and $150,000 for MFJ under OBBBA. During this window, SSTB limitations, W-2 wage tests, and the UBIA of qualified property can reduce or eliminate the deduction. Because these rules are complex and fact-specific, this calculator handles the below-threshold case accurately and recommends professional guidance for above-threshold situations.