What the Section 199A deduction measures

The qualified business income deduction allows many individuals, trusts and estates to deduct up to 20% of qualified income from domestic trades or businesses, plus separate components for qualified REIT dividends and publicly traded partnership income. Owners of sole proprietorships, partnerships and S corporations can qualify; a C corporation and ordinary employee wages do not.

This calculator follows the business component for one trade, business or valid aggregation. It first determines how much QBI survives the SSTB rule, calculates 20%, tests the W-2 wage and qualified-property limitation, applies the overall taxable-income cap, and finally checks the 2026 minimum deduction for active QBI.

2026 thresholds and wider phase-in ranges

For 2026, the threshold is $403,500 for married filing jointly, $201,775 for married filing separately, and $201,750 for all other returns. The upper end of the phase-in range is $553,500 joint, $276,775 married separate and $276,750 for other returns.

Taxable income here means taxable income before the QBI deduction. It is not AGI, gross business revenue or QBI. Below the threshold, the wage/property limitation does not apply and an SSTB is treated as qualified. Inside the range, restrictions phase in. Above the range, the wage/property limit fully applies to a non-SSTB and an SSTB is excluded.

Building qualified business income

QBI generally includes qualified items of income, gain, deduction and loss effectively connected with a U.S. trade or business and included in taxable income. A Schedule C net profit is a starting point, not always the final QBI number.

Attributable deductions can reduce QBI, including the deductible part of self-employment tax, self-employed health-insurance deductions, qualified retirement-plan contributions, unreimbursed partnership expenses and business interest. Suspended losses enter when allowed under the governing provision. Prior QBI loss carryforwards can offset current qualified income.

QBI generally excludes W-2 wages, S corporation reasonable compensation, guaranteed payments for partner services, capital gains and losses, most dividends, investment interest not allocable to the business, qualified REIT dividends and qualified PTP income. Those last two use a separate Section 199A component not modeled here.

How the SSTB applicable percentage works

Specified service trades or businesses include services in health, law, accounting, actuarial science, performing arts, consulting, athletics, financial services, brokerage, investing and investment management, trading or dealing in specified assets, and certain businesses centered on an owner’s or employee’s identity, endorsement or appearance. Engineering and architecture are not on the statutory SSTB list.

Below the threshold, an SSTB is treated like a qualified business. Within the phase-in range, only an applicable percentage of its QBI, W-2 wages and UBIA is admitted. The percentage starts at 100% and declines to zero at the upper end.

Above the upper end, the admitted SSTB amounts are zero. The calculator’s valve makes that reduction visible before the wage/property test.

The W-2 wage and UBIA limitation

The full wage/property limitation is the greater of 50% of properly allocable W-2 wages or 25% of those wages plus 2.5% of the unadjusted basis immediately after acquisition of qualified property. Wages must be timely reported and allocated to the business that generated QBI.

UBIA generally uses qualifying depreciable tangible property held and available for use at year-end, measured before depreciation under Section 199A rules and subject to a depreciable period. Land, inventory and property outside the period do not simply enter at book value.

Within the phase-in range, the calculator does not abruptly replace 20% of QBI with the wage limit. It calculates the excess of the tentative amount over the limit and reduces that excess by the phase-in percentage. For an SSTB, the admitted wages and UBIA have already been reduced by the applicable percentage.

The overall taxable-income cap

After business-level calculations, the total QBI deduction is generally limited to 20% of taxable income before the QBI deduction minus net capital gain increased by qualified dividends. This prevents preferential-rate income from supporting an additional 20% deduction.

The calculator compares the business component with that cap. A taxpayer can have substantial QBI but a small deduction when taxable income is low or net capital gain is high. REIT/PTP and cooperative components can change the complete Form 8995-A result and are outside this one-stream model.

The new $400 minimum deduction for 2026

Public Law 119-21 added a minimum Section 199A deduction for an applicable taxpayer beginning in 2026. If aggregate QBI from all active qualified trades or businesses is at least $1,000, the allowed deduction is the greater of the normal calculation or $400.

An active qualified trade or business is one in which the taxpayer materially participates under Section 469(h). That test is different from merely owning an interest or working occasionally. The $400 and $1,000 amounts begin inflation adjustments after 2026.

This calculator tests the minimum when material participation is selected and admitted QBI is at least $1,000. For an SSTB in the phaseout range, only the applicable qualified portion is used. An SSTB completely excluded above the range cannot manufacture active qualified QBI for the minimum.

Worked 2026 SSTB example

Assume a single consultant has taxable income before the QBI deduction of $230,000, including $20,000 of net capital gain and qualified dividends. Net QBI is $120,000, allocable W-2 wages are $20,000, and there is no qualified-property UBIA.

Taxable income is $28,250 above the $201,750 threshold in a $75,000 range. The phase-in percentage is 37.6667%, leaving an SSTB applicable percentage of 62.3333%. Admitted QBI is $74,800 and admitted wages are $12,466.67.

Twenty percent of admitted QBI is $14,960. The wage limit is $6,233.33. The difference of $8,726.67 is reduced by the 37.6667% phase-in, creating a $3,287.04 limitation reduction and a business component of $11,672.96. The taxable-income cap is $42,000, so it does not bind. Material participation makes the $400 minimum available, but the regular result is larger.

At a 32% marginal rate, the simplified federal tax reduction is $3,735.35.

Reasonable compensation and entity choice

An S corporation shareholder’s reasonable compensation is W-2 wage income and is not QBI, although properly allocable employee wages can support the wage limitation. A partnership guaranteed payment for services is generally not QBI and is not W-2 wages for the limitation. Sole proprietors cannot pay themselves W-2 wages.

Entity choice should not be made solely to maximize this calculator. Payroll tax, legal liability, state tax, administrative cost, retirement plans and reasonable-compensation rules matter. Artificial wages or unsupported UBIA create compliance risk rather than a reliable deduction.

Multiple businesses, losses and aggregation

Each trade or business is generally tested separately for the W-2/UBIA limit unless a valid aggregation election applies. Aggregation has common-ownership, tax-year and operational requirements, excludes SSTBs, and must generally be reported consistently in later years.

Positive and negative QBI are netted under detailed rules. A current qualified business net loss can eliminate the business component and carry forward. Suspended basis, at-risk, passive and excess-business losses are tracked until allowed. A one-business positive input cannot reproduce those schedules.

Use Form 8995-A Schedules A, B and C when SSTBs, aggregation or loss netting applies. Pass-through K-1 statements supply data but do not decide every taxpayer-level classification.

Rental real estate and trade-or-business status

Rental real estate may qualify when it rises to a Section 162 trade or business based on facts and circumstances. Revenue Procedure 2019-38 provides a safe harbor for certain rental real estate enterprises that meet hours, recordkeeping and statement requirements. Failure to meet the safe harbor does not automatically prevent trade-or-business status.

Triple-net leases and personal-use property can be excluded from the safe harbor. Commonly controlled self-rentals have special treatment. Enter rental income as QBI only after determining the federal business status and attributable deductions.

QBI calculation checklist

• Determine each Section 162 trade or business and whether it is an SSTB.
• Reconcile Schedule C or K-1 items with attributable above-the-line deductions.
• Apply prior QBI losses and currently allowed suspended losses.
• Use taxable income before QBI, not AGI or business gross receipts.
• Allocate timely W-2 wages and qualifying UBIA to the correct business.
• Separate net capital gain and qualified dividends for the overall cap.
• Document material participation before using the new $400 minimum.

Frequently asked questions

References

• IRS Revenue Procedure 2025-32 in Internal Revenue Bulletin 2025-45 – 2026 thresholds, range endpoints and minimum-deduction amounts.
• Public Law 119-21, Section 70105 – permanent QBI deduction, wider phase-in and active-business minimum.
• IRS About Form 8995-A – wage/property, SSTB, aggregation and loss schedules.
• IRS Qualified Business Income Deduction overview – eligible owners and current guidance.

This educational calculator is not tax, legal or entity-choice advice. Confirm the final 2026 Forms 8995/8995-A, pass-through statements and complete return before claiming the deduction.