Who Qualifies for the QBI Deduction
The QBI deduction is for owners of pass-through businesses. A pass-through business’s profit “passes through” to its owners, who report it on their personal tax returns.
Businesses That Can Qualify
The IRS QBI overview lists these as possibly eligible:
- Sole proprietorships, including freelancers who report self-employment cash income on Schedule C
- Partnerships
- S corporations
- Some trusts and estates
Income That Doesn’t Count
QBI is the net amount of income, gains, deductions and losses from a qualified business. Income you earn through a C corporation or as an employee isn’t eligible. QBI also leaves out:
- Wage income
- Capital gains and losses
- Interest income not tied to the business
- Reasonable compensation an S corporation pays you
- Guaranteed payments from a partnership
How the 20% of Taxable Income Cap Works
Your deduction is the smaller of two numbers. The first is 20% of your QBI (plus 20% of certain REIT dividends and publicly traded partnership income, if you have them). The second is 20% of your taxable income minus net capital gain.
Taxable income is the income you owe tax on after subtracting deductions, which you report on your federal tax return.
Hypothetical example: You’re a sole proprietor with $50,000 of QBI, no capital gains and $40,000 of taxable income before the QBI deduction.
| Step | Calculation | Result |
|---|---|---|
| 20% of QBI | $50,000 × 20% | $10,000 |
| 20% of taxable income | $40,000 × 20% | $8,000 |
| Your QBI deduction | Smaller of the two | $8,000 |
QBI Deduction Income Thresholds for 2026 and 2025
At or below the threshold, the basic 20% calculation applies. Above it, extra limits phase in until the phase-in range ends. The 2026 figures come from Revenue Procedure 2025-32.
| Filing status | 2026 threshold (filed in 2027) | 2026 phase-in ends | 2025 threshold (filed in 2026) | 2025 phase-in ends |
|---|---|---|---|---|
| Married filing jointly | $403,500 | $553,500 | $394,600 | $494,600 |
| Single and most other filers | $201,750 | $276,750 | $197,300 | $247,300 |
For 2026, married filing separately has a $201,775 threshold, with the phase-in ending at $276,775.
What Changes Above the Threshold
Above the threshold, your deduction may shrink based on two factors:
- Whether your business is a specified service trade or business, a service-based type of business that tax law limits at higher incomes
- The W-2 wages your business pays and the value of its qualified business property
The New $400 Minimum Deduction Starting in 2026
For tax years beginning after Dec. 31, 2025, new IRS guidance sets a minimum QBI deduction of $400. To get it, you need at least $1,000 of QBI from an active business. An active business is one you materially participate in, meaning you take part in running it.
Which Form to Use for the QBI Deduction
For 2025 returns, you claim the deduction on one of two forms:
- Use Form 8995 if your pre-deduction taxable income is at or below $197,300 ($394,600 if married filing jointly).
- Use Form 8995-A if your income is higher or you’re an agricultural or horticultural cooperative patron.
Using the QBI Deduction With the Standard Deduction or Itemizing
The QBI deduction is available whether you itemize or take the standard deduction. Picking between those two options works the same way it does for anyone filing for the first time.
Sources
- IRS, Qualified Business Income Deduction
- IRS, About Form 8995
- IRS, About Form 8995-A
- IRS, Revenue Procedure 2025-32
- Congress, Section 199A Deduction
