How Much Is Your Pass-Through Deduction Worth?
The Big Beautiful Bill makes the Section 199A pass-through deduction permanent. Without it, the 20% QBI deduction was set to expire after 2025 — raising effective tax rates by up to 7.4 percentage points for millions of small business owners. It also expands the phase-in ranges and adds a new minimum deduction for eligible lower-QBI filers.
Jon Ragsdale· Chief Investment & Policy Intelligence Officer
Published March 30, 2026
Reviewed by David Duley for factual accuracy, source quality, and clarity.
The QBI deduction is one of the most valuable tax breaks for pass-through business owners, but it is also one of the easiest to misread. Income thresholds, SSTB rules, and wage-and-property limits can all change whether the deduction is large, partial, or gone.
That makes it a real policy-risk issue for owners whose tax picture depends on Section 199A. The difference between extension and sunset is not abstract. It can materially change what the business owner keeps after tax.
Section 199A lets pass-through business owners (sole props, partnerships, S-corps, LLCs) deduct up to 20% of qualified business income — effectively dropping their top federal rate from 37% to 29.6%. The Big Beautiful Bill makes this deduction permanent. But income limits, business type (SSTB vs. non-SSTB), and W-2 wage requirements can reduce or eliminate it entirely.
How PRIA Approached This
This calculator was written by Jon Ragsdale and reviewed by David Duley. PRIA treats tools like this as household policy-risk explainers, not generic widgets. We separate current law from proposals when relevant, translate public rules into plain English, and present the output as an educational estimate rather than personalized advice.
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Frequently Asked Questions
- What is the Section 199A QBI deduction?
- Section 199A allows owners of pass-through businesses (sole proprietorships, partnerships, S-corps, LLCs) to deduct up to 20% of their Qualified Business Income from taxable income. This effectively lowers the top federal tax rate on pass-through income from 37% to 29.6%. The Big Beautiful Bill makes this deduction permanent.
- What is a Specified Service Trade or Business (SSTB)?
- SSTBs include businesses in health, law, accounting, actuarial science, performing arts, consulting, athletics, financial services, brokerage services, and any business where the principal asset is the reputation or skill of employees/owners. SSTBs face a complete phase-out of the QBI deduction above income thresholds ($191,950 single / $383,900 MFJ in 2026).
- What is the W-2 wage / UBIA limitation?
- Above the simplified threshold, the QBI deduction for non-SSTB businesses is limited to the greater of: (a) 50% of W-2 wages paid by the business, or (b) 25% of W-2 wages plus 2.5% of the unadjusted basis of qualified property (UBIA). This limitation phases in over $50,000 (single) or $100,000 (MFJ) above the threshold.
- What are the 2026 Section 199A income thresholds?
- For 2026, the simplified threshold is projected at $191,950 (single / MFS / HOH) and $383,900 (married filing jointly). Below these thresholds, all businesses — including SSTBs — receive the full 20% deduction with no limitations.
- Does the QBI deduction reduce self-employment tax?
- No. The Section 199A deduction reduces taxable income on your personal return but does not reduce adjusted gross income (AGI) or self-employment tax. It also does not affect AGI-based phase-outs for other deductions and credits.
- Was the QBI deduction going to expire?
- Yes. Under the original TCJA, the Section 199A deduction was set to expire after December 31, 2025. The Big Beautiful Bill makes it permanent and increases the rate to 23% for domestic manufacturers with income under $500,000.
The QBI deduction was set to expire — the Big Beautiful Bill makes it permanent. Get alerted when pass-through tax rules change.
Start Free Watch →QBI Deduction Calculator: The Short Answer
If you own a pass-through business, Section 199A can reduce taxable income by up to 20% in many cases. But the actual benefit depends on business type, taxable income, payroll, and property structure. This page helps you estimate the real value instead of assuming the full deduction always applies.
What Is Section 199A?
Section 199A, created by the Tax Cuts and Jobs Act, allows owners of pass-through businesses to deduct up to 20% of their Qualified Business Income (QBI) from their taxable income. It applies to sole proprietorships, partnerships, S-corporations, and LLCs taxed as pass-throughs — covering roughly 95% of all U.S. businesses.
The deduction is taken on your personal tax return (Form 1040, line 13) and reduces taxable income, but not adjusted gross income (AGI). This means it doesn’t affect AGI-based phase-outs for other deductions and credits.
The Three Limitations You Need to Know
1. Taxable Income Limitation
Your QBI deduction can never exceed 20% of your total taxable income (before the QBI deduction). If your QBI is $400,000 but your taxable income is only $200,000, the deduction is capped at $40,000 (20% of $200,000), not $80,000.
2. SSTB Phase-Out
Specified Service Trades or Businesses (SSTBs) — including law, health, accounting, consulting, actuarial science, performing arts, financial services, and athletics — face a complete phase-out above the income threshold. For 2026, the deduction begins phasing out at $201,750 (single) or $403,500 (MFJ) and is fully eliminated $75,000/$150,000 above those levels.
Below the threshold, SSTBs get the full 20% deduction with no limitations — the same as any other business.
3. W-2 Wage / UBIA Limitation
For non-SSTB businesses above the income threshold, the deduction is limited to the greater of:
- 50% of W-2 wages paid by the business, OR
- 25% of W-2 wages + 2.5% of the unadjusted basis of qualified property (UBIA)
This limitation phases in over a $75,000 range ($150,000 for MFJ) above the threshold. It means capital-light service businesses with few employees face larger limitations than capital-intensive businesses with payroll and equipment.
How the QBI Deduction Changes Your Effective Rate
| Federal Bracket | Without 199A | With Full 20% QBI |
|---|---|---|
| 37% | 37.0% | 29.6% |
| 35% | 35.0% | 28.0% |
| 32% | 32.0% | 25.6% |
| 24% | 24.0% | 19.2% |
| 22% | 22.0% | 17.6% |
For a business owner in the 24% bracket, the QBI deduction effectively lowers the rate to 19.2% — below even the 22% bracket for W-2 employees. This is the single largest tax advantage of operating as a pass-through entity.
Why This Matters For Business Planning
The QBI deduction does more than trim a tax bill. It affects entity decisions, compensation choices, hiring, equipment purchases, and the tradeoff between distributing income and reinvesting it. When the deduction changes, the economics of staying a pass-through can change with it.
State Conformity Warning
This calculator models federal Section 199A only. Several states do not fully conform to the federal QBI deduction rules, so your state tax result may differ materially from your federal result.
C-Corp vs. Pass-Through: The 199A Factor
C-corps pay a flat 21% rate, but shareholders face a second layer of tax when profits are distributed as dividends (up to 23.8% including NIIT). The combined rate can reach 39.8%. Pass-throughs with the full QBI deduction face a top effective rate of 29.6% (plus state tax) — often making the pass-through structure more tax-efficient, especially for businesses that distribute most of their earnings.
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