Qualified Business Income (QBI) Deduction Calculator
The Qualified Business Income (QBI) deduction under IRC Section 199A allows self-employed individuals and pass-through business owners to deduct up to 20% of their qualified business income, subject to income-based limitations and a W-2 wage cap for higher earners. The 2025 thresholds are dollar 197,300 (single) and dollar 394,600 (married filing jointly), above which a W-2 wage limitation applies. The deduction phases out entirely for specified service businesses (doctors, lawyers, consultants, accountants) above the upper thresholds. This calculator computes the tentative deduction, applies the W-2 wage limitation proportionally during the phase-in range, flags Specified Service Trade or Business status, and estimates federal tax savings. Note: the QBI deduction is currently scheduled to expire after 2025 unless Congress acts.
With $90,000 qualified business income and $105,000 taxable income as a single filer, your estimated QBI deduction is --, saving an estimated -- in federal income tax.
How the QBI deduction works
IRC Section 199A allows qualifying taxpayers to deduct up to 20% of their qualified business income from a domestic pass-through business. The deduction is claimed on Form 8995 (simple cases) or Form 8995-A (complex cases with multiple businesses or W-2 wage limitations). It reduces taxable income but not AGI, and it does not affect self-employment tax.
Step 1: Tentative deduction
The basic QBI deduction is the lesser of (a) 20% of qualified business income, or (b) 20% of taxable income minus net capital gains. This ensures the deduction cannot exceed 20% of your ordinary income.
Tentative QBI = min(QBI x 20%, (taxable income - net capital gains) x 20%)
Step 2: Income thresholds and phase-in (2025)
If your taxable income is at or below the lower threshold ($197,300 single; $394,600 MFJ), the tentative QBI is your final deduction and no W-2 wage limitation applies. Above the upper threshold ($247,300 single; $444,600 MFJ), the W-2 wage limitation is fully applied and SSTB income is excluded. Between the two thresholds, the limitation phases in proportionally.
Step 3: W-2 wage limitation
For taxpayers above the lower threshold, the deduction is limited to the greater of:
- 50% of W-2 wages paid by the business, or
- 25% of W-2 wages paid by the business plus 2.5% of the unadjusted basis of all qualified depreciable property
Sole proprietors with no employees typically have zero W-2 wages, meaning the W-2 limitation is $0 and the deduction may be completely eliminated once taxable income exceeds the upper threshold.
SSTB rules
Specified Service Trades or Businesses (health, law, accounting, consulting, financial services, and others listed in IRC Section 1202(e)(3)(A)) are subject to an additional restriction: their QBI and W-2 wages are phased out proportionally between the lower and upper income thresholds, and eliminated entirely above the upper threshold.
Who can claim the QBI deduction?
The QBI deduction is available to individuals, trusts, and estates with qualified business income from:
- Sole proprietorships (Schedule C income)
- Partnerships (Schedule K-1 income)
- S corporations (Schedule K-1 income)
- Qualified REIT dividends
- Qualified publicly traded partnership (PTP) income
C corporations and their shareholders claiming ordinary dividends (not REIT dividends) cannot use the Section 199A deduction. Wages from an S-Corp (W-2 income) are not qualified business income, but the K-1 distributions from the same S-Corp can be.
The QBI deduction is scheduled to expire after December 31, 2025 under the Tax Cuts and Jobs Act sunset provisions. Congress may extend or modify it; confirm current law before filing.
QBI deduction: frequently asked questions
What is the QBI deduction and who qualifies?
The Qualified Business Income deduction (also called the Section 199A deduction or pass-through deduction) lets eligible self-employed individuals, sole proprietors, partners, S-corporation shareholders, and REIT dividend recipients deduct up to 20% of their qualified business income from their taxable income. It was introduced by the Tax Cuts and Jobs Act of 2017. It applies only to non-corporate taxpayers and does not reduce self-employment tax.
What are the 2025 income thresholds for the QBI deduction?
For 2025, the W-2 wage limitation begins to phase in at $197,300 for single filers, heads of household, and married filing separately, and at $394,600 for married filing jointly. The limitation is fully applied above $247,300 (single) or $444,600 (MFJ). Below the lower threshold, the deduction is simply the lesser of 20% of QBI or 20% of (taxable income minus net capital gains). These thresholds are from IRS Rev Proc 2024-40.
What is a Specified Service Trade or Business (SSTB)?
An SSTB is a trade or business in the fields of health, law, accounting, actuarial science, performing arts, consulting, athletics, financial services, brokerage services, or investing. Engineering and architecture are explicitly excluded from the SSTB definition. For SSTBs, the deduction phases out entirely for taxpayers above the upper income threshold. Below the lower threshold, SSTBs qualify just like any other business.
What is the W-2 wage limitation and does it affect most sole proprietors?
For taxpayers above the income threshold, the QBI deduction 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. Most sole proprietors have no employees and pay no W-2 wages, so their W-2 wage limit is zero. This effectively eliminates the QBI deduction for sole proprietors with taxable income above the upper threshold. Forming an S-Corp and taking a reasonable salary can create a W-2 wage base.
Does the QBI deduction reduce self-employment tax?
No. The QBI deduction is an income tax deduction only. It reduces your taxable income for federal income tax purposes, but it does not affect your Schedule SE self-employment tax calculation, which is based on net SE earnings before the QBI deduction. It also does not affect AGI; it is a below-the-line deduction taken on Form 8995 or Form 8995-A.
Will the QBI deduction expire?
The QBI deduction is currently scheduled to expire after December 31, 2025 under the sunset provisions of the Tax Cuts and Jobs Act. Congress would need to pass new legislation to extend or make it permanent. As of the 2025 tax year, the deduction remains in effect. Taxpayers should verify the current law before preparing their 2026 and later returns.
Official sources
- QBI deduction rules: IRS Publication 535, Business Expenses.
- Section 199A FAQs: IRS Section 199A Deduction FAQs.
- 2025 inflation-adjusted thresholds: IRS Rev Proc 2024-40.
Reviewed by the CalculatorHub team, edited by James Graham, 13 June 2026. See our methodology. General information only, not tax advice. Consult a qualified tax professional for your specific situation.