The Section 199A QBI Deduction in 2026
The Section 199A qualified business income (QBI) deduction lets owners of pass-through businesses — sole proprietorships, partnerships, S-corporations, and most LLCs — deduct up to 20% of their qualified business income from taxable income. It is one of the most valuable and most misunderstood deductions available to US small business owners, and thanks to the One Big Beautiful Bill Act (OBBBA) it is now a permanent part of the tax code, with wider phase-out bands and a new minimum-deduction floor beginning in 2026.
This estimator implements the 2026 rules: the income thresholds that decide whether limitations apply, the Specified Service Trade or Business (SSTB) restrictions, the W-2 wage and UBIA property limits, the phase-out math, and the new $400 floor. Enter your numbers and watch the zone indicator show exactly where you land and why. It is an educational estimate, not tax advice.
The 2026 Thresholds and Phase-Out Bands
Your taxable income determines which of three zones you are in. For 2026, the full-deduction thresholds and phase-out bands are:
- Single: full deduction up to $201,750, phasing out across a $75,000 band from $201,750 to $276,750.
- Married filing jointly: full deduction up to $403,500, phasing out across a $150,000 band from $403,500 to $553,500.
The OBBBA widened these phase-out ranges (previously $50,000 for single and $100,000 for joint filers), which softens the cliff for business owners near the thresholds and gives partial relief across a longer stretch of income.
How the Three Zones Work
Zone A — below the threshold. Your deduction is simply 20% of QBI, limited only by 20% of your taxable income minus net capital gains. SSTB status and W-2 wages do not matter here. This is the simplest and most generous zone.
Zone B — inside the phase-out band. Limitations phase in proportionally to how far you are through the band. For a non-SSTB, the W-2 wage/UBIA limit is applied gradually. For an SSTB, your QBI, W-2 wages, and UBIA are all reduced by the applicable percentage, and the wage limit phases in on top — a double squeeze.
Zone C — above the band. A non-SSTB deduction is capped at the greater of 50% of W-2 wages, or 25% of W-2 wages plus 2.5% of UBIA. An SSTB gets no deduction at all — it is fully phased out.
The W-2 Wage and UBIA Limits
Once your income is in or above the phase-out band, the deduction can be capped by how much your business pays in wages and how much qualified property it owns. The limit is the greater of two tests: 50% of the W-2 wages the business pays, or 25% of W-2 wages plus 2.5% of the unadjusted basis immediately after acquisition (UBIA) of qualified property.
UBIA is essentially the original purchase cost of business property (before depreciation), still within its recovery period. This second test rewards capital-intensive businesses — like real estate or manufacturing — that own significant property but pay modest wages. A business with high profit but little payroll and no property can find its deduction sharply limited above the thresholds.
A Worked Example
Consider a married couple filing jointly with $450,000 of taxable income and $200,000 of QBI from a non-SSTB business that pays $60,000 in W-2 wages and holds $100,000 of UBIA property.
- At $450,000, they are inside the MFJ phase-out band ($403,500–$553,500), about 31% of the way through.
- Tentative deduction: 20% × $200,000 = $40,000.
- Wage/UBIA limit: the greater of 50% × $60,000 = $30,000, or 25% × $60,000 + 2.5% × $100,000 = $17,500. The limit is $30,000.
- Because the $40,000 tentative exceeds the $30,000 limit, the $10,000 excess is reduced by the 31% phase-in: about $3,100 is disallowed, leaving roughly $36,900.
The estimated deduction is about $36,900, well under the overall 20%-of-taxable-income limit of $90,000. At a 32% marginal rate, that is roughly $11,800 of federal tax savings. Raise their income past $553,500 and the deduction would be capped at the $30,000 wage limit; lower it below $403,500 and they would get the full $40,000.
The New 2026 Minimum-Deduction Floor
The OBBBA added a taxpayer-friendly backstop starting in 2026: a minimum deduction of $400 for taxpayers who materially participate in an active trade or business and have at least $1,000 of QBI, even if the wage/UBIA limits or SSTB rules would otherwise reduce the deduction to zero. The amount is inflation-indexed going forward.
It is a modest floor, but it guarantees that small active business owners are not shut out entirely. In this estimator, checking the material-participation box applies the floor whenever your calculated deduction would fall below it.