The QBI Deduction (Section 199A) in 2026: Who Still Qualifies for the 20% Pass-Through Deduction

The qualified business income deduction, known as the QBI deduction or the Section 199A deduction, is one of the most valuable tax breaks available to owners of pass-through businesses. It can allow a deduction of up to 20% of business income. But whether you actually receive the full 20%, a reduced amount, or nothing at all depends on your income and the type of business you run, and the rules changed in important ways for 2026. This guide explains how the QBI deduction works now, who qualifies, and the limitation that most affects practice owners in fields like medicine and law.

What the QBI Deduction Is

Under Section 199A of the Internal Revenue Code, an eligible owner of a pass-through business, a sole proprietorship, partnership, or S corporation, may deduct up to 20% of their qualified business income. That income passes through to the owner's individual return, and the deduction is taken there before federal income tax is calculated. The deduction is also capped at 20% of taxable income minus net capital gains. Qualified business income generally means the net income of the business, but it does not include reasonable W-2 wages paid to an S corporation owner, guaranteed payments to partners, or capital gains.

A Major 2026 Change: The Deduction Is Now Permanent

The QBI deduction was originally created by the Tax Cuts and Jobs Act of 2017 and was scheduled to expire after 2025. That has changed. The One Big Beautiful Bill Act, signed into law on July 4, 2025, removed the sunset and made the Section 199A deduction permanent for tax years beginning after December 31, 2025. For practice owners, this is meaningful: the deduction is no longer a temporary window, so it can be built into long-term planning rather than treated as expiring.

The 2026 Income Thresholds

The QBI deduction is tied to your total taxable income, and where that income falls determines which rules apply. For 2026, per IRS Revenue Procedure 2025-32, the thresholds are:

• Full deduction below the threshold: taxable income at or under $201,750 for single filers, or $403,500 for married filing jointly.

• Phase-in range above the threshold: the limitations phase in over the next $75,000 for single filers, or $150,000 for married filing jointly, a range the OBBBA widened for 2026.

• Upper limit: $276,750 single, or $553,500 married filing jointly, above which the limitations fully apply.

Below the lower threshold, the calculation is simple: you generally take 20% of your qualified business income (subject to the taxable-income cap), with no wage test, no property test, and no service-business restriction. Above the threshold is where the rules diverge sharply, and where the type of business matters.

The Critical Distinction: Is Your Business an SSTB?

Section 199A splits businesses into two groups, and for practice owners this is the single most important point. A Specified Service Trade or Business (SSTB) is defined to include fields such as health, law, accounting, consulting, financial services, athletics, and performing arts, along with any business whose principal asset is the reputation or skill of its owners or employees. Medical and dental practices and law firms are generally SSTBs. Businesses that are not SSTBs, such as manufacturing, construction, and many product businesses, are treated differently above the threshold.

Below the income threshold, this distinction does not matter; SSTBs get the full 20% deduction just like anyone else. Above the threshold, it matters enormously.

The Hard Truth for Physicians and Attorneys: The SSTB Phase-Out

Here is the part a high-income practice owner needs to hear plainly. For an SSTB, the QBI deduction phases out as taxable income rises through the phase-in range, and it disappears entirely once income exceeds the upper threshold. In 2026, that means an SSTB owner, including many physicians, dentists, and attorneys, with taxable income above $276,750 single or $553,500 married filing jointly receives no QBI deduction at all.

This is a genuine difference from non-service businesses. A non-SSTB owner above the threshold does not lose the deduction outright; instead it is limited by a wage-and-property test, generally the greater of 50% of W-2 wages paid, or 25% of W-2 wages plus 2.5% of the unadjusted basis of qualified property. For a non-SSTB, that creates structural planning levers. For an SSTB above the upper threshold, there is no wage or property workaround. The deduction is simply gone.

Note one narrow 2026 addition: the OBBBA created a minimum deduction of $400 for a taxpayer with at least $1,000 of QBI who materially participates in the business. But this minimum does not override the SSTB phase-out for someone whose income is above the upper threshold on SSTB income alone.

The Real Lever for High-Income Practice Owners: Reduce Taxable Income

Because the SSTB phase-out is driven by total taxable income, the practical planning question for a high-earning physician or attorney is whether taxable income can be brought below, or partway into, the phase-out range. The most substantial tool for doing this is deductible retirement contributions, such as through a 401(k) or a defined benefit or cash balance plan, which reduce taxable income and can restore some or all of an otherwise-lost QBI deduction. This is why the QBI deduction is rarely analyzed in isolation; it is connected to your retirement planning, your entity structure, and the timing of income. The interaction is exactly where a careful analysis produces value.

Find Out What Your Practice Actually Qualifies For

The QBI deduction can be worth a great deal, or nothing, depending on your income, your filing status, and whether your practice is an SSTB. Because the calculation depends on your specific numbers and because the 2026 rules are new, a general assumption is not enough. Tax Wealth Consultant models the QBI deduction for your situation, identifies whether income-reduction strategies can preserve it, and coordinates the planning across your return.

Schedule a consultation to see what QBI deduction your practice qualifies for.

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