2026 §199A QBI phase-in ranges: single $201,750–$276,750, MFJ $403,500–$553,500

The One Big Beautiful Bill Act (Public Law 119-21, signed July 4, 2025) made the §199A qualified business income deduction permanent and expanded the phase-in range by $75,000 (single) and $150,000 (MFJ) relative to the TCJA-era numbers. IRS Rev. Proc. 2025-32 inflation-adjusted the dollar figures for tax year 2026:

• Single: $201,750 (start) → $276,750 (full phase-in)
• MFJ: $403,500 (start) → $553,500 (full phase-in)

Background: what §199A does

Section 199A allows eligible taxpayers to deduct up to 20% of qualified business income (QBI) from a pass-through entity — including sole proprietorships, S Corporations, partnerships, and LLCs taxed as pass-through. The deduction was originally introduced by the Tax Cuts and Jobs Act of 2017 and was set to expire after 2025. The OBBBA made it permanent, removing the sunset uncertainty that had surrounded the provision since its enactment.

The deduction is claimed on the taxpayer’s individual return (Form 1040, Section 199A) and reduces taxable income — it is not a credit. For a taxpayer in the 24% marginal bracket, a $10,000 QBI deduction saves $2,400 in federal income tax. The deduction does not reduce self-employment tax, FICA, or state-level taxes in most states.

How the phase-in works

Above the threshold amounts, the QBI deduction is limited by 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 immediately after acquisition (UBIA) of qualified property. Between the start and end of the phase-in range, the limitation is gradually phased in, reducing the effective deduction.

For taxpayers below the threshold — which covers most small S-Corp owners — the deduction is straightforward: 20% of QBI, limited only by taxable income (the deduction cannot exceed 20% of taxable income less net capital gains). The W-2 wage and UBIA limitations do not apply.

What this means for the calculator

The BizTaxMetrics S-Corp W-2 drag is an upper-bound approximation (ownerSalary × 20% × marginal rate). Above the phase-in range, the real §199A picture depends on the W-2/UBIA limit (greater of 50% of W-2 wages or 25% of W-2 wages + 2.5% of UBIA) and on whether the business is an SSTB. The toggle on the homepage is now useful for taxpayers in the $200K–$300K range who weren’t getting meaningful drag signals under the old (TCJA) thresholds.

The OBBBA’s expanded phase-in range means more taxpayers can claim the full 20% deduction without hitting the W-2 wage limitation. For a single filer with QBI below $201,750, the full 20% deduction applies with no wage test. Between $201,750 and $276,750, the deduction is partially phased in based on wages. Above $276,750, the full wage limitation applies (or the SSTB rules apply if the business is a specified service trade or business).

Why this matters for S-Corp owners

The S-Corp election reduces the owner’s QBI base (because salary is excluded from QBI but distributions are not subject to FICA). This is the “QBI drag” the BizTaxMetrics calculator models. With the higher phase-in thresholds, the drag is less punitive for taxpayers in the $200K–$550K income range because they are more likely to qualify for the full deduction even with reduced QBI.

However, for most small S-Corp owners earning under $200K, the practical impact is minimal — they were already below the TCJA thresholds and will continue to claim the full 20% deduction. The main beneficiaries of the OBBBA expansion are higher-income pass-through owners who were previously phased out of the deduction entirely.

The $400 minimum deduction

The same legislation that made §199A permanent also added §199A(i), a floor for active small-business owners. For tax years beginning after December 31, 2025, the deduction is the greater of the amount computed under the ordinary rules or $400 — provided the taxpayer's aggregate qualified business income from active qualified trades or businesses is at least $1,000. “Active” means the taxpayer materially participates in the business under the §469(h) standard, so a purely passive investor does not qualify for the floor.

Both the $400 floor and the $1,000 trigger are indexed for inflation for tax years beginning after 2026, the language the IRS confirmed in Rev. Proc. 2025-32. In practice the floor matters to owners with very small profits, to owners whose QBI is heavily reduced by a high S-Corp salary, and to owners in the first years of a business when the computed 20% deduction would otherwise be negligible.

Worked example: below, inside, and above the range

Taxable income — not gross revenue — decides where a taxpayer sits, so take a single filer whose only income is a pass-through business:

• $150,000 taxable income (below $201,750). Full 20% of QBI, no wage test and no UBIA test. $30,000 of QBI produces a $6,000 deduction, subject only to the taxable-income ceiling.
• $240,000 taxable income (inside the range). The W-2/UBIA limitation is being phased in. Roughly halfway through the band, the limitation bites at about half strength, so a wage-heavy business keeps most of the deduction while a capital-heavy, low-wage business starts losing ground.
• $300,000 taxable income (above $276,750). The full limitation applies — the deduction is capped at the greater of 50% of W-2 wages or 25% of W-2 wages plus 2.5% of UBIA — and an SSTB keeps no deduction at all on that business's QBI.

SSTB and the phase-in range

A specified service trade or business — health, law, accounting, consulting, financial services, athletics, and any business whose principal asset is the reputation or skill of its employees — rides the same phase-in band. Below the threshold an SSTB owner gets the full 20% deduction. Inside the $201,750–$276,750 band, the ability to claim the deduction on that business is reduced ratably and reaches zero at the top of the range. Above the range, an SSTB owner keeps no §199A deduction on that business while a non-SSTB owner keeps a deduction limited by the wage and UBIA tests.

Whether a business is an SSTB is therefore worth settling before anyone models the deduction. The BizTaxMetrics calculator deliberately does not model SSTB phase-outs: it surfaces the S-Corp W-2 drag as a generic upper-bound estimate and leaves the SSTB determination to a professional who can see the actual facts of the business.

Wages cut both ways for S-Corp owners

This is the part that surprises people. Raising the owner's W-2 salary reduces QBI, because salary is an ordinary deduction against business income while a distribution is not — so the 20% base shrinks. But the same salary is a W-2 wage, which is the input to the limitation that applies above the threshold. For a taxpayer inside or above the phase-in range, paying more salary can raise the wage-based ceiling at the same time it lowers QBI.

The two effects do not always cancel. Below the threshold there is no wage test at all, so every extra dollar of salary is pure QBI drag. Above the threshold a wage-heavy business can end up close to whole while a capital-heavy, low-wage business does not. Run the toggle both ways at your own numbers instead of assuming the drag is constant — it moves with income level, filing status, and SSTB status.

How it is reported

Taxpayers who are below the threshold, with no SSTB, no aggregation election, and no carryforward file Form 8995, the simplified computation. Taxpayers above the threshold, with an SSTB, or with a carryforward file Form 8995-A, which walks through the wage and UBIA limitation and the SSTB phase-out line by line. Both feed the deduction through to Form 1040.

Aggregating two or more related businesses is permitted when the businesses are sufficiently interrelated and commonly controlled. Aggregation can pair a wage-heavy business with a capital-heavy one so the limitation is computed on the combined unit, which is sometimes the single most valuable §199A planning move available. The aggregation rules carry their own tests, and electing it is a decision for a preparer who knows the facts.

Frequently asked questions

Does my S-Corp salary reduce my QBI deduction? Yes. Salary reduces qualified business income, so the 20% base shrinks. Above the threshold it also increases the W-2 wages used in the limitation, which can offset part of the loss. Below the threshold there is no offset.

Does the deduction apply to W-2 wages from an unrelated job?No. §199A applies to qualified business income from a pass-through trade or business, not to wage income, investment income, or a C Corporation's earnings.

Does the $400 minimum apply to everyone? No. It requires aggregate QBI of at least $1,000 from businesses in which you materially participate, and it is a floor rather than an addition — you receive the greater of your computed deduction or $400, never both.

How does my state treat the deduction? It varies. Some states start from federal taxable income and pick up the benefit indirectly; others add it back or compute tax on a separate base. Check your state's conformity position before assuming the federal savings flow through.

Where does the calculator expose this? The homepage toggle for the S-Corp W-2 drag applies an upper-bound estimate of the QBI impact of a salary change. It is intentionally conservative and does not model SSTB status, aggregation, or the phase-in band, because those depend on facts the calculator does not collect.

Sources

• One Big Beautiful Bill Act (Public Law 119-21, July 4, 2025), §70101 — permanent §199A, $75,000 / $150,000 phase-in expansion, and the §199A(i) minimum deduction
• IRS Rev. Proc. 2025-32 (2026 inflation adjustments, including the §199A threshold amounts and the inflation indexing of the $400 and $1,000 minimum-deduction figures)
• Internal Revenue Code §199A; Treasury Regulation §1.199A-1
• BizTaxMetrics glossary: §199A, SSTB, UBIA