Quick Answer
The QBI deduction was extended through 2034 but with reduced rates: 15% for 2026-2029 and 10% for 2030-2034, down from the previous 20%. The income thresholds increased to $191,650 (single) and $383,300 (married filing jointly) for 2026.
Best Answer
Robert Kim, CPA
Best for sole proprietors, S-corp owners, and partnership members with QBI
How the QBI deduction changed for 2026
The Section 199A qualified business income deduction survived the 2026 tax reforms but with significant modifications. Instead of expiring as originally scheduled, it was extended through 2034 with a reduced deduction rate and higher income thresholds.
The new QBI deduction rates
The most significant change is the reduced deduction percentage:
This means if you had $100,000 in QBI in 2025, you could deduct $20,000. In 2026, that same $100,000 in QBI only generates a $15,000 deduction — a 25% reduction in tax benefit.
Example: $150,000 QBI with the new rates
Let's say you're a single filer with $150,000 in qualified business income from your S-corporation:
Under old rules (2025):
Under new rules (2026):
Higher income thresholds — the silver lining
The income thresholds where QBI limitations kick in were substantially increased:
If your taxable income stays below these thresholds, you can still claim the full QBI deduction without worrying about the W-2 wage limitation or specified service trade or business (SSTB) restrictions.
Key factors that affect your QBI deduction
What you should do
The reduced QBI deduction makes business structure planning even more critical. Consider:
1. Review your entity structure — S-corps may become less attractive relative to other structures
2. Accelerate income to 2025 if possible to capture the higher 20% rate
3. Plan W-2 wage strategies if you're above the income thresholds
4. Consider equipment purchases to increase your qualified property basis
Use our return scanner to identify if you're missing other deductions that could partially offset the QBI reduction.
Key takeaway: The QBI deduction continues through 2034 but at reduced rates of 15% (2026-2029) and 10% (2030-2034), potentially increasing taxes for business owners despite higher income thresholds.
*Sources: [IRS Publication 535](https://www.irs.gov/pub/irs-pdf/p535.pdf), IRC Section 199A as amended*
Key Takeaway: The QBI deduction drops from 20% to 15% in 2026, potentially increasing taxes by $1,650+ annually for a business owner with $150,000 in QBI, despite higher income thresholds.
QBI deduction changes by year and filing status
| Year | Deduction Rate | Single Threshold | MFJ Threshold |
|---|---|---|---|
| 2017-2025 | 20% | $182,050 | $364,200 |
| 2026-2029 | 15% | $191,650 | $383,300 |
| 2030-2034 | 10% | Indexed to inflation | Indexed to inflation |
More Perspectives
Michelle Woodard, JD
Best for business owners with income above the QBI threshold limits
How higher thresholds help high earners
If you're a high-earning business owner, the increased income thresholds in 2026 provide some relief even though the deduction rate dropped. The new thresholds of $191,650 (single) and $383,300 (married filing jointly) mean more taxpayers can claim the full QBI deduction without wage or property limitations.
Example: SSTB professional earning $375,000
Consider a married consultant with $375,000 in taxable income:
2025 rules: Income exceeded the $364,200 threshold, so QBI deduction was phased out completely for this SSTB.
2026 rules: Income is below the new $383,300 threshold, so the full 15% QBI deduction applies despite being an SSTB.
If their QBI was $200,000:
Strategic planning for the phase-out zone
If your income hovers near the new thresholds, small adjustments can have large tax impacts. Consider timing strategies like:
W-2 wage planning becomes more critical
For non-SSTB businesses above the threshold, the W-2 wage limitation (50% of wages paid) becomes the primary constraint. With the lower deduction rate, maximizing wages paid to employees or yourself becomes even more valuable.
Key takeaway: Higher income thresholds in 2026 allow more high earners to claim QBI deductions, but strategic income timing around the $383,300 threshold becomes crucial for maximizing benefits.
Key Takeaway: Higher income thresholds in 2026 allow more high earners to claim QBI deductions, but strategic income timing around the $383,300 threshold becomes crucial for maximizing benefits.
Robert Kim, CPA
Best for married couples where one or both spouses have business income
How married filing jointly affects QBI planning
The increased threshold for married filing jointly ($383,300) creates planning opportunities for families with business income. Even with the reduced 15% rate, many family businesses can still claim substantial QBI deductions.
Example: Spouse with side business
Sarah works as an engineer (W-2 income: $85,000) while her husband Mike runs a consulting business (QBI: $120,000). Their combined taxable income is $175,000.
QBI deduction calculation:
Since they're well below the $383,300 threshold, they get the full deduction without wage limitations.
Planning around the marriage penalty/bonus
For high-earning couples, the QBI deduction can create marriage penalties or bonuses:
Marriage bonus example: Two single consultants each earning $190,000 would lose QBI deductions as singles (above $191,650 threshold) but keep them when married ($380,000 combined is below $383,300 threshold).
Marriage penalty example: A couple with combined income of $400,000 faces QBI limitations that might not apply if they could file separately.
Timing strategies for families
With the reduced deduction rate, income timing becomes more important:
Key takeaway: The higher MFJ threshold ($383,300) helps family businesses maintain full QBI deductions, but income timing strategies become more valuable with the reduced 15% rate.
Key Takeaway: The higher MFJ threshold ($383,300) helps family businesses maintain full QBI deductions, but income timing strategies become more valuable with the reduced 15% rate.
Sources
- IRS Publication 535 — Business Expenses and QBI Deduction
Reviewed by Robert Kim, CPA on February 28, 2026
This content is for educational purposes only and is not a substitute for professional tax advice. Consult a qualified tax professional for advice specific to your situation.