Blog · 14 October 2026

QBI Deduction in 2026: Permanent §199A, the $400 Minimum, Wider Phase-In and What US CPA Firms Should Tell Clients

By Keshav Bansal, CA

The QBI deduction under §199A is no longer on a countdown. For taxable years beginning after December 31, 2025, P.L. 119-21 (the One Big Beautiful Bill Act, OBBBA) §70105 removed the old sunset, widened the phase-in range to $75,000 / $150,000, and added a $400 minimum deduction for owners with at least $1,000 of QBI from businesses in which they materially participate. Rev. Proc. 2025-32 sets the 2026 thresholds at $201,750 (most filers) and $403,500 (married filing jointly). For US CPA firms, 2026 planning and organizers should be built on those numbers, not on 2025 habits.

Why the QBI deduction is back in the news

On October 6, 2026, the House Ways and Means Committee held a field hearing in Collierville, Tennessee, on OBBBA’s effect on small business and manufacturing. In his written testimony, Wade Thomson, owner and president of Thomson Prestress (his companies are all pass-throughs), listed the permanent 20 percent pass-through deduction among the four provisions that mattered most to his companies, alongside bonus depreciation, §179 and R&D expensing. He testified that the companies had invested, committed or budgeted more than $6 million and hired about 50 employees since January 2025. Written comments for the record are due October 20, 2026.

Rep. David Kustoff’s Small Business Tax Cut Act, H.R. 8415 (introduced April 21, 2026, referred to Ways and Means), would raise the deduction from 20 to 23 percent for taxable years beginning after December 31, 2026. It has not passed either chamber.

What OBBBA changed in §199A

Per the amended statute, §70105 made these changes for taxable years beginning after December 31, 2025:

• Sunset removed: former §199A(i) said the section would not apply to taxable years beginning after December 31, 2025. That text is gone.
• Wider phase-in: in §199A(b)(3)(B) (W-2 wage/UBIA limit) and §199A(d)(3) (SSTB phase-out), $50,000 ($100,000 joint) became $75,000 ($150,000 joint).
• Minimum deduction: new §199A(i) gives an “applicable taxpayer” a deduction of at least $400. An applicable taxpayer has at least $1,000 of aggregate QBI from all active qualified trades or businesses, meaning those in which the taxpayer materially participates under §469(h). Both amounts are indexed for taxable years beginning after 2026.
• Rate unchanged: the deduction stays at 20% of QBI, limited to 20% of taxable income minus net capital gain.

A separate provision, §70201(d), added §199A(c)(4)(D). For taxable years beginning after December 31, 2024, QBI excludes any amount for which a deduction is allowed under the new §224 tips deduction.

2026 thresholds and phase-in ranges

Per Rev. Proc. 2025-32 §4.26, below the threshold the W-2 wage/UBIA limit and SSTB rule do not apply; above the end of the range they apply in full:

• Married filing jointly: threshold $403,500; phase-in ends at $553,500
• Married filing separately: threshold $201,775; phase-in ends at $276,775
• All other returns: threshold $201,750; phase-in ends at $276,750

For comparison, the 2025 Instructions for Form 8995 use $197,300 / $394,600 as the cutoff for the simplified form, with the old $50,000 / $100,000 range above that. A wider range means a slower phase-out. For example, a single SSTB owner with 2026 taxable income of $239,250 is halfway through the $75,000 range, so under §199A(d)(3)(B) the applicable percentage is 50% of the SSTB’s QBI, W-2 wages and UBIA. With a $50,000 range, the same income would have been 75% of the way through.

How the $400 minimum works

The IRS calls it the Minimum Deduction for Active Qualified Business Income. For years beginning after 2025, the deduction is the greater of (a) the regular result, meaning the lesser of the QBI and REIT/PTP components or 20% of taxable income minus net capital gain, and (b) the minimum deduction. Take a materially participating Schedule C filer with $1,500 of QBI. The regular result would be at most $300, so the $400 floor applies. An owner with $900 of QBI does not qualify, and neither does one whose only business is passive.

Material participation is the gate. The IRS says a taxpayer needs to meet only one of the seven tests in Treas. Reg. §1.469-5T(a)(1)–(7). The 500-hour test is the best known. Passive investors can still have QBI for the regular 20% computation, but that income does not count toward the $1,000 floor.

What still does not count as QBI

The core exclusions have not changed. Per §199A(c) and the IRS QBI page, QBI excludes reasonable compensation an S corporation pays the owner, guaranteed payments to partners for services, wage income, capital gains and losses, most interest and dividends, and income not effectively connected with a US trade or business. Income earned through a C corporation is not eligible. Specified service trades or businesses (including health, law, accounting, consulting, financial services and brokerage, plus investing and trading) are fully excluded only above the end of the phase-in range. The deduction is available whether the client itemizes or takes the standard deduction.

What US CPA firms should tell clients now

• Stop planning around a 2025 sunset. Rerun entity-choice and compensation models that assumed §199A would expire.
• Re-test SSTB clients near the thresholds. Consultants, medical practices and financial advisers with 2026 taxable income between $201,750 and $276,750 (single) or $403,500 and $553,500 (joint) keep more of the deduction under the $75,000 / $150,000 range.
• Document material participation for small side businesses. Hour logs now matter for the $400 floor too.
• Check K-1 QBI detail. Statements for 2026 should separate QBI, W-2 wages and UBIA by activity. Our partnership basis and at-risk guide covers the loss limits that apply before QBI is figured.
• Watch the line between owner pay and QBI. S corporation reasonable compensation and partner guaranteed payments are not QBI. Self-employment tax questions for LLC members are covered in our Soroban limited-partner guide.
• Correct earlier misses. If a prior-year return left out the deduction, a refund claim is generally made on an amended return within the §6511 window. See our Form 1040-X guide.
• Treat H.R. 8415 as a watch item. Do not project a 23% rate into 2027 estimates unless it is enacted.

Where this fits for Tax Brew readers

The 2026 QBI changes mostly mean updating thresholds, phase-in math, participation records and K-1 data in Form 8995 / 8995-A templates before filing season.

If K-1 cleanup, QBI worksheets or Schedule C bookkeeping are stretching your capacity, outsourced tax prep and bookkeeping support for US CPA firms can handle the data gathering while your signing professionals make the judgment calls. Email info@taxbrewglobal.com.

Check current IRS guidance: this article summarizes IRC §199A as amended by P.L. 119-21 §§70105 and 70201(d) (Cornell LII text and amendment notes), Rev. Proc. 2025-32 §§2.12 and 4.26 (irs.gov/pub/irs-drop/rp-25-32.pdf), the IRS “Qualified business income deduction” page (updated September 22, 2026), the 2025 Instructions for Form 8995, the Ways and Means October 6, 2026 field hearing advisory and Wade Thomson’s written testimony, and H.R. 8415 (Congress.gov). Pending bills may change or never pass. This is general information, not tax or legal advice. Sources as of 14 October 2026.