What did the OBBBA change about the §199A phase-out?

The OBBBA (signed July 4, 2025) significantly raised the income thresholds for the §199A phase-out. For single filers, the phase-out range moved from $197,300–$247,300 (2025) to $276,300–$326,300 (2026). For MFJ filers, it moved from $394,600–$494,600 to $554,300–$654,300. This means many pass-through business owners who were partially or fully phased out in 2025 regain some or all of the deduction in 2026. The increase is especially meaningful for SSTB owners whose deduction was completely disallowed at lower income levels.

What exactly is an SSTB?

Specified Service Trade or Business (SSTB) under IRC §1202(e)(3)(A) includes health, law, accounting, actuarial science, consulting, athletics, financial services, brokerage services, investing and investment management, trading, or any business where the principal asset is the reputation or skill of one or more of its employees or owners. The IRS also includes architects or engineers — wait, actually those are excluded. Engineering and architecture are specifically carved out and are NOT SSTBs.

Why does the W-2 wage test matter?

For non-SSTB businesses with income above the lower phase-out threshold, the deduction cannot exceed the greater of (a) 50% of W-2 wages or (b) 25% of W-2 wages plus 2.5% of qualified property basis. This test phases in proportionally across the phase-out range — at the lower threshold no limitation applies; at and above the upper threshold the full limitation applies. An S-corp owner who takes too little W-2 salary can inadvertently reduce the §199A deduction, which must be weighed against the FICA savings from lower salary.

Should an S-corp owner increase W-2 salary to preserve the §199A deduction?

Possibly. For every additional dollar of W-2 salary, the §199A limit increases by $0.50 (50% test). The FICA cost of that extra dollar is about 7.65% employer-side plus 7.65% employee-side (or 15.3% total for the sole proprietor equivalent). The marginal value of an extra deduction dollar depends on your tax bracket. The crossover point is roughly: if your marginal rate × 20% × 50% > 15.3%, raising salary is worth it. At a 37% rate: 37% × 10% = 3.7%, which is well below the 15.3% FICA cost, so the trade-off usually doesn't work. Run specific numbers with your CPA.

Does the §199A deduction affect self-employment tax?

No. The §199A deduction reduces federal income tax but not self-employment tax. SE tax is calculated on net self-employment income before the §199A deduction. The deduction appears on Schedule 1 and flows to the 1040 as a reduction to income for income tax purposes only.

What is the cap on the total §199A deduction?

The §199A deduction cannot exceed 20% of your taxable income minus net capital gains (roughly). For most business owners, this cap does not bind because taxable income is larger than QBI. In rare situations where the business generates most of the taxpayer's income and capital gains are large, the cap can limit the deduction below 20% of QBI.

Tax

SSTB §199A QBI Deduction Calculator (OBBBA 2026)

Calculate your exact §199A qualified business income deduction under the new OBBBA thresholds — whether you are an SSTB or not, and how W-2 wages and property basis affect your result.

By The FinCalc TeamUpdated May 25, 2026

The §199A qualified business income deduction lets pass-through business owners deduct up to 20% of their net business income — one of the largest deductions in the tax code. But for specified service trades or businesses (attorneys, consultants, doctors, financial advisors), it phases out completely above income thresholds the OBBBA raised substantially for 2026. This calculator shows your exact deduction, how far into the phase-out you are, and what role your W-2 wages and property basis play in preserving it.

How the §199A Deduction Works

The Tax Cuts and Jobs Act of 2017 created a new deduction for pass-through business owners under IRC §199A: up to 20% of qualified business income. Unlike employee wages, business income was not subject to a rate reduction — §199A was the workaround.

The basic calculation:

§199A Deduction = 20% × QBI, subject to two potential limitations:

The W-2 / UBIA limitation — for incomes above the lower threshold, the deduction cannot exceed 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.
The SSTB limitation — for specified service businesses (law, consulting, financial services, health, etc.), the deduction phases out completely as income rises through the phase-out range.

The phase-out range (2026, post-OBBBA):

| Filing Status | Lower Threshold | Upper Threshold | |---|---|---| | Single / HOH | $276,300 | $326,300 | | Married Filing Jointly | $554,300 | $654,300 |

Below the lower threshold: full 20% deduction, no W-2 requirement, SSTB treated same as non-SSTB.

Between the two thresholds: both the SSTB reduction and the W-2 limitation phase in proportionally.

Above the upper threshold: SSTB deduction = $0. Non-SSTB deduction = limited to W-2/UBIA test.

The OBBBA increase:

The OBBBA raised both thresholds significantly for 2026 — by roughly $80,000 for single filers and $160,000 for MFJ filers versus 2025. Many business owners who were fully phased out in 2025 regain the deduction in 2026.

When This Calculator Matters Most

For SSTB owners newly under the OBBBA thresholds. If you earn between the old upper threshold and the new lower threshold, your deduction went from $0 to potentially the full 20% overnight. This is the most impactful use case — quantify the benefit before year-end planning decisions.

When deciding S-corp W-2 salary. The W-2 wage test creates a direct tradeoff between salary (which reduces QBI but also reduces the W-2 limitation) and distributions. Running different salary scenarios shows the net QBI deduction impact.

When acquiring depreciable business property. The 2.5% UBIA test means that buying equipment, vehicles, or real estate can increase the §199A deduction ceiling. This is one factor in equipment purchase timing decisions.

For multi-entity businesses considering aggregation. If you own multiple businesses, you can aggregate them for §199A purposes to pool W-2 wages across entities — useful when one entity has high income but low wages and another has high wages but lower income.

At year-end income timing decisions. Since both the W-2 test and SSTB limitations depend on taxable income relative to the thresholds, deferring income (through retirement contributions, deductible expenses) to stay below the lower threshold can have significant value — particularly for SSTB owners near the threshold.

Understanding the Inputs

Taxable Income: Your total taxable income after subtracting the standard deduction or itemized deductions, but before the §199A deduction itself. This is the number that determines which phase-out range you fall into. For MFJ filers with taxable income below $554,300 in 2026, the phase-out rules do not apply at all — you simply get 20% of QBI.
Qualified Business Income: Your net qualified business income from the pass-through entity or sole proprietorship. QBI is business income minus business deductions — it does not include W-2 wages you pay yourself, guaranteed payments, capital gains, dividends, or investment income. For an S-corp, it is your allocable share of ordinary business income from your K-1.
W-2 Wages Paid by Business: The total W-2 wages the business paid to all employees, including wages the owner took as W-2 salary (S-corp owners must take reasonable compensation). This figure only affects your calculation if your income exceeds the lower phase-out threshold — below that, W-2 wages are irrelevant. Above the threshold, paying higher W-2 wages can significantly preserve the deduction.
Unadjusted Basis of Qualified Property (UBIA): The original cost of depreciable tangible property used in the business at the time it was placed in service, as long as it was placed in service within the last 10 years and is still used in the business. Real property (buildings) placed in service within 10 years counts. Fully depreciated assets over 10 years old are excluded. This is the alternative W-2+UBIA test that can preserve the deduction when W-2 wages are low but the business has significant property.
Specified Service Trade or Business: SSTB designation causes the deduction to phase out completely above the upper threshold, rather than merely being W-2-limited. SSTB fields include: health care, law, accounting, actuarial science, consulting, athletics, financial services, brokerage services, investing/trading, and any trade where reputation or skill of employees is the principal asset. Exceptions: engineering, architecture, and real estate are NOT SSTBs. If you're unsure, check the IRC §1202(e)(3)(A) list.

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The FinCalc Team

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The FinCalc team is a group of personal finance writers, analysts, and engineers dedicated to building accurate, transparent financial calculators. Every formula is verified against industry standards and explained in plain language.

Last reviewed and updated: May 25, 2026