Is the QBI deduction permanent now, and did it change for 2026?

What QBI is: Section 199A lets owners of pass-through businesses (sole proprietorships, partnerships, and S-corps) deduct up to 20% of their qualified business income before income tax is calculated. On $150,000 of net profit, a full 20% deduction removes $30,000 from taxable income, worth roughly $7,000 in federal tax at a 24% marginal rate. It is one of the largest deductions available to a self-employed person.

What OBBBA changed: the deduction was set to expire after 2025. It is now permanent at 20%. The widely reported 23% figure came from an early version of the bill and did not become law. Planning around QBI no longer carries the uncertainty of a looming sunset.

The new $400 floor: beginning in 2026, a taxpayer with at least $1,000 of QBI from an active business gets a deduction of at least $400, even if the standard calculation would produce less. The amount is indexed for inflation. This mostly helps very small or side businesses.

The wider phase-out matters for service businesses: consultants, therapists, doctors, lawyers, and other specified service trades or businesses (SSTBs) lose the QBI deduction once taxable income climbs past a threshold (about $197,000 single and $394,000 married filing jointly for 2025, indexed). OBBBA widened the phase-out range above that threshold to $75,000 for single filers and $150,000 for joint filers, so the deduction disappears more gradually. Some clinicians and consultants who were fully phased out before now keep a partial deduction.

The practical move: the QBI deduction interacts with your reasonable salary if you run an S-corp, because W-2 wages are not QBI but they lower the income QBI is computed on. Setting the salary is a joint QBI and payroll-tax optimization, not a standalone decision, and it is worth modeling rather than guessing.