Tax laws constantly evolve, and for small business owners and pass-through entities (sole proprietorships, partnerships, S corporations), one of the most important recent provisions is Section 199A, also known as the Qualified Business Income (QBI) Deduction. In this post, we’ll break down what the deduction is, who qualifies, and—very importantly—what the income limits are for 2025.
What Is the QBI Deduction?
Under Section 199A, certain non-corporate taxpayers can deduct up to 20% of their qualified business income (QBI) from trades or businesses operated in the U.S. — plus 20% of qualified REIT dividends and qualified publicly traded partnership (PTP) income.
This deduction is aimed at lowering the tax burden on income earned through pass-through entities (sole proprietorships, partnerships, S corps) rather than through wages or corporate distributions.
Key Income Limits / Phase-Outs in 2025
Not everyone automatically gets the full 20%. The deduction has taxable income thresholds above which additional limitations apply, especially for “specified service trades or businesses” (SSTBs).
Here are the key numbers for 2025:
Filing StatusFull Deduction (no phase-outs yet) up toDeduction Fully Phased Out for SSTBs (upper limit)
Single/Head of household/other: $197,300 (full deduction) $247,300 (Deduction fully phased out)
Married Filing Jointly (MFJ): $394,600 (full deduction), $494,600 (Deduction fully phased out)
What Do the Limits Mean?
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If your taxable income before the QBI deduction is at or below the lower threshold (e.g. ≤ $197,300 if you’re single in 2025), then the SSTB status doesn’t limit your deduction. You could get the full 20%, assuming all other eligibility criteria are met.
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If your taxable income is between the lower threshold and the upper limit, then the deduction for SSTBs is phased out, gradually reducing the amount you can deduct.
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If your income is above the upper limit, and your business is an SSTB, you cannot use Section 199A for that SSTB portion (though you may still get it for non-SSTB business income, REIT/PTP dividends, etc.).
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Also note: even for non-SSTBs, once you cross the lower threshold, there are wage/property limitations that can reduce the deduction. Things like how many W-2 wages your business pays, and the basis of certain qualified property (depreciable assets) come into play.
Recent Changes / Permanent Extension
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The QBI deduction was scheduled to expire at the end of 2025 under earlier law, but the One Big Beautiful Bill Act (OBBBA) made Code §199A permanent.
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Also under OBBBA, there’s now a minimum deduction: taxpayers who have at least $1,000 of QBI and materially participate in the business are guaranteed a minimum QBI deduction of $400. This minimum will be inflation-adjusted after 2026.
Why You Should Care & What to Do
Because the income thresholds are often within reach for many small businesses, keeping track of your taxable income (before the QBI deduction) is crucial.
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If you’re close to or over the lower threshold, tax planning to shift income or accelerate/delay deductions might make a difference.
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Also, if you run an SSTB (law, health, consulting, etc.), knowing whether you’ll be facing a full-phase out or partial phase out helps you plan structure, compensation, or possibly separating business activities.
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Keep good records for W-2 wages and qualified property—it matters when limits apply.
Sample Scenario
Here’s a quick hypothetical:
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Jane is single, owns a consulting business (an SSTB).
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Her taxable income before the QBI deduction in 2025 is $230,000.
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The lower threshold for singles in 2025 is $197,300, and the upper limit is $247,300. Jane is in the phase-out range. So her full 20% deduction will be reduced because of the SSTB rules.
To maximize what she can deduct, Jane might look at things like deferring income, increasing deductible expenses, or structuring her business so that not all income is considered SSTB (if possible and legal), and ensuring she has W-2 wages or qualifying property to help with the limitations.
Bottom Line
The QBI deduction is powerful, but the income limits are critical. In 2025:
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$197,300 (single) / $394,600 (married filing jointly) → where limitations begin
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$247,300 (single) / $494,600 (married filing jointly) → above which SSTBs lose the deduction entirely
