Qualified Business Income Deduction (Section 199A)
The QBI deduction allows eligible taxpayers to deduct up to 20% of qualified business income from pass-through entities (sole proprietorships, partnerships, S corporations). Phase-outs apply for specified service trades/businesses (SSTBs) above income thresholds.
Exam Tip
QBI = 20% deduction on pass-through income. SSTBs phase out above threshold. Below threshold = no limitations. W-2 wage/UBIA limit applies above threshold for non-SSTBs.
EA exam baseline: For the 2026–2027 SEE, use Tax Year 2025 and federal tax law through December 31, 2025. Later-year amounts below are explicitly labeled comparisons, not the default exam year. IRS SEE policy.
What is the QBI Deduction?
Section 199A provides up to a 20% deduction on qualified business income from domestic pass-through businesses, taken on the individual return.
Income Thresholds (2025)
| Filing Status | Phase-Out Begins | Phase-Out Ends |
|---|---|---|
| Single | $197,300 | $247,300 |
| MFJ | $394,600 | $494,600 |
SSTB vs. Non-SSTB
| Type | Above Threshold? |
|---|---|
| SSTB (law, health, consulting, accounting) | Deduction phases out completely |
| Non-SSTB | W-2 wages/UBIA limitation applies |
W-2 Wage/UBIA Limitation (Above Threshold)
Deduction limited to GREATER of: (1) 50% of W-2 wages, or (2) 25% of W-2 wages + 2.5% of UBIA (unadjusted basis of qualified property).
Exam Alert
QBI deduction is 20% of qualified business income. SSTBs lose deduction entirely above full phase-out. Below threshold, no limitations apply. REIT dividends and PTP income also qualify separately.
2025 EA Exam Notes
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S Corporation
An S corporation is a pass-through entity that files Form 1120-S. Income, deductions, and credits flow through to shareholders' individual returns. Limited to 100 shareholders, one class of stock, and US individual/trust shareholders only.
Schedule C (Profit or Loss from Business)
Schedule C is the IRS form used by sole proprietors and single-member LLCs to report business income and expenses. Net profit is subject to both income tax and self-employment tax.
Self-Employment Tax
Self-employment tax is the combined Social Security (12.4%) and Medicare (2.9%) tax that self-employed individuals pay on net earnings from self-employment, totaling 15.3%.
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