How to Use the 199A Worksheet for the QBI Deduction

The Qualified Business Income (QBI) deduction, established under Section 199A of the Internal Revenue Code, offers a tax benefit for many small business owners. This deduction allows eligible owners of pass-through businesses, such as sole proprietorships, partnerships, and S corporations, to deduct up to 20% of their business income. Created by the Tax Cuts and Jobs Act of 2017, this deduction is temporary and scheduled to expire for tax years beginning after December 31, 2025, unless extended by Congress.

Calculating this deduction requires a specific IRS form. You must determine your eligibility, gather the correct financial figures, and apply the right calculation based on your income level to claim the deduction on your Form 1040.

Determining Which Form to Use

Identifying the correct form for the QBI deduction depends on your taxable income and the nature of your business. The IRS established income thresholds that separate a straightforward calculation from a more complex one. These thresholds are indexed for inflation and change annually.

For the 2025 tax year, the income threshold is $197,300 for single filers and most other filing statuses, and $394,600 for those married filing jointly. If your taxable income before the QBI deduction is at or below this level, you will use Form 8995, Qualified Business Income Deduction Simplified Computation. If your income exceeds this threshold, you must use Form 8995-A, Qualified Business Income Deduction, as additional limitations may apply.

A factor for taxpayers with income above these thresholds is whether their business is classified as a Specified Service Trade or Business (SSTB). An SSTB involves performing services in specific fields or any business where the principal asset is the reputation or skill of its employees or owners. These fields include:

• Health
• Law
• Accounting
• Actuarial science
• Performing arts
• Consulting
• Athletics
• Financial services

If your business is not an SSTB and your income is above the threshold, you will face certain limitations but can still claim the deduction. However, if you own an SSTB and your income is above the threshold, the deduction is phased out and eventually eliminated. For 2025, this phase-out occurs for single filers with taxable income between $197,301 and $247,300, and for joint filers with income between $394,601 and $494,600.

Information Needed to Complete the Forms

Before beginning calculations, you must gather specific financial data from your business records. The primary figure needed is your Qualified Business Income (QBI), which is the starting point for the deduction.

QBI is the net amount of qualified items of income, gain, deduction, and loss from your trade or business, which generally includes the net profit from operations. However, certain items are excluded from QBI, including:

• W-2 wages you pay yourself as an S corporation owner
• Guaranteed payments made to partners for services rendered to the partnership
• Capital gains or losses
• Interest income
• Certain dividends

Taxpayers with income above the thresholds also need the total W-2 wages paid by the business, which is used to apply a limitation on the deduction. This figure is the total wages subject to income tax withholding paid to employees and reported on Form W-2. This amount must be determined accurately from your payroll records.

You will also need the Unadjusted Basis Immediately after Acquisition (UBIA) of qualified property. Qualified property is tangible, depreciable property held by the business at year-end that is used to produce QBI. The UBIA is the original cost of this property, such as the purchase price of machinery or buildings.

Finally, gather any income from Real Estate Investment Trusts (REITs) or Publicly Traded Partnerships (PTPs). Qualified REIT dividends and PTP income are also eligible for a 20% deduction and are included in the overall QBI calculation. Both Form 8995 and Form 8995-A can be downloaded from the IRS website.

Calculating the Deduction for Taxpayers Below the Income Threshold

For taxpayers whose taxable income is at or below the annual threshold, the calculation is straightforward. These individuals use Form 8995, which does not require the limitations involving W-2 wages or the UBIA of qualified property, regardless of whether the business is an SSTB.

The calculation involves two main steps. First, you multiply your total QBI by 20%. For instance, if a freelance writer with a QBI of $90,000, this part of the calculation yields $18,000.

Next, you perform a separate calculation based on your overall taxable income. You take your taxable income before the QBI deduction, subtract any net capital gains, and then multiply that amount by 20%. For example, if the same writer has a taxable income of $120,000 with no capital gains, this calculation results in $24,000.

The final QBI deduction is the lesser of these two amounts. In the example above, the deduction would be $18,000. This limitation ensures the deduction cannot exceed 20% of your taxable income. You report this final amount on the designated line of your Form 1040.

Calculating the Deduction for Taxpayers Above the Income Threshold

When a taxpayer’s income exceeds the annual thresholds, the calculation requires Form 8995-A. This is due to the introduction of limitations based on W-2 wages and the unadjusted basis of property. These limitations are designed to tie the deduction to businesses that create jobs and invest in capital assets.

The deduction for each qualified business is limited to the greater of two amounts: 50% of the W-2 wages paid by the business, or 25% of the W-2 wages plus 2.5% of the UBIA of qualified property. A business owner must calculate both figures to determine the higher limit. This limitation is applied to the initial 20% of QBI calculated for each business.

For taxpayers whose income falls into the phase-in range—$197,301 to $247,300 for single filers and $394,601 to $494,600 for joint filers in 2025—the limitation is gradually applied. Within this range, you are only partially subject to the W-2 and UBIA limits. The calculation involves determining the difference between the full 20% QBI deduction and the fully limited deduction, and then applying a reduction percentage based on where your income falls within the phase-in range.

The rules are more restrictive for an SSTB. If your income is within the phase-in range, your QBI, W-2 wages, and UBIA are all reduced for calculation purposes. Once your taxable income surpasses the top of the phase-in range ($247,300 for single, $494,600 for joint in 2025), the QBI deduction for an SSTB is completely eliminated.

Taxpayers with multiple businesses can make an aggregation election. This allows you to treat two or more businesses as a single entity for applying the W-2 wage and UBIA limitations. To qualify, the businesses must meet requirements, such as being part of the same general type of business and having common ownership. On Form 8995-A, you will use Schedule B to make this election and report the combined figures.