Specified Service Trade or Business (SSTB) Rules for the 2026 QBI Deduction

A specified service trade or business (SSTB) is a pass-through business in a field such as health, law, accounting, consulting or financial services. For 2026, an SSTB owner gets the full 20% qualified business income deduction while taxable income stays at or below $201,750 ($403,500 on a joint return). The deduction then shrinks across a $75,000 range ($150,000 joint) and reaches zero at $276,750 ($553,500 joint).

Those dollar figures come from Rev. Proc. 2025-32, and the wider range comes from the One Big Beautiful Bill Act (OBBBA). If you want the general rules and the full calculation that apply to every pass-through owner, start with our Section 199A deduction guide. This page covers only the specified service trade or business rules: which fields count, how the phase-out works under the 2026 numbers, what the $400 minimum means for service owners, and the planning levers that matter.

What OBBBA Changed for SSTB Owners

The One Big Beautiful Bill Act, signed on July 4, 2025, made three changes that matter to service businesses. Each one applies to taxable years beginning after December 31, 2025.

First, the deduction no longer ends. Under the 2017 law, section 199A was scheduled to stop applying after 2025. The current text of 26 U.S.C. § 199A no longer carries that sunset, and the amendment notes record that section 70105 of Public Law 119-21 struck it. The rate stays at 20% of qualified business income.

Second, the phase-in range is wider. The statute now applies the limits over "$75,000 ($150,000 in the case of a joint return)" above the threshold, replacing the earlier $50,000 and $100,000 bands. For an SSTB, a wider band means the deduction fades out more slowly, so an owner partway into the range keeps a larger share than under the old rules.

Third, a minimum deduction now exists. A taxpayer with at least $1,000 of qualified business income from active businesses, meaning businesses in which the taxpayer materially participates, receives a deduction of at least $400. Rev. Proc. 2025-32 confirms that both amounts will be adjusted for inflation for taxable years beginning after 2026. Our summary of Big Beautiful Bill small business tax changes covers the other business provisions in the Act.

2026 SSTB Thresholds and Phase-Out Ranges

Section .26 of Rev. Proc. 2025-32 lists the 2026 figures.

For comparison, the 2025 Form 8995 instructions use thresholds of $394,600 for joint filers and $197,300 for all other returns. Under the old $50,000 and $100,000 bands, a 2025 SSTB deduction disappeared at $247,300 (single) and $494,600 (joint).

The test number is taxable income before the QBI deduction for the whole return, so a spouse's salary or a large capital gain can move an owner into the range.

Which Businesses Count as a Specified Service Trade or Business

Section 199A(d)(2) builds its list by borrowing the field list from section 1202(e)(3)(A) and adding investment-type services. The IRS section 199A FAQs summarize it as "a trade or business involving the performance of services in the fields of health, law, accounting," followed by actuarial science, performing arts, consulting, athletics, financial services and brokerage services. The statute adds investing and investment management, trading, and dealing in securities, partnership interests or commodities.

The final regulations at 26 CFR § 1.199A-5 define each field. A few definitions decide most real cases.

Health

Health means "the provision of medical services by individuals such as physicians, pharmacists, nurses, dentists," veterinarians, physical therapists, psychologists and "other similar healthcare professionals performing services in their capacity as such." The regulation excludes health clubs and the manufacture or sale of pharmaceuticals and medical devices. A physician group is an SSTB. A company that makes surgical instruments is not. Our guide to medical practice accounting services covers how this plays out for physician-owned practices.

Law and accounting

Law practices fall inside the definition. Accounting covers services by "accountants, enrolled agents, return preparers, financial auditors" and similar professionals. Our article on law firm accounting covers the bookkeeping side of a legal practice, which feeds the numbers this test runs on.

Consulting

The regulation defines consulting as "the provision of professional advice and counsel to clients to assist the client in achieving goals and solving problems." Sales work and training fall outside it. Advice that is embedded in the sale of goods, with no separate payment for it, also falls outside. Independent advisers, including people building a fractional CFO practice, usually sit inside the consulting definition.

Reputation or skill

The catch-all in § 1.199A-5 covers a business whose "principal asset" is "the reputation or skill of one or more of its employees or owners." The regulation narrows this to three kinds of income: endorsement fees, fees for licensing a person's name, image or likeness, and appearance fees for events or media. A highly skilled plumber or a well-known chef running a restaurant does not become an SSTB just because customers come for that person's skill.

Engineering and architecture

Section 199A applies the section 1202 list "without regard to the words 'engineering, architecture,'" so these two fields are left off. An engineering firm or an architecture practice is a regular qualified business. Above the threshold it faces the wage and property limits, and it keeps the deduction at any income level if those limits allow.

The de minimis rule

A business with mixed activity does not automatically become an SSTB. Under § 1.199A-5(c)(1), a business with gross receipts of $25 million or less escapes SSTB status if "less than 10 percent of the gross receipts" come from a listed field. Above $25 million, the cutoff drops to 5 percent. Once the share crosses the line, the whole business is an SSTB.

The regulation also blocks the old idea of splitting off an administrative or real estate company to escape the rules. Where there is "50 percent or more common ownership" between an SSTB and a business that provides property or services to it, the portion serving the SSTB is treated as a separate SSTB for the related parties.

How the Phase-Out Works for a Specified Service Trade or Business

Below the threshold, SSTB status has no effect. The owner takes 20% of qualified business income, capped at 20% of taxable income minus net capital gain, the same as any other pass-through owner.

Inside the range, section 199A(d)(3) lets the SSTB keep an "applicable percentage" of its income, wages and property. The percentage starts at 100% and drops in proportion to how far taxable income sits above the threshold. A joint filer $46,500 into the $150,000 range keeps 69% of each item, because 46,500 divided by 150,000 is 31%.

The reduced figures then go through the same wage and property test that every business above the threshold faces. That limit is the greater of 50% of W-2 wages, or 25% of W-2 wages plus 2.5% of the unadjusted basis of qualified property. Inside the range, only part of the gap between 20% of income and the wage limit is taken away. Above the range, the IRS FAQs state that "QBI from your SSTB is fully excluded when taxable income is over the threshold and phase-in range."

Because both reductions apply together, an SSTB's deduction falls faster than a non-service business with the same numbers.

Worked Example: A Consulting Practice in the 2026 Phase-In Range

A married couple files jointly. One spouse runs a consulting LLC taxed as a sole proprietorship. After the deductible half of self-employment tax and other adjustments, qualified business income is $380,000. The practice paid $60,000 of W-2 wages to staff and holds $20,000 of qualified property at unadjusted basis. They have no net capital gain. The other spouse's salary pushes taxable income before the QBI deduction to $480,000.

If the same practice were an engineering firm, the applicable percentage step would not apply. Twenty percent of $380,000 is $76,000, the wage limit is $30,000, and 51% of the $46,000 gap is $23,460. That leaves a deduction of $52,540, a little more than twice the consulting result.

The next table runs the same practice at other taxable income levels, holding QBI, wages and property constant.

At $480,000 the couple sits in the 32% bracket, so the $25,744.60 deduction saves about $8,238 of federal income tax. The gap between $403,500 and $553,500 of taxable income is worth roughly $76,000 of deduction for this practice.

The $400 Minimum Deduction and Service Businesses

The new minimum in section 199A(i) sets the deduction at the greater of the regular amount or $400 for an "applicable taxpayer." That is a taxpayer whose qualified business income from "active qualified trades or businesses" is at least $1,000, where active means the taxpayer materially participates within the meaning of section 469(h). The IRS calls this the Minimum Deduction for Active Qualified Business Income, or MDA-QBI.

For a service owner, the minimum helps mostly at the low end. Picture a retired nurse who does occasional private-duty shifts as a sole proprietor, nets $1,500 of qualified business income, and has taxable income of $1,800 before the QBI deduction once pension income and the standard deduction are counted. The regular calculation gives 20% of the lower of $1,500 and $1,800, which is $300. The minimum lifts that to $400.

How the minimum treats SSTB income above the phase-in range is unresolved. Section 199A(d)(1) excludes an SSTB above the range from the definition of a qualified trade or business, and the minimum looks at income from active qualified trades or businesses. One reading is that such income does not count toward the $1,000 test. The IRS has not issued guidance on the point as of October 2026. An SSTB owner above the range should not count on the minimum until that guidance arrives. Passive investors who do not materially participate fall outside the minimum under the statute.

Planning Levers for SSTB Owners in the Phase-In Range

Because the test runs on taxable income for the whole return, the levers that move an SSTB owner are mostly the ones that reduce taxable income.

Retirement contributions. Contributions to a solo 401(k), SEP or defined benefit plan reduce taxable income. Self-employed retirement contributions also reduce qualified business income, so model both effects before committing. Our breakdown of solo 401(k) contribution limits shows how much room a self-employed owner has. In the table above, moving taxable income from $480,000 to $440,000 raises the deduction from $25,744.60 to $49,037.04.

S corporation salary. Reasonable compensation paid to an S corporation shareholder is excluded from qualified business income, according to the IRS FAQs. It does count as W-2 wages for the wage limit. For an SSTB in the range, both effects show up at once, so the salary decision belongs in the same model. Our guide to reasonable compensation covers how the IRS looks at owner pay.

Separating real non-service lines. A practice with a genuine product line or a mixed business close to the 10% de minimis cutoff may benefit from tracking receipts by activity. The 50% common ownership rule means a paper reorganization alone will not move SSTB income out of the definition.

Quarterly estimates. The deduction lowers income tax, so a practice that expects to lose part of it in 2026 should reflect that in its quarterly tax payments. The IRS FAQs also confirm that the deduction "does not reduce net earnings from self-employment."

Which Form an SSTB Owner Files

The 2025 Form 8995 instructions say individuals use Form 8995 when taxable income before the QBI deduction is at or below the threshold and they are not a patron of a specified agricultural or horticultural cooperative. "Otherwise, use Form 8995-A." An SSTB owner inside or above the 2026 range will need Form 8995-A and its Schedule A, which runs the applicable percentage. Check the 2026 instructions before filing.

Frequently Asked Questions

What is a specified service trade or business? It is a business that performs services in health, law, accounting, actuarial science, performing arts, consulting, athletics, financial services or brokerage services, or one involved in investing, trading or dealing in securities, partnership interests or commodities. It also includes a business whose principal asset is the reputation or skill of its owners or employees, which the regulations limit to endorsement, likeness licensing and appearance fees.

Can an SSTB claim the QBI deduction in 2026? Yes, if taxable income before the deduction is below $276,750 ($553,500 joint, $276,775 married filing separately). Owners at or below $201,750 ($403,500 joint) get the full 20%, and owners inside the range get a reduced amount.

Are engineering and architecture firms SSTBs? No. Section 199A removes engineering and architecture from the borrowed section 1202 list, so these firms are treated like any other qualified business and face only the wage and property limits above the threshold.

Does the $400 minimum deduction apply to service businesses? It applies to any taxpayer with at least $1,000 of qualified business income from active qualified trades or businesses in which they materially participate. Whether SSTB income above the phase-in range counts toward the $1,000 is unresolved, pending IRS guidance as of October 2026.

Did OBBBA change the list of SSTB fields? The Act made the deduction permanent, widened the phase-in range and added the minimum deduction. The field list in section 199A(d)(2) and the definitions in the final regulations remain in force as of October 2026.

Next Step

Madras Accountancy supports CPA firms and business owners with bookkeeping, tax preparation and planning work, including the records a QBI calculation depends on: clean income by business line, payroll totals and fixed asset schedules. To talk through your practice's numbers before year end, contact our team.