House Republicans have introduced legislation that would permanently extend and expand the Qualified Business Income (QBI) deduction, a key tax break for small business owners, independent contractors, and gig workers. The proposal, part of the “One Big Beautiful Bill Act,” would raise the maximum deduction from 20% to 23% beginning in 2026 and modify eligibility rules to allow more high-income professionals to qualify.
The QBI deduction, created under the Tax Cuts and Jobs Act of 2017, is scheduled to expire after 2025. It allows owners of pass-through businesses, including sole proprietors, partnerships, S corporations, and some trusts and estates, to deduct a portion of their qualified income on individual tax returns.
Under current law, the deduction begins to phase out for single filers with taxable income over $197,300 and for joint filers over $394,600. The proposed legislation would revise the phase-out formula, potentially enabling more high-earning professionals in specified service trades or businesses (SSTBs), such as attorneys, doctors, accountants, and financial advisors, to claim a larger portion of the deduction.
While the higher 23% deduction would offer some benefit across income levels, experts note that the biggest gains would likely go to wealthier business owners in industries currently restricted by phase-out rules. The bill’s changes are designed to be more generous to SSTB owners, who under existing law lose eligibility entirely once their income exceeds the threshold.
According to the most recent IRS data, approximately 25.6 million taxpayers claimed the QBI deduction in tax year 2022, up from 18.7 million in 2018, the first year it was available. The deduction has drawn criticism over the years for disproportionately benefiting higher-income individuals and excluding wage earners.
The Senate is expected to review the House bill in the coming weeks as part of a broader package of proposed tax reforms. If approved, the changes would mark a significant shift in how small business income is taxed and could offer substantial relief to millions of entrepreneurs and self-employed professionals.
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